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VAT Registration

I would appreciate some opinion on this;

I have a client that run a guest house, they are not VAT registered. Part of this is an "annex" that is let long term. The annex has it's own private bathroonm facilities, but no kitchen. My opinion is that all the income should be considered in whether or not to register for VAT, but that under the long term accomodation rules VAT should not be charged on the long term let. As the accomodation is in an entirely seperate building, had it kitchen equipment I would view it as rental of a domestic dwelling and outside the scope of VAT, and thus not part of the calculation for VAT registration.

Am I right, wrong or somewhere between please?

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02nd Dec 2011 17:44

exempt

I think you mean exempt rather than outside the scope of VAT.

if it is a self-contained and separate to the guest house, then I would treat it as rental income.

I think the problem appears to be that it is not entirely separate, as there are no kitchen facilities.

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02nd Dec 2011 17:45

Rent or not rent?

If the long term let is rent then it is exempt and can be ignored if it is guest house income ie "catered" then it is standard rated and should be included.

As the accomodation has no catering facilities and assumimg that the tenant eats with the other guests and the property owner does the laundry then it will be standard rated.

 

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By Old Greying Accountant
02nd Dec 2011 17:52

Thanks guys ...

... that's what I thought! Need to talk to client, average income well under (@ £5k pm) but they had a good summer!

B****y clients, I always ask them to tell me when the average is consistently over £1k per week so we can keep an eye, but do they listen!

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02nd Dec 2011 21:29

What on earth.........

Why is there no kitchen, what does the person living in the accomodation do for food?

The way I see it either the reduced value rules apply and all income is counted for VAT registration purposes, VAT charged on the first 28 days of the stay, and from then on the value of services (minimum 20% of accomodation charges).

Or the income is completely exempt, I'm not sure this is part of the trade, why do you think it is?

Regards

MtF

 

Edited to say would the addition of a kitchen not remove all doubt?

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By Old Greying Accountant
02nd Dec 2011 22:15

He can eat in the guest house dining room ...

mackthefork wrote:

Why is there no kitchen, what does the person living in the accomodation do for food?

The way I see it either the reduced value rules apply and all income is counted for VAT registration purposes, VAT charged on the first 28 days of the stay, and from then on the value of services (minimum 20% of accomodation charges).

Or the income is completely exempt, I'm not sure this is part of the trade, why do you think it is?

Regards

MtF

 

Edited to say would the addition of a kitchen not remove all doubt?

... the "flat" is in what is I suppose the converted garage, more like a detached suite than a flat, he may have a microwave!

 

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02nd Dec 2011 22:49

How about getting HMRC to take a view on what it is.......

How about getting HMRC to take a view on what it is, sounds to me a lot like a rental property (not part of the trade) he can eat in the restaurant, pattern of occupancy might be important, if the B&B business mainly deals in short stay guests and the people who stay in "the annex" tend to stay for months or even years could support a view of it being a rental property.  Where in the legislation does it say a rental property needs a kitchen, some freehold flats are too small for a kitchen, but they are still flats.

The problem is the nature of the trade and its proximity to the letting or whatever it is.  If a butcher or florist owned such a property I doubt very much we would be having this conversation.

Regards

MtF

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By Old Greying Accountant
02nd Dec 2011 23:16

As far i am aware ...

... the tenant has been there years, came with the property, which had been ticking along well under the VAT radar (according to the books anyway!) but my clients have increased occupancy rates considerably hence the problem, but t/o ex the flat is only just under the threshold so need the talk anyway!!

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05th Dec 2011 15:01

"not part of the trade"

Macks reasoning above sounds more in line with direct tax than indirect tax considerations.

For VAT you need to look at whether the supply is in the course of business, so if I had a butcher or florist renting out a property attached to the main business then I would be asking these questions.

So normal rules (as per Fisher and Morrisons) apply:

1) Is there continuity of supply

2) Is there a measure of substance in the income

3) Is it similar to supplies made by those who seek to profit from it

4) Is it run on sound business principles

5) Is it a serious undetaking earnestly pursued

6) Is it concerned with making supplies for consideration

If the answer to most or all of these is yes (which I assume it is in this case) then it's part of the business for VAT purposes.

How they organise it is of course is their business. Would it be possible to split the supplies so that an exempt rental can be created with taxable services supplied. If the occupant's been there for years then it seems that a change in policy may actually just help to reflect the reality of the situation.

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