Rent Deposit & VAT?

rarele

I am about to move into a new rented flat - next week.

I went to the letting agents last night to finalise the moving day etc. They gave me a breakdown of what the total costs would be & they were

xxxx 1 months rent in advance
xxxx Same amount as a deposit
xxx 1 weeks rent as admin fee
THEN they added on 17.5% of this whole amount for VAT.

Should I be paying VAT on the first months rent & deposit? I can understand on the admin fee but if I pay it on the rent logically I would have to pay it every month. And if I pay it on the deposit it should be returned to me when they return the deposit :rotfl:

Have I been ripped off? I'm not a tax expert by any means but this doesn't seem right to me. I'd welcome any advice.
Thanks
R

sooz

They are trying it on.

Ask them to recalculate.

rosysparkle

:eek: No VAT on rent or on deposits. Let them know they have it wrong, and refer them to HMCE if they persist. Better yet, you could let HMCE know they are charging VAT on exempt supplies.

Alan_M_2

They can charge VAT if it happens to be a commercial property and they've opted out of exclusion.

Other than that rent and deposits are VAT free.

They can AFAIA charge VAT on any administrative or service fees.

JasonLVC

Residential rent is ALWAYS exempt from VAT. That means no VAT is charged.

Any incidental supplies such as service charges, insurance and water which relate to the property follow the rent - so are exempt also. Any seperate charge for the letting agents services (ie, their admin charge) will be standard rated - but ONLY that element and should be broken down on their invoice to you to show the exempt rent, the outside the scope deposit and the standrd rated admin charge.

ie Rent £1,000.00
Deposit £ 100.00
Admin £ 10.00
VAT £ 1.75 (17.5% of £10.00)
Total bill £1,111.75 to pay

A deposit, in law, is not a supply and therefore VAT cannot be charged on the deposit - whether for residential OR commercial properties.

Your letting agents are idiots and if they are not trying it on, have screwed up their accounts in a big way. Suggest you let HMRC know that this company is getting it very wrong as the letting agent may owe thousands of VAT back to hundreds of clients.

sooz

Is the place managed by these idiots too?

If so, you may want to reconsider where you are moving to.

rarele

Thanks for all your replies - you have all confirmed what I suspected.

I don't know what to do now really - I have to move in as I've got to be out of my current house by the end of Sept. I also don't have a good credit history & I'm sure you won't be amazed to hear that this letting agent didn't do a credit check - I was up front with them about my situation & they were happy to accept other references. I think I will phone them tomorrow and tell them that I think they have made a mistake with the VAT & see what they say - if it was an innocent mistake then there will be no problem - if not I'm not sure what my next move will be.

Thanks again all
R

JasonLVC

Rarele,

HMRC may consider it fraudulent if a business charges VAT incorrectly...especially if that VAT is not paid over to HMRC.

give me an hour or two as busy at the moment, and I'll put a link to the HMRC website that refers to rent being exempt - that'll help your argument.

JasonLVC

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000158&propertyType=document#P73_6597

In case the link doesn't work, you need to Google - VAT Notice 742A - and then refer to section 3.1 and 3.2 which basically says you cannot opt to tax (charge VAT in other words) on certain kinds of rent such as residential.

The letting agent may have a mix of residential and commercial properties and the rules are different for commercial properties but they may be treating all residential/commercial as the same by the sounds of things...but still wrong.

rarele

All sorted - it was an error - didn't need to quote the law but thanks anyway.

The form had been filled in incorrectly & whoever did the maths did it wrong.

Thanks for all your help though - maybe it will be useful for others at some time.

R