Question - Is VAT payable on a lease premium?

Answered by: Shirley Thompson  |  Category: General  |  Last Updated: 24-06-2022  |  Views: 739  |  Total Questions: 14

Note that VAT does not generally distinguish between rent and a lease premium. A reference to a lease being chargeable to, or exempt from, VAT therefore applies both to any premium and any ongoing payments of rent. Assignment premium - VAT is chargeable if the assignor has "opted to tax" the property; Reverse assignment premium - VAT must be charged if the assignee is VAT registered. Any "option to tax" is irrelevant; VAT is chargeable if this is agreed separately to the lease. Insurance is normally exempt from VAT. However if it's recharged onwards then it becomes standard rated unless the recharge is for exactly the same amount as the original bill from the insurance company. A surrender by a Tenant of its leasehold interest in return for a payment from the Landlord constitutes a supply by the Tenant to the Landlord. If the Tenant has not exercised the option to tax, the surrender will be treated as exempt and no VAT will be payable by the Landlord on any premium paid by it. Posted in Category: Landlords / November 21 2014 A premium is a sum paid by a tenant to a landlord either on the creation or surrender of an interest in a property. Rather than pay the premium the tenant incentivises a third party (new tenant) to accept assignment of the lease.

As a general rule, the sale or rental of a commercial property such as a shop, warehouse, office or restaurant is exempt from VAT, meaning neither the individual purchasing the property or the prospective tenant would have to pay VAT.

Definition of a VAT exempt Some sales of goods and services are exempt from VAT. That means if you sell these goods and services you won't charge your customers any VAT, and if you buy them there will be no VAT to reclaim.

For Value-Added Tax (VAT) purposes, a service is any commercial activity other than a supply of goods. Typical services include: refraining from doing something (toleration of a situation) the hiring (other than hire-purchase) or leasing of goods.

Should you charge VAT on rent when subletting part of your business premises? The default position when charging rent (supply of land or space) is that the supply is VAT exempt, even if your business is VAT registered. If you are not VAT registered then exempt supplies do not count towards the VAT threshold.

The letting of commercial property is now exempt from VAT irrespective of the term of the lease. However a landlord may opt to charge VAT at a rate of 21% on rents from a letting.

The option to tax allows a business to charge VAT on the sale or rental of commercial property, or in other words, to make a taxable supply from what otherwise would be a VAT exempt supply. The option to tax regulations were actually introduced in 1989 so each day more options to tax are eligible for revocation.

Wayleaves, VAT and option to tax. An arable farm and has recently opted to tax some land. Part of the farming income is from wayleaves which has historically been treated as exempt income.

Buy-to-let landlords cannot usually reclaim VAT on their expenses. Whilst HMRC considers that renting out homes is a business for VAT purposes, it is an exempt one. This can be bad news for landlords because exempt businesses are prevented from reclaiming VAT paid on expenses.

VAT DILAPIDATIONS. VAT in respect of dilapidations is a complex subject with its own set of rules, regulations and case law. For clarity, if a landlord has elected to waive exemption on a building, he must charge VAT on such items as rent received (ie supplies that the tenant is receiving).

An excess is an arrangement between the insurance company and the policyholder. It doesn't affect you, and everything that you do is subject to VAT in the normal way.

The simple answer is that if you are selling a standard rated product or service and you incurred expenses doing that – then you must charge VAT on the expenses that you are charging to your client. If you incurred a cost on behalf of your client, that you need to pass over to them – then is a disbursement.

VAT on insurance claims is often not properly accounted for. When an indemnity payout is received for destruction, loss or damage to an asset used in a business enterprise. With regard to insurance payments, the correct position is as follows: Premiums paid - input tax is claimable, subject to normal requirements.

A disbursement is a payment that your business makes on behalf your client. Such payments are outside the scope of VAT and whilst VAT cannot be claimed in respect of the expense, no VAT is charged on them when you invoice the client.

Although VAT is the most common form of tax, it's not applicable on insurance — that's where IPT comes in… There are two rates of IPT: A current standard rate of 12%.