Should we be charging VAT for this?

unwashed potato! · 2 Sep 2020 at 16:51

we rent office space that doesn't have any vat charged to us by the landlord.

we sublet some of the space for lets says £500 per month.

since we did that we're now on the flat rate vat scheme.

our accountant at first told us that the sublet wouldn't need to pay vat, thankfully as that business is not vat registered.

recently they have decided otherwise and said we need to put all the x mount of previous years rent as though we charged vat for it.

we can't exactly go back and ask the business that we sublet to to pay an extra 20% for the last x years rent, and they wouldn't want to going forward either.

from what i understand supply of space is exempt but would like to see what those on here understand to be the situation.

VincentHanna · 2 Sep 2020 at 16:56

I asked a very similar question about something here and was also advised that rental invoices shouldn't include VAT

Also, if I am reading this correctly, accountant has advised you to retrospectively change last years invoices to charge VAT?! Surely illegal.

unwashed potato! · 2 Sep 2020 at 17:01

VincentHanna said:
Also, if I am reading this correctly, accountant has advised you to retrospectively change last years invoices to charge VAT?! Surely illegal.

i guess it would be more correcting a mistake? so we'd let hmrc we've accidentally not charge the vat and will now do so.

Pudney · 2 Sep 2020 at 17:04

VAT is really its own niche area of tax and something that is massively outside my area of knowledge. But a couple of points to consider are:

1) Is your accountant actually saying you should include your rental income as part of your flat rate calculation? That's probably correct.
2) What is the sublet used for? Broadly the supply of land is normally exempt, but there can be exceptions, e.g. if the supply is for the purpose the storage of goods which is a standard rated supply.

Ultimately this is hugely fact specific area. You're better off asking your accountant to explain the advice and reasoning.

Energize · 2 Sep 2020 at 23:56

The answer from any economist is always a flat no!

Pipe & Slippers · 3 Sep 2020 at 07:56

As a landlord you used to be able to choose whether to charge VAT or not (described as an election if I remember correctly)
Most did because it meant all their Outputs were vatable and no nasty messing around with the numbers for your Return
Dunno whether this is still the case

The fact that the tenant is not registered is irrelevant for you, apart from the fact that it makes the rental cheaper for them

Freakbro · 3 Sep 2020 at 08:23

As mentioned, rent is either VAT exempt or standard rated and you can choose which to implement.

Exempt and zero rated income are both included in the Flat Rate calculation anyway, it's only outside the scope that isn't, so I'm not sure why your accountant has now said you need to change to vatable rent just because you've gone to the flat rate scheme?

Pipe & Slippers said:
Most did because it meant all their Outputs were vatable and no nasty messing around with the numbers for your Return

The issue about having an exempt rent is you then can't reclaim any input vat on expenses relating to the rental income. But going to a flat rate scheme negates that Afaik since you don't reclaim input vat anyway*

* apart from specific capital purchases ofc