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Where Taxpayers and Advisers Meet

Electricity and maintenance - disbursement?

doobrey
Posts:8
Joined:Fri Sep 06, 2019 8:46 pm
Electricity and maintenance - disbursement?

Postby doobrey » Thu Nov 25, 2021 10:18 am

I am freeholder of a tenanted mixed-use property which is elected for VAT. There is no service charge - leaseholders are just charged for their share of costs incurred, such as maintenance and communal-area electricity usage.

In my view, these costs are disbursements, as opposed to charges for a service, and as such can be passed on 'as is' without being part of my VAT calculations. This is largely based on "VAT: costs or disbursements passed to customers", https://www.gov.uk/guidance/vat-costs-or-disbursements-passed-to-customers
Disbursements: costs to exclude from VAT calculations

A payment made to suppliers on behalf of your customers is called a ‘disbursement’ if you pass the cost on to your customers when you invoice them.

You might be able to leave out these payments from your VAT calculations because it’s the customer, not you, who buys and receives the goods or services; you’re just acting as their agent.

To treat a payment as a disbursement all of the following must apply:

you paid the supplier on your customer’s behalf and acted as the agent of your customer
your customer received, used or had the benefit of the goods or services you paid for on their behalf
it was your customer’s responsibility to pay for the goods or services, not yours
you had permission from your customer to make the payment
your customer knew that the goods or services were from another supplier, not from you
you show the costs separately on your invoice
you pass on the exact amount of each cost to your customer when you invoice them
the goods and services you paid for are in addition to the cost of your own services
To take electricity as an example. I pay for electricity (using none myself), split is between the leaseholders and bill them for their share. Is this a disbursement for VAT purposes?

pawncob
Posts:4787
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Electricity and maintenance - disbursement?

Postby pawncob » Thu Nov 25, 2021 12:51 pm

Did you opt to tax the whole building or just the commercial area?
If you supply a building that is intended to be used partly for commercial and partly for residential purposes, such as a shop with a flat above, you should apportion your supply between the taxable and exempt (or zero-rated) elements. You may choose the method of apportionment but it must provide a fair and reasonable result. You can find out more about apportionment in VAT guide (VAT Notice 700).
With a pinch of salt take what I say, but don't exceed your RDA

doobrey
Posts:8
Joined:Fri Sep 06, 2019 8:46 pm

Re: Electricity and maintenance - disbursement?

Postby doobrey » Thu Nov 25, 2021 7:27 pm

Thanks for your reply.

VAT is applicable to the commercial part. Residential lettings are exempt from VAT. The question relates to the commercial lease only.

For the purposes of the question, I think the residential part can be ignored. I only mentioned it in case it has a bearing on the tax treatment (i.e. exclusive vs share of).

Trevor S
Posts:84
Joined:Tue Jan 01, 2019 12:37 am

Re: Electricity and maintenance - disbursement?

Postby Trevor S » Sat Nov 27, 2021 3:57 pm

Going back to your original question, these charges are unlikely to be disbursements. You are dividing costs relating to communal areas between tenants. I assume that there is no direct contractual arrangement between the utilities / maintenance companies and the tenants, instead it's you that is their customer. Therefore you are not acting as agent (the first condition in your quote, instead you are receiving and making supplies.

Next step is to work out the liability of your charges to the tenants. As these relate to communal areas and will be charges payable under the terms of the leases, your supplies are not utilities and maintenance services. The charges are just considered to be further payments for the leases and the VAT liability will be the same as that of the rents - i.e. standard rated for commercial (due to your opinion to tax) and exempt for residential.

This determines how you can treat the VAT charged by the utility / maintenance suppliers. You can reclaim part of it, based on the proportion of the onward charges that are made to commercial tenants.

Trevor S
Posts:84
Joined:Tue Jan 01, 2019 12:37 am

Re: Electricity and maintenance - disbursement?

Postby Trevor S » Sun Nov 28, 2021 2:28 pm

Just spotted an error at the end of the second paragraph of my post caused by predictive text - it should read "due to your option to tax", rather than "opinion"!

doobrey
Posts:8
Joined:Fri Sep 06, 2019 8:46 pm

Re: Electricity and maintenance - disbursement?

Postby doobrey » Sun Nov 28, 2021 4:05 pm

Thanks Trevor. Seems clear.

Yes, the utilities are in my name so I get the point about the tenant not being the customer. Unless anyone jumps in to say otherwise I will conclude that these are not disbursements.


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