VAT @ 20% on energy bills charged on by letting agent ?

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    VAT @ 20% on energy bills charged on by letting agent ?

    My agent collects rent from my student tenants along with a monthly utilities charge.as part of their "Bills Inclusive" package
    In the past, the utilities charge to my tenants has always included VAT at 5% (as per normal domestic bills) however the agent has now told me that his accountant has said that he should be adding VAT at 20%
    In other words a 15% increase on what we have charged previously.
    I cant find anything on-line to confirm if the accountant is right or wrong so what does the panel think ?
    Thanks

    #2
    If you cannot find it online I do not expect I can. Unless someone comes along with a definitive answer, I think you need to ask the agent to ask his accountant to say what his authority is for his assertion.

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      #3
      I'd be interested to see how the accountant arrived at 20% VAT on energy bills because it is currently 5% and there is even talk of the government reducing VAT amid soaring energy prices. I might be being unfair but my money is on the letting agent misunderstanding something or not relaying the information properly. I am a bit cynical when it comes to letting agents these days.

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        #4
        Could it be classified as a business account? We were paying that higher rate for common parts but we changed to domestic with the power co.

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          #5
          It would be correct in the case of a commercial building that was elected for VAT. But this isn't.

          Residential lettings other than furnished holiday lets are VAT exempt. Costs deducted by your agent are disbursements. Charging VAT here sounds wrong to me.
          There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

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            #6
            Wow,
            thanks for the quick replies.
            I think the accountant has advised incorrectly wrt the treatment of VAT in this case so Im going to challenge his advice on this.

            A couple of years ago I had a similar query wrt VAT however in that case an accountant was instructing his client (freeholder for a flat I l own/ease) to charge VAT on the service charges he passed on to leaseholders.
            I pointed out that those charges should be exempt from VAT and haven't paid them since. No word on recovery of the VAT that I had previously paid though.

            Moral of the story - Accountants take a lot of pain away but are not always right

            Thanks again

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              #7
              That's not correct, and I think the agent has either misunderstood or the accountant has been misinformed about what the agent is doing.

              And it's going to be costly to the agent.
              Output VAT is payable to the state, because it a tax.
              As the agent isn't actually adding any value to the transaction (because that would be illegal), normally the input VAT would offset it, so there'd be no tax to pay.
              But in this case, the agents paying 15p for every pound charged.

              They're going to lose a lot of money.
              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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                #8
                I'm not saying that it's correct for the agent to add VAT (because it's a disbursement not a supply) but if they were adding 20% to the net price they wouldn't be losing any money.

                The sums would be
                purchase £100 + 5% VAT = £105
                sale £100 + 20% VAT = £120

                Agent receives £120, pays £15 (£20 minus £5) to HMRC and is left with £105 which is the same as paid for the total purchase.

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                  #9
                  You're right, fuzzy thinking day.
                  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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                    #10
                    From what you've said, if the amount of VAT being charged is incorrect, then the agent would be in breach of the Tenant Fees Act

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                      #11
                      The electricity bill at 5% VAT should be charged at cost ( as a disbursement ).

                      The agent charge 20% VAT on his own services.

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