VAT Assistance

7chb

Hi

A family member is looking for some assistance with regards to VAT, and after speaking to HMRC we appear to be no better off and so we wanted to see if anybody here had some advice.

They operate as a sole trader and have just registered for VAT as their main trade hit the registration limit. However as well as their normal trade they also rent out a holiday home, they own student accommodation which is rented out and they are currently building an extension (Connected annex) to their house which they are going to rent out.

How does their new VAT position impact the rental aspects as per above? Can they now claim VAT back on site/management fees in connection with the rental properties? Can they claim VAT on mileage to these properties? And the main question is how will VAT impact the extension - given it is going to be rented out can they reclaim the VAT back on the extension costs? If so I’m presuming they will need to charge VAT on the rent they will charge?

Thanks for any help and please let me know if you require further information 🙂

pchelpman

This is potentially huge and, IMO, far too complex for anyone to answer fully in a forum like this. There are too many facets to your questions.
Your family member must get advice from someone who is specifically tax qualified and, ideally, with VAT expertise. I would recommend consulting a Chartered Tax Advisor......link here to the organisation.....

https://www.tax.org.uk/homepage

Best wishes.

oldbikebloke

assuming the holiday home is operated as a Furnished Holiday Let (ie income tax accounted for as such because it meets the FHL criteria) then it is classed as trading and so falls within the overall threshold for VAT given sole trader status - rent should therefore now be + Vat and Vat reclaimed where charged on associated expenses. (sounds like registration may have been a bit late if based on main trade turnover only)

the student accommodation is not trading, it is its own class: residential property income. It is therefore VAT exempt (not zero rated, exempt, therefore neither output nor input tax applies). If not yet fully aware, the golden rule for Vat is: it is what you sell (output tax) that determines whether you can reclaim vat on costs (input tax). If the sale is exempt then that is the end of discussion.

annex = same position, residential property rule. As presumably self contained be very wary if thinking you have a lodger and rent a room applies, it won't.

if you google VAT and FHL you will find many websites all saying the same thing: Here is a random example: https://www.taxadvisermagazine.com/article/furnished-holidays

• The provision of holiday accommodation is within the scope of VAT. Therefore if the income from the FHL exceeds the VAT threshold the owner must register for VAT. The supply will be standard-rated. Care should be taken if the sole owner of the FHL is also self-employed and making taxable supplies. In this case the turnover from the sole-trade and the FHL must be taken into account in determining whether the VAT threshold has been breached.

Jeremy535897

I am with pchelpman here. It would take a book to answer all this. Google "partial exemption", for example. Don't worry about opting to tax though, it doesn't apply to residential property. Avoid having to charge VAT on the holiday accommodation by splitting ownership with a spouse, if possible (and if beneficial).

pchelpman

Jeremy535897 said:

 Avoid having to charge VAT on the holiday accommodation by splitting ownership with a spouse, if possible (and if beneficial).

All I'll add is, if the OP's family member tries to get turnover below the VAT threshold, by splitting the income between two people, need to be careful of the VAT disaggregation rules relating to artificial separation of a business.   

Jeremy535897

pchelpman said:

Jeremy535897 said:

 Avoid having to charge VAT on the holiday accommodation by splitting ownership with a spouse, if possible (and if beneficial).

All I'll add is, if the OP's family member tries to get turnover below the VAT threshold, by splitting the income between two people, need to be careful of the VAT disaggregation rules relating to artificial separation of a business.   

Not an issue if one is holiday accommodation and the other a proper (as opposed to deemed) trade.

pchelpman

Agreed but I always reckon folk should be wary with this sort of issue.

Grumpy_chap

Far too many different options.  The family member needs the advice of an Accountant to set up the best business structure and VAT / accounting records.
Some of the suggestions, such as "charge VAT on the rent they will charge" for the holiday home are not as simple as just charging the current rate + VAT.  These types of items are "market priced", so the holiday let is in an area that can demand, say £500 for a week.  Can't now charge £600 and expect to get customers.  The effect of VAT is to still charge £500, and make that split as "£416 + VAT", resulting in reduced income.  

7chb

Thank you everyone for your feedback 🙂