Should (recoverable) VAT be paid by the leaseholders in their service charge?

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    Should (recoverable) VAT be paid by the leaseholders in their service charge?

    Hi all.
    If a freeholder and his managing agent are both registered for VAT, and they instruct major works from a VAT-registered contractor for (say) £100,000 + VAT = £120,000, am I right in thinking that the actual cost to the freeholder/managing agent (after they recover the VAT) is only £100,000, so the amount properly payable by the leaseholders as service charge is also £100,000?
    Otherwise, if the leaseholders pay the full £120,000 and the freeholder/managing agent recover the VAT element of the works invoice, they will have pocketed £20,000 for themselves.
    Am I right?
    Thanks.

    #2
    The freeholder is not supposed to recover the VAT because they are not the end user -- you are. If they might be recovering it, report them to the VAT police for fraud (which is of course common amongst freeholders and their managing agents).

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      #3
      Residential service charges are VAT Exempt, which means that the VAT is passed through and cannot be reclaimed.

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        #4
        If they did do that they would have the £20,000 as both input and output VAT, and it's the difference between the two you can recover, not just the input side.

        And as above it won't arise because the charge from the freeholder is almost certainly VAT exempt and may even be processed through a separate non VAT registered entity for convenience. So they do actually pay the £120,000 and can't recover anything.
        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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          #5
          Hmm, the way I see it is that there would be a VAT invoice from the contractor addressed to the agent, but no VAT invoice from the agent addressed to the leaseholders as service charge is a pass-through rather than a service, so no VAT is charged - otherwise they would charge 20% of the £120k. (My service charge demands certainly don't include a VAT element on top of the costs.) So what is to stop the agent from taking the contractor's invoice and claiming back the VAT? Just their good honest nature? Or are there checks and balances of which I'm not aware?
          Thanks.

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            #6
            Originally posted by AB2017 View Post
            So what is to stop the agent from taking the contractor's invoice and claiming back the VAT? Just their good honest nature? Or are there checks and balances of which I'm not aware?
            It would be fraud.

            What's to stop them just making up an invoice and passing it on?
            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

            Comment

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