VAT on garage rent

VAT on garage rent

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I have a dilemma just wondered how best to deal with this situation. Client is a Limited Company, VAT registered. They prepare their own books in an excel spreadsheet and I prepare accounts at the end of the year. They receive rent for an office above their shop which they don't charge VAT on which I confirmed with them is correct, however, they did not mention that they had started to rent out a garage to a different person and have not charged VAT. They have incorrectly assumed that no VAT is due on this either. The spreadsheet just shows Rent and I asked why it is higher this year and that's how I found out. I have advised them that rent for a garage needs to have VAT on it but they don't want to have to go and ask for more money. I have suggested they could treat the amounts received as inclusive of VAT and I will extract the VAT element which they will have to pay over but they don't want to do this and are saying that I should have made it clear to them that garage rent is Vatable. They have agreed reluctantly to add VAT from this year onwards but will not budge on the previous year's figure and I'm not sure where I stand in this situation - what would you do?

Replies (15)

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By WhichTyler
10th Dec 2013 19:01

?

You say that 'rent for a garage needs to have VAT on it'; is this because there is an option to tax in place for the garage? If so it must have been put in place by your clients as landlord, so they must be aware if it. If there is no option to tax, why do you think it is taxable? 

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Replying to lja20:
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By dggriffin
10th Dec 2013 19:43

I understood it that if the garage is rented to someone other than the tenant that VAT is chargeable?

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Replying to David Hedley:
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By WhichTyler
10th Dec 2013 19:52

What makes you think that?

I refer you to the answer Euan gave earlier: https://www.accountingweb.co.uk/anyanswers/otion-tax-subletting/473418

I'd link to VAT notice 742A but the hmrc website is playing up. It might be good to read both the leases (to and from your client)

 

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Scalloway Castle
By scalloway
10th Dec 2013 20:00

Rented from Local Authority

You client should only charge rent if he has opted to tax the garage. You may be thinking of the situation where the landlord is a local authority. eg

 

http://www.crawley.gov.uk/pw/web/int225009

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By paulwakefield1
10th Dec 2013 20:18

I thought

a letting or licence of a garage or designated parking bay or space was standard rated. Has that changed recently? (Notice 742 but my copy is rather out of date and the website is down at the moment so I can't double check).

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By pawncob
10th Dec 2013 20:25
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By dggriffin
10th Dec 2013 20:26

ok - I'm not convinced as HMRC website states the following - the link is playing up for 742 as you stated but I have copied the bit that confuses me here:

"Garages or facilities specially designed for parking are standard-rated"

VAT Notice 742

The fact that the garage is not rented as part of the tenancy agreement but to a completely different person seems to mean different treatment? or have I got completely the wrong end of the stick?

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By WhichTyler
10th Dec 2013 20:53

You could be right...

When you said garage I thought of commercial premises (for repairing cars, rather than just parking them). Apologies and thanks for clarifying; you live & learn...

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paddle steamer
By DJKL
11th Dec 2013 00:02

Vat on parking

My rough understanding of the rules:

Where say  an office is let with parking, all as part of one lease, the parking is incidental and the vat treatment for the parking follows the vat treatment  for the office. Even where there is a distinct lease I think, if it is same landlord and the parking is near to the offices, this treatment still applies. e.g. office in building where say 2 spaces come with this particular office, after a year tenant asks for say another space. Rather than rewrite/ vary original lease, an additional lease/ licence executed for the extra space. The letting of the space is incidental to the original lease and therefore I believe it follows the vat treatment of the original lease.

Where parking is let as a distinct supply it will be standard rated irrespective of the vat status of the land i.e. whether or not there is an option in place is irrelevant to the vat status of the supply.

 

 

 

 

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By andy.partridge
11th Dec 2013 10:42

Surely the fault lies with the client because they didn't seek your advice before they entered into the agreement. If you back-track and say 'OK, the past doesn't matter' where does that leave your credibility and authority?

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By neileg
11th Dec 2013 11:08

Engagement letter

Did you state in your engagement letter that you had mystical powers to anticipate everything you client might do?

No, I thought not. Standard rated supply - their fault if they didn't ask you or HMRC.

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Stepurhan
By stepurhan
11th Dec 2013 11:10

Candidate for sacking

They tell you that you "should have made it clear to them that garage rent is Vatable." when the first you knew of it was when querying their accounts. Exactly when before this do they think you were in a position to tell them. They are also only "reluctantly" going to deal with this correctly in future but "will not budge" on the previous year's figures. If they blame you for their own failure to take advice and refuse to take actions to correct an undeniable error in dealing with VAT, they are not someone you want to work with. If they won't take correcting action in a clear-cut case like this, what other dodgy practices might they be hiding? If they don't respect you enough to accept you could not have advised before and are advising correctly now, they are more likely to query your bills and refuse to pay your "exorbitant" charges. Get rid.

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By Steve Kesby
11th Dec 2013 12:45

Most importantly

How long's the lease and does it mention VAT. If it doesn't mention VAT, then the rent set out in the lease is VAT-inclusive and they may well be 1/6th out of pocket for the duration of the lease.

Was there a solicitor involved in drawing up the lease?

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By tonyh
11th Dec 2013 21:30

Further point

Who owns the building ?

Many buildings belong to the directors as individuals and they rent it to the company.

 

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By dggriffin
12th Dec 2013 09:20

Thanks for the comments. Just to update they are builders, the Company own the building and the garages. They have rented the garage to someone informally!  They agreed a figure of £150 per month. They don't want to have to "lose face" and go back and say the rent is actually now £180 per month so are suggesting they do this in the next financial year. I have therefore told them that they have no choice but to treat that rent as £125 for last year and they will have to pay HMRC the VAT.  

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