V.A.T. On rental properties (uk)?

[barraq]

Hi. I have recently bought 2 flats that I have rented out through a management agent. The agent charges me 10% for his service + vat. I am self employed and have another unrelated business that is vat registered. My question is can i reclaim the vat on this management charge? Bearing in mind there is no vat on the rent so this would effectively be a 'claim' on the vat every quarter. One accountant said yes - another said no !
Help please !

[montgomery69]

Hi. I have recently bought 2 flats that I have rented out through a management agent. The agent charges me 10% for his service + vat. I am self employed and have another unrelated business that is vat registered. My question is can i reclaim the vat on this management charge? Bearing in mind there is no vat on the rent so this would effectively be a 'claim' on the vat every quarter. One accountant said yes - another said no !
Help please !

It depends on the level of reclaim.

Assuming you're acting as a sole proprietor for both businesses then actually you must include them both on your VAT return. However this wont necessarily mean you can get all the VAT back.

Your supply of domestic accommodation is exempt from VAT, and normally you cannot recover the VAT you spend on making such supplies. However where the costs associated with such supplies are under 50% of the total VAT you incur and also under £7500 in a tax year (£725 a month) you can claim them back.

This situation is called partial exemption, more on it can be found in HMRC notice 706 on the HMRC website. You do have to do annual adjustments and some businesses can find it quite complicated, it can also affect the amounts you can claim back in relation to overheads. The best thing to do is talk it over with an accountant who's experienced with Partial Exemption, but the notice should give you the starting point to ask questions.

It may be that one accountant said yes it's possible (which it is) and the other said no you can't because he already knows you're above the limit - hopefully they gave you a bit more reasoning that just a yes or no, which might tell you which one you need to continue your conversation with (or maybe find a third one!)

[gedalyahu]

The vat element of the charge is irrelevant. You claim the whole amount as expenses against rental income received. Simples.