Input VAT and mixed use buildings

Input VAT and mixed use buildings

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I am involved with a building which is partly commercial and partly residential.
The landlord is VAT registered as part of his regular trading activity, nothing to do with property, in the commercial part of the premises. So the rental income from the residential part is presumably an exempt supply and the income from the regular trading is a normal supply. If the landlord undertakes extensive repairs to the building, but less than £250,000 in cost, presumably he can reclaim the input tax on the repair work subject to an apportionment based on HMRC rules.
I am fairly sure about this but some confirmation would be most welcome!
This is the first time I have posted a question on "Accounting Web"
All contributions gratefully received,
Paul

Replies (7)

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chips_at_mattersey
By Les Howard
20th Apr 2012 17:21

Input tax on rented property

Strictly you are liable to carry out a Partial Exemption calculation. (Notice 706 is the place to start.)

Do consider opting to tax the property, so that the rent on the commercial portion is taxable, and therefore allowing more input tax recovery.

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Replying to Glennzy:
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By Paul Bonsor
20th Apr 2012 17:32

What service! Thanks for this I think you are right except that I don't think you can opt to tax residential property or a mixed use building containing residential. The commercial part is not let but used by the landlord himself for his own business

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chips_at_mattersey
By Les Howard
20th Apr 2012 20:12

option to tax

You can opt to tax a mixed use building; the option is 'disapplied' in respect of the residential part.

If the landlord uses the commercial part for his own business then there is no need to opt to ax. If his activity is taxable, then a relevant proportion of the input tax is recoverable.

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Replying to Windy:
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By Paul Bonsor
21st Apr 2012 10:58

Option to tax

Thank you for your help on this.

I have been looking at the VAT 706 guidelines as you suggested and it seems to me that the ratio of the rental income from the residential part, to the total income ie sales income plus rental income, defines the relevant proportion of the input tax recoverable. It looks as if this is the "standard method" and the one that I can apply without recourse to HMRC for the approval of a special method. Would you agree with that?

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chips_at_mattersey
By Les Howard
22nd Apr 2012 14:05

Partial Exemption Standard Method

It is always easier to use the standard method if (1) the calculation is practical, and (2) the result is fair. In the circumstances you have described, it does look the best option.

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Replying to Tim Vane:
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By Paul Bonsor
23rd Apr 2012 13:08

Last question !

This has all been really helpful.

One last question. Do you have to get HMRC approval for the standard method or can we just do it?

 

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chips_at_mattersey
By Les Howard
23rd Apr 2012 14:35

Partial Exemption Standard Method

No, you can use the Standard Method without HMRC approval.

Hope it works out ok.

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