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VAT on rent

My client is renting a yard from a third party. VAT has been added to the invoices, but when queried, the landlord has no idea whether there has been an option to tax on the land or not. As it is a yard with a few outbuildings on it rather than an office building, I am sceptical, although I am no expert on VAT and land.
I have advised the client that if he is charged VAT when he shouldn't be, HMRC could disallow it and demand he repays it to them. It would then be up to him to recover the incorrectly charged VAT from the landlord. This could clearly be riddled with problems and cost my client a large amount.
Does anyone have any ideas about how best to proceed? The landlord's attitude is "if in doubt, add VAT" and he won't budge. Can we check whether VAT should be applied to rent of this land anywhere?


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23rd Jan 2008 09:33

Tell him you are going to write to HMRC

I suggest that you politely inform the landlord that you intend to write to HMRC to establish the status of the building. It is possible that he is charging VAT but not paying it over! If so he will not want HMRC sniffing around. Even if he is not doing anything untoward he may still not want them to become involved and may become more co-operative.

If he still refuses to co-operate write as threatened.

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By neileg
23rd Jan 2008 10:03

Not so Euan
You can only recover VAT that has been validly charged. Possession of a tax invoice is only part of the process.

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23rd Jan 2008 09:56

Option to tax land
The option to tax can certainly be applied to land and will cover any existing (out)buildings on it. If a building is constructed subsequently, it will not be covered by the original option to tax.

I would have thought that the client is not exposed to an HMRC claim to disallow input tax provided that he has a valid VAT invoice from the landlord.

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By Anonymous
23rd Jan 2008 10:53

Would he have any evidence?
Thanks for your help. Would the landlord have any evidence from HMRC if he has opted to tax? I think the fact that he seems to have no idea points very much to no option, but we could of course be wrong.

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By Anonymous
23rd Jan 2008 13:34

If in doubt...
...ask HMRC. I seem to think that if he has been charged VAT and he shouldn't have done, then if he took steps to establish whether the VAT charge is correct, it stops HMRC from clawing back.

Or something like that.

So presumably he should try and get confirmation. I think he can ring the national VAT advice line and confirm the VAT no. and address, but that doesn't address the issue of whether he has been charged VAT correctly. I don't think they would confirm that over the phone, so would have to write in.

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By Anonymous
23rd Jan 2008 13:51

Lease terms
I support the view that even if a so-called "valid VAT invoice" is held, the input tax is not claimable unless a valid option to tax is in place in the landlord's name. Or put more accurately can be claimed initially but carries the risk of being disallowed and and assessed by HMRC for the VAT wrongly charged plus interest.

If there's any doubt, then look at the lease.

If the lease is silent on VAT it's so simple - don't pay it - just pay the rent amount excluding the alleged VAT until such time as satisfactory evidence is produced by the landlord.

It should be relatively easy for the landlord to provide confirmation if the option to tax exists - the acknowledgment letter received from HMRC. If this confirmation letter is mislaid, then the landlord can write to the India Street, Glasgow specialist VAT office that deals with options to tax to obtain confirmation one way or another.

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