VAT on Major Works - Is it payable?

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    VAT on Major Works - Is it payable?

    My situation, - a two property block. One owned by a VAT registered company, which includes the freehold to the block, and mine a leasehold.

    We are having major works done which the freeholder has arranged himself, and the builder has presented a bill for £20,000 + VAT.

    The lease states that the freeholder is responsible for arranging repairs etc. and has followed a section 20 notice.

    My question - am I correct that the services provided to the freeholder are VAT exempt because the services are part of the supply of the right to occupy the property? If so, the freeholder will be able to reclaim the VAT as it is not due, and as such, I should also not have to pay the VAT as it's not actually a cost incurred by the freeholder?

    Have I understood that correctly, or am I totally wrong?

    Thanks

    #2
    Yes they are VAT Exempt, but...

    That does not have the meaning you ascribe to it. It means they cannot reclaim input VAT, they have to pass all the VAT onto you, just not as VAT.

    Comment


      #3
      The lessees pay the VAT. The end user always pays the VAT.

      So yes, you are totally wrong.

      Comment


        #4
        Originally posted by AndrewDod View Post
        The lessees pay the VAT. The end user always pays the VAT.

        So yes, you are totally wrong.
        Thanks for your incredibly helpful reply.

        I am not the end user, however, hence my question about the VAT, the service is provided to the freeholder. I in turn have to pay my proportion of the freeholders costs.

        I think I have the correct answer now:

        1) Building company charges freeholder £20,000 + VAT (£24,000)
        2) Freeholder reclaims half of his costs which I as leaseholder have to pay £12,000 (total without any VAT applied)
        3) Freeholder cannot claim back VAT as he is the end user



        Comment


          #5
          Originally posted by manchesterpat View Post

          Thanks for your incredibly helpful reply.

          I am not the end user, however, hence my question about the VAT, the service is provided to the freeholder. I in turn have to pay my proportion of the freeholders costs.

          I think I have the correct answer now:

          1) Building company charges freeholder £20,000 + VAT (£24,000)
          2) Freeholder reclaims half of his costs which I as leaseholder have to pay £12,000 (total without any VAT applied)
          3) Freeholder cannot claim back VAT as he is the end user
          The effect is the same.. but not really always. In your simple example the FH is the end user, and then passes on his costs under contract. But that does not have to be the case -- for example if a lessee is a commercial company (as may be the case in your scenario) the FH may (perhaps must?) "opt to tax the property and account for VAT on all rents to commercial tenants". See VAT notice 742a
          https://www.gov.uk/guidance/opting-to-tax-land-and-buildings-notice-742a

          It is complicated and I have not digested it -- but in 13.12 here HMRC suggest that this can apply to residential property too

          https://www.gov.uk/guidance/vat-on-l...e-742#para12-4



          The bottom line of your original post is however still wrong, as someone always has to pay the VAT and all parties cannot be exempt as you hopefully suggest might be possible.

          Comment


            #6
            There is no need to complicate matters, service charges are exempt from VAT, ESC 3.18 if anyone is interested, so the freeholder cannot recover any VAT and cannot charge VAT on service charges.

            In the above case, VAT should be ignored, the cost is £24,000 and £12,000 is payable by the leaseholder.

            Comment


              #7
              The freeholder is not a re-seller of work done for himself / leaseholders.

              V.A.T is claimed back when you sell something. The freeholder is not selling anything.
              The freeholder owns the building, is having work done on a building he owns, and does not sell that work to anyone else.
              The freeholder, on behalf of the leaseholders, uses only the leaseholders money ( not the freeholders money ) to repair the building owned by the freeholder and leased by the leaseholders of same building.

              Even if you "could" make a system whereby the freeholder gets a rebate of the V.A.T. by selling the repairs to the leaseholders, then as the leaseholders are the end user, the leaseholders have to pay the V.A.T.

              SOMEONE has to pay the government the V.A.T. and what you are saying is everyone claims back the v.a.t. and the government gets nothing.
              Sorry, the FINAL user HAS to pay v.a.t, and in your mind, that is either the freeholder or the leaseholder.
              If the freeholder gets back the v.a.t ( government has not received the v.a.t.) then the last in the chain, is you, the leaseholder that pays the v.a.t. ( but the freeholder pay the bills, including v.a.t. with your money, for your use of the repairs- --- the end user. )

              Comment


                #8
                It is the building contractor who has to account for the VAT

                Comment


                  #9
                  The OP's problem is that he is VAT registered business, so there may be no consumer in the chain. However, the exempt status puts him in the VAT position of a consumer; he cannot reclaim input VAT on the service charges, as it isn't really on them. Exempt is not the same as zero rated.

                  Comment


                    #10
                    Why is everyone complicating this? The leaseholder receives a service charge of £12,000 and ignores the VAT. The VAT chain ends with the building contractor who accounts to HMRC for the VAT.

                    Comment

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