Letting agent on flat rate accrual VAT scheme

How to charge out exempt supplies

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Hi,

We're a letting agent on the flat rate VAT scheme (accural basis).

The local council have recently introduced a landlord licencing scheme at a cost of £200 per property (the cost is exempt from VAT according to the council). Normally, when we need to make a payment on a landlord's behalf (e.g. for the licensing scheme), we raise an invoice (in our company name), deduct the payment for the invoice from the rent, pay the supplier (in this case the council) and pay the balance to the landlord. Whilst we were not VAT registered, this worked just fine.

However, on the flat rate VAT scheme, we pay 12% of our turnover in VAT. Therefore, for every £200 we deduct, we'll lose £24 in VAT. This doesn't seem fair, is there a solution or something I'm missing?

Replies (3)

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Danny Kent
By Viciuno
18th Jan 2017 19:43

Sounds to me like a disbursement rather than a supply. You wouldn't include this in your turnover figure as it was purchased on behalf of the client and therefore wouldn't pay over any VAT.

See VAT Notice 700: The VAT guide, paragraph 25.1 for all the conditions

Thanks (1)
paddle steamer
By DJKL
18th Jan 2017 21:59

The way we deal with costs to be met by landlords that are not our fee to same is merely reflect them within the monthly statement to the landlord, transact for them via the client account, and do not treat either as our costs or our income, in effect much the same as if we say paid a plumber for works on the flat.

When sending landlord statement/remitting funds to landlord he/she gets sent copies of the paperwork/receipts for his/her records.

When billing a landlord our fees (management/leasing) we do of course raise an invoice with vat and then transfer once a month all such fees from client account to firm account, treating the receipts in the firm account as sales ledger receipts and reducing the sums held for landlord accounts from the payments made from client account.

At any month end the client account bank balance should reflect the sums received for landlords but not remitted to landlords. (remember bank charges if not rebillable as they throw out the reconciliation)

For properties where we manage all common charges on behalf of the owners (we have two, each with over 25 properties) we run these through distinct client accounts, one for each development, isolating all intromissions.

Bespoke software makes life simpler, if not used a lot of excel analysis ensues.

Thanks (1)
avatar
By F1MLB
19th Jan 2017 09:46

Thanks for the help guys, I'm going to explore the disbursement way of doing it but I'll have to double check how it would work from a practical point of view with regards to our property software and integration with Xero.

Thanks (0)