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Where Taxpayers and Advisers Meet

Vat on sub lease the premises

Tushar Shah
Posts: 25
Joined: Tue Nov 08, 2016 1:08 pm

Vat on sub lease the premises

Postby Tushar Shah » Tue Nov 08, 2016 1:16 pm

I am running my post office business and business is vat register. I am paying rent £80,000+vat to landlord for business premises. Now I am planning to sub lease the half of the premises with consent of landlord and sub tenant need to pay me £40,000 rent but sub-tenant is not vat register so he is not ready to pay vat.

1. Can £40,000 rental income from sub lease would be vatable income?
2. Is there any way around as sub tenant is not ready to pay the vat?

les35
Posts: 566
Joined: Wed Aug 06, 2008 3:09 pm

Re: Vat on sub lease the premises

Postby les35 » Tue Nov 08, 2016 8:50 pm

1. are you obliged to charge VAT because your landlord does so? No.
2. is your arrangement with the sub-tenant (a) rent, or (b) a licence to trade? Rent is exempt from VAT, unless you opt to tax; a licence to trade is taxable.
3. if your do have exempt income, you should check the Partial Exemption rules.

Tushar Shah
Posts: 25
Joined: Tue Nov 08, 2016 1:08 pm

Re: Vat on sub lease the premises

Postby Tushar Shah » Tue Nov 08, 2016 9:12 pm

Thanks

section 44
Posts: 4468
Joined: Thu Oct 30, 2008 12:47 pm

Re: Vat on sub lease the premises

Postby section 44 » Thu Nov 10, 2016 1:16 pm

a licence to trade?
What exactly does this mean?

If there were a licence to occupy and this were all that is being supplied, or were the principal element of a composite supply, then this should be treated in the same way as a lease.

Tushar Shah
Posts: 25
Joined: Tue Nov 08, 2016 1:08 pm

Re: Vat on sub lease the premises

Postby Tushar Shah » Mon Nov 28, 2016 6:13 pm

Hi

He has 5 year lease for premises.

spidersong
Posts: 352
Joined: Wed Aug 06, 2008 4:05 pm

Re: Vat on sub lease the premises

Postby spidersong » Wed Nov 30, 2016 4:54 pm

Just though it worth checking that you had seen and understood the partial exemption rules as Les suggested.

At first flush it would seem that you will lose £8,000 if you don't opt to tax. Since you incur £16,000 of VAT on the premises each year and you will now be using half of it for making exempt supplies then half of the cost will be attributable to this activity i.e. £8,000; as this is above the Partial Exemption deminimis level you would not be able to recover this VAT. This would also impact the recovery of VAT on other overheads.

Of course this is a quick calculation without knowing your business and without knowing whether you have or will agree a special method, but I'd be surprised if it doesn't seriously restrict your VAT recovery and I'd suggest that if you have already signed a 5 year sub-lease that you should have possibly considered this before you agreed the lease.

Tushar Shah
Posts: 25
Joined: Tue Nov 08, 2016 1:08 pm

Re: Vat on sub lease the premises

Postby Tushar Shah » Wed Nov 30, 2016 6:23 pm

Thanks for your advise.


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