charging VAT on service charges etc..

accountingbod

Hi there

I own a freehold on a property and am preparing an annual service charge statement for my leaseholders.
Part of the costs charged include ground rent, insurances and also some charges for building improvements/repairs that are necessary.
I am trying to figure out what VAT to charge and what are chargeable, exempt, zero rated charges etc...

I think ground rent and insurances are both exempt and i have stated them as such.

For the other work, VAT has been quoted on the work to be carried out but I am VAT registered, so should the cost that i charge to my leaseholders include VAT or not? If i am invoiced for the works then surely i can reclaim the VAT on the invoices and offset it against other operating areas of my business?
This to me would save the leaseholders money and also seem the most logical.

Any advice would be great.

Many thanks.

accountingbod

forgot to add, there is a management fee which is charged by my company that i assume will require a 20% vat charge to be passed on but i think this could be all there is?
Thanks

propertyman

If the total SC is £1000 you have to charge VAT on that.No ifs or buts, that os show it works

Of that £1000 several charges do not incur VAT eg electricity and insurance. You could only offset the VAT that you have incurred let say 20% of £800 but that's still £40 more for leaseholders.

accountingbod

okay thanks for the reply. so let me get this straight.
I must charge VAT to my leaseholders on all items included on the service charge statement even if they are VAT exempt supplies such as insurance and ground rent?
With respect to the other charges, i have a quote for some repairs to the roof for example. This is for £600 + VAT which makes it £660.00. Now, do i charge them £660.00 or do i charge them £660.00 + 20% VAT?
many thanks

RLH33

You need an accountant!
Otherwise get an accounting package like sage which will help you to work it out.

You can only charge Vat on vat eligible costs, if they are exempt you cannot charge vat. In your case this will mean that you will have to charge vat on some things but not others, it is not simply the case of adding 20% to the final bill.

accountingbod

thanks RLH33

I am in fact an accountant! I work in industry mainly and so this is not an area i am all too familiar with.
I agree with not charging VAT on exempt supplies.
My main area of confusion lies with what to charge on Vatable supplies where i have been quoted for work which includes VAT.

I will be invoiced say £600 net and £120 VAT which equals £720.00. I can claim that £60 back on my VAT return. If i have to charge VAT to my leaseholders on the total price this would be £660.00 + 20% which is £132.00 vat so a higher sales tax to input tax. I dont have a problem with this if this is the case but just wanted clarification on whether i am charging VAT on the net or VAT inclusive price or whether i even need to at all?

The other concern as i said is the management fee which i am guessing is a straight 20% charge

Cheers

accountingbod

i think a call to HMRC on this may be an easier call....!

bni

I think the general HMRC policy is still that if the rent is exempt from VAT (all residential properties and commercial properties that have not been opted-in for VAT) then the service charge is also exempt from VAT.

You can NOT reclaim any VAT that you have paid on VAT exempt supplies that you make, so you would pass on the full amount as paid to your leaseholders.

If rent is VAT-able then service charge would also be VAT-able, you would base the calculation on the net of VAT amounts you've paid and then add 20% VAT to the final sum.

tim123456789

accountingbod wrote: »

Hi there

I own a freehold on a property and am preparing an annual service charge statement for my leaseholders.
Part of the costs charged include ground rent, insurances and also some charges for building improvements/repairs that are necessary.
I am trying to figure out what VAT to charge and what are chargeable, exempt, zero rated charges etc...

I think ground rent and insurances are both exempt and i have stated them as such.

For the other work, VAT has been quoted on the work to be carried out but I am VAT registered, so should the cost that i charge to my leaseholders include VAT or not? If i am invoiced for the works then surely i can reclaim the VAT on the invoices and offset it against other operating areas of my business?
This to me would save the leaseholders money and also seem the most logical.

Any advice would be great.

Many thanks.

No

You should structure the management accounts so that the leasees are seen topay all of the bills themselves either with the VAT as charged by the supplier or with no VAT(as appropriate).

You should not put the bills through your company as its expenses (thusallowing you to reclaim the VAT) and then rebill the leasees, as that way youwill have to re-charge them VAT on the whole lot including things that are otherwise not vatable. Thiswill **** off the tenants and they will look for new management.

Quite how you achieve this I don't know but that is how every managementaccounts (bar one) I have seen operate.

You do, of course, have to add VAT to your management charge,. The rent iszero rated (or exempt, I forget)

HTH

tim

propertyman

:(Sigh, this issue comes up several times a year. We specialise in residential service charges and management.

The position on residential service charges for the landlord is that the service charge total is subject to a a simple 20%.

This is a specialised field and is subject to an exemption by HMRC since the early 90's , which it is argued flies in the face of an EU decision that there is no option to not charge VAT.

propertyman

If you think this through

SC total = A items which I pay VAT on + B items I don't
less VAT I get back under A

What is the point.....

It is a dilemma in mixed use properties with a commercial rent but HMRC allows exemption and zero rating.