Practicalities of VAT for Barter Transactions & FRI Leases

[LukeHector]

Hi everyone! I've got a couple of VAT queries relating to commercial properties.

(1) I know the general rule that if a landlord provides goods/services to a prospective tenant in return for goods/services as well as entering the lease, that a VAT invoice needs be to issued for both sides. However what values do you use and who's invoicing for what?

The scenario is a a landlord providing a 10 month rent free period in return for works to be done by the tenant for constructing a shopfront. The value of the rent free period let's say is £50,000. The expected cost of the shopfront let's say is £35,000, so essentially a £15,000 net difference.

Are these values VAT-exclusive? And who's invoicing for the £50k + VAT and who for the £35k + VAT? Does one party have to physically pay the other in cash for the difference or is it just a netting off exercise in the accounts? I'm having trouble grasping the logistics.


(2) A common term in leases I hear of is the Full Repairing and Insurance lease where the tenant takes on all responsibilities for repairs and works up signing the lease. Now when it comes to financial inducements, I know that contributions to fit-out costs are the tenants responsibility and thus don't constitute a VAT supply under HMRC guidance. I also know that contributions to building works which normally are the landlord's responsibility actually require a VAT invoice to be issued and VAT to be accounted for.

So how does an FRI lease change things if at all? Does merely having one of these leases in place mean that VAT is ignored completely because the tenant is taking on all responsibilities for any building works or fit-outs regardless of any inducements paid by the landlord? Or am I missing something here?


Property taxation is such a minefield, I want to be sure.

Thanks!!