VAT on Management Fees - do I pay?

laap

Seasonings greeting everyone!!!!!

I have just rcvd a Christmas Card from my lettings agent that manages my property together with a letter about additional VAT charges applicable in the new year!

A couple of months ago when I signed the contract with the letting agency to manage my property, the company was not VAT registered - it was just 15% of the monthly rent.

But they now inform me as they are a registered VAT company I will need to pay the VAT on top of their managment fees.

Can anyone kindly tell me where I stand legally?

At the moment after paying their management fee, the rent left, does not cover the mortgage payments on the property. And I obviously do not want to fork out 17.5% more in January!!

Unfortunately, becoming a "landlord" by default, (due to my circumstances) is a pain in the neck.

Thank you to all who replies :j

silvercar

If VAT is chargeable it is payable. Your only option would be to terminate the contract (with appropriate notice) and find a new agent or manage yourself.

theartfullodger

Can anyone kindly tell me where I stand legally?

At the moment after paying their management fee, the rent left, does not cover the mortgage payments on the property. And I obviously do not want to fork out 17.5% more in January!!

Unfortunately, becoming a "landlord" by default, (due to my circumstances) is a pain in the neck.

Having become a LL by "default" (whatever that means...) may I suggest (if you haven't already..) you join (tax deductable..) a LL association (eg RLA or NLA) and go on one of their training courses and start to realise (some of ) your responsibilities & rights, in particular as regards letting agents..

If you are trying to manage them from a position of ignorance then you are likely to lose... but you wouldn't be doing that, eh???

Cheers!

Lodger

PS Congratulations of your "default" new income...

Icey77

At the time of your contract the letting agent might not have been VAT registered because he wasn't close to the threashold. Once it is likely that revenues in the next 3 months will cross the VAT threashold he would ahve had to register for VAT.

Once he's regiestered for VAT he can reclaim his VAT costs and also charge you VAT.

VAT is essentially an end user tax - usually only the end customer has to pay the full whack. Any person or company in between in the line of transactions that is VAT regiersted only has to pay the difference on the VAT paid and the VAT charged :rolleyes:

Sounds like you're gonna ahve to pay it. If in any doubt call them up and ask them about it!

BitterAndTwisted

Yep, VAT is payable as long as the entity doing the charging is registered. By law, their VAT Registration Number must be quoted on all invoices and often is on the regular letterhead as well.

JasonLVC

Ask them to reconsider their original fees to you.

As others have said, the agent has registered for VAT for whatever reason and so their management charge to you will be +17.5% from January 2010.....they know you cannot reclaim this so they may be up for a bit of negotiation.

Also, now that they ARE registered, they can now reclaim VAT they are charged (ie, their own rent, overheads, etc) and so arguably, their cost base has reduced as a result meaning they can afford to charge a little less and still make the same profit they did before.

Rafter

Check the agreement you signed - if it is silent about VAT then they should absorb the cost and keep the percentage the same. If VAT is mentioned then you may have no choice but to pay it and then break the contract as soon as you can.

15% sounds a bit high to have VAT added on top.

R.

googler

JasonLVC wrote: »

Also, now that they ARE registered, they can now reclaim VAT they are charged (ie, their own rent, overheads, etc) and so arguably, their cost base has reduced as a result meaning they can afford to charge a little less and still make the same profit they did before.

Yes, but they have to allow for the time and effort in (1) accounting for all the VAT ins and outs (2) making a VAT return every 3 months, and (3) including it all in the year-end accounts, and generally fulfilling the role of an unpaid tax collector.

I don't see where there's savings to be made that can be passed on to the client here....

roger196

Rafter wrote: »

Check the agreement you signed - if it is silent about VAT then they should absorb the cost and keep the percentage the same. If VAT is mentioned then you may have no choice but to pay it and then break the contract as soon as you can.

15% sounds a bit high to have VAT added on top.

R.

I thought you were right, but I had a look at S.89 of VAT Act 1994. This seems to suggest othewise......

cash99

roger196 wrote: »

I thought you were right, but I had a look at S.89 of VAT Act 1994. This seems to suggest othewise......

Whether vat has to be charged is covered by the vat act, whether the charge is 15% plus vat or 15% including vat is a contractual matter.

I would agree that if the contract is silent on vat then the rate is 15% including vat. I think it is unlikley that any professionanlly drafted contract would be silent on vat.

JasonLVC

googler wrote: »

Yes, but they have to allow for the time and effort in (1) accounting for all the VAT ins and outs (2) making a VAT return every 3 months, and (3) including it all in the year-end accounts, and generally fulfilling the role of an unpaid tax collector.

I don't see where there's savings to be made that can be passed on to the client here....

The same girl in the office who does the admin/makes tea can easily do a VAT return, takes about 5 minutes once every three months - so hardly a cost burden to the business if we're looking at 4 x 5 minutes per year and the ability to reclaim thousands of pounds of VAT back surely must off-set those precious 15 minutes?.

You're not a letting agent by any chance, trying to justify costs are you;);)?