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Where Taxpayers and Advisers Meet

Property Management and VAT Threshold

majamalan
Posts:9
Joined:Sun Jun 21, 2020 10:14 pm
Property Management and VAT Threshold

Postby majamalan » Mon Jun 22, 2020 12:12 am

Hi everyone

I've got a LTD company dealing with property let and management, in which I receive rent from tenants and pay it to the landlords, less my letting/managing fees. The company also manages HMOs (houses in multiple occupation) in which individual rooms are let out, bills inclusive, so my company is responsible for all the bills and council tax, etc.

Now, the money coming in as rental income for an individual property may be around £4000pcm. I'd be paying the landlord £3000pcm and £500 go towards the bills etc. So my actual income on the individual property is merely £500pcm. However, as I understand, its the £4000 which counts as the determining figure for the turnaround, not the £500pcm. Am I correct?

Or will it be possible to consider £3000 of the £4000 not actually belonging to the company, as I'm literary collecting rent on behalf of the landlord and passing it on, and consider my commissions as the income/turnaround?!

As my company grows and more clients join, the turnover will very quickly rise up above the VAT threshold. So once I've registered for VAT, since the residential property rental income is exempt from VAT, can my company claim back the VAT paid for the utility bills, as the company will essentially be the end user of those services? Could this generate some revenue itself, as I will be claiming back VAT paid for utility bills etc. but not charging them on tenants? So I've paid VAT but not received any, so I can claim what I've paid back.

Many thanks

les35
Posts:635
Joined:Wed Aug 06, 2008 3:09 pm

Re: Property Management and VAT Threshold

Postby les35 » Mon Jun 22, 2020 8:46 am

You are managing properties, not letting them (although that will depend on your written contracts with landlord and tenants). Your supplies are taxable, so, when you reach the £85k threshold, you will be required to register for VAT.
Once registered you will be able to claim back VAT on costs incurred by you. You cannot claim back VAT on tenants' utility bills.

I recommend you book an hour with an Accountant to work through the basics of VAT, etc. Get it right for the first few properties, and you will have a structure that works as you grow the business.

majamalan
Posts:9
Joined:Sun Jun 21, 2020 10:14 pm

Re: Property Management and VAT Threshold

Postby majamalan » Tue Jun 23, 2020 4:03 pm

There are four different services to consider:

  1. Let Only contract - in this case the first month rent and deposit is received from the prospective tenants. The deposit is paid to and secured by myDeposit scheme. The rent is paid to the landlord less agreed commissions.
  2. Let and rent collection - in this case the deposit is collected from the tenant and paid to myDeposit. The tenant then pays us their rent monthly and this is paid out to the landlord less commissions. Tenant enquiries for maintenance are directly handled by the landlord.
  3. Let and management - Similar to the previous service, but tenant enquiries are handled by my company.
  4. HMO Management (with rent guarantee) - This is when my company pays for all utility bills and offers bills-inclusive room lets to tenants. I sign a long-term (3-5 years) contract with the property owner and seek permission to sublet the property, in return for a fixed guaranteed rent to them. Then I take on tenants and act as their landlord directly.
Your supplies are taxable, so, when you reach the £85k threshold, you will be required to register for VAT.

Can you please clarify what will be the "supplies" for each service listed above?

You cannot claim back VAT on tenants' utility bills.

The contracts both between the property owner and my company, and between the tenants and my company, require me to pay for the utility bills for the HMO managements service. Therefore, I'll be regarded as the end user of the utilities. Can I therefore not claim back the VAT on the utility invoices?

les35
Posts:635
Joined:Wed Aug 06, 2008 3:09 pm

Re: Property Management and VAT Threshold

Postby les35 » Wed Jun 24, 2020 9:26 am

VAT is a tax on a supply. The recipient of the supply can claim input tax, subject to rules.
So, if I am the recipient of a supply, and my supplies are exempt (residential lettings, for example) I cannot claim input tax, even though I have paid it.
If I pay an invoice, that does not make me the recipient of the supply, so I cannot claim the input tax.

If you are a property managing agent, your client is the landlord. Supplies of utilities for the properties you manage are not supplies to you. So you cannot claim input tax. And, the value of your supplies if the charge you make to the landlords, even if that is deducted from other costs.

Sorry, it is complicated, hence my suggestion to arrange some time with an Accountant or other specialist. DM if that would be helpful.


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