Help. VAT Exemption Query.

hilarious

A Charity (church)wishes to disapply their landlords election to charge VAT under the VAT Act 1994 on their rent.
The Landlord has defiantly refused to honour the disapplication.
A lease has already been signed.

What are the ways they can exempt themselves from paying VAT on the rent? HMRC suggests pressuring him with solicitors. That route was not convivial as some months ago they took him to court over his inflation of rent charges which was against the contract.

Any furhter questions to resolve the matter will be welcome.

Thanks in advance.

nikki1520

If the landlord has opted to tax, then any invoices he issues will be inclusive of VAT. As far as I am aware, the only circumstances this can be revoked (by the landlord) is a)within a 6 month cooling off period: b) if he has not held an interest in the property for more than 6 years, or c) 20 years from when it took effect.

I'm afraid I don't see how the charity can disapply the option. AFAIK anyone can opt to tax any building, but this is only of any merit if they have an "interest" in the building - which as a tenant, they probably do not (although this depends on the length of the lease)

kalaika

The HMRC website indicates that even if the landlord has opted to tax a building, the option does not apply if the tenant (in this case the charity) informs the landlord before he makes the supply that it is to be used solely for a relevant charitable purpose.

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_CL_000158#P235_23996

This says that, assuming the charity has informed him correctly and given the necessary documents confirming this in writing then his option to tax will not apply (note it says will not apply, not that he can choose whether or not to apply it), which would indicate that if he still raises an invoice showing VAT at standard rate he would be incorrectly issuing VAT invoices.

If this is the case, to get it corrected, I would maybe speak to HMRC again - you may speak to someone else who may have more ideas with what to do next. HMRC's dedicated VAT Helpline is 0845 010 9000.

JasonLVC

Most commercial leases contain a clause that allow the landlord to uplift the rental charge should there be a disapplication made by the charity tenant.

So may be worth checking out the contract/lease to see if that clause is in there as if it is, any benefit of avoiding VAT will be wiped out by an equal value increase in base rent.

Looking at case law, there doesn't appear to be any importance on the need for the charity to inform the landlord before contracts are signed. All I can see is that any disapplication can only be applied from the point the landlord is informed by the tenant (ie, it cannot be applied retrospectively to the start of the lease).

So landlord sounds like an ignorant bully (thus crystalising the stereotypical landlord view most people have of landlords). If the charity is on a fully-maintaining lease, there is no issue with landlord exempting supply, so HMRC are right, charity needs to exert some pressure on landlord....or perhaps landlord wants them out anyway so he's playing hardball so charity eventually leaves and landlord gets new tenant in who pays more without complaining?