VAT Advice for Landlords That Rent Business Property
Landlords that rent property out to businesses who are exempt from VAT may be losing out on tax benefits. Despite the rules being almost 25 years old, the misinterpretation of tax laws with regards the lease of business property has been costing landlords for years.
Overpaid taxes are usually unrecoverable and landlords will have a hard time trying to reclaim them from HMRC. However, the good news is there are certain rules that allow you to avoid paying tax and trying to reclaim it back. One option is to charge the tenant for VAT, although because this is unappealing to the prospect, you may not find tenants so easily. Another option is to refurbish the property and reclaim VAT on expenses.
Claiming VAT on your business property
The problem with trying to reclaim payable tax on business property is only applicable if your tenant runs a business that is exempt from paying VAT on business property such as charities and small businesses that have a turnover of less than £79,000 a year, or when the tenant defaults on payment or when there is no security bond.
One of the most common pitfalls is when tenant fails to pay VAT on goods or services supplied by the landlord, such as rent, machinery, maintenance etc. Where the tenant does default, VAT is payable by the landlord. However, you can avoid this over payment by asking for the first three months rent and the equivalent in lieu as a security payment. This way when the tenant´s contract expires or they default on rent you will have their deposit without already using it to pay for VAT.
Claiming VAT for wear and tear on business property
Another way of over paying tax on business property is to charge VAT on buildings that are more than three years old or have previously paid VAT. However, there is no tax exemption if your tenants are not liable or are partially exempt for VAT on business property. The only way around this is to claim it as a business expense on your Self Assessment Tax Return form.
Landlords who have used the option to tax their property based on historical rules can ask for it to be removed. This may help you attract clients that are more willing to pay three months security deposit in advance, but is also advantageous to landlords that require new tenants as you can reduce the rental charges on your commercial property.
If your tenants business is not exempt from VAT, you should not have a problem. Simply charge the client and they will reclaim it from the taxman under business expenses.
For more advice about taxable income from business property and ways of avoiding overpayments contact the experts at Taxaccolega, a low fixed fee accountant, on 08000 235 234 or email firstname.lastname@example.org