VAT Threshold and rental income

VAT Threshold and rental income

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My client runs a small Gym via a Limited company. Turnover varies between £68k-£75k dependant on take up and classes offered. Membership is £600 per annum and they are limited to a maximum number of members and when even with the classes they are unlikely to get to the VAT threshold. And this is a good thing as I have explained to them about the VAT cliff.

However – they are keen to earn more money and are considering renting out two of the studios in the building to tenants in complimentary fields (beauty therapy/massage). They anticipate being able to get £1k per month – great.

However if they secured x2 tenants and earned that £12k they would probably tip over the VAT threshold and all income would be subject to VAT and that is not a good thing.

The property they are in is leased and is not subject to tax, their lease of £20k per annum being paid without VAT added.

My question is (and yes to a degree I can and will look up so please don’t tell me off being lazy) is – “could” the rental of the studios be invoiced (under a license not a sub-lease) on the same terms as the headlease and so is there a danger the rental could be vatable/included and so tipping them over the edge.

If yes I suspect my client is better off not renting the studios – if it can be done outside of the scope of vat I would be very interested to hear if anyone can confirm.

Thanks in advance

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chips_at_mattersey
By Les Howard
10th Jan 2016 18:39

Exempt rental income

Rental of part of the property will usually be exempt from VAT and therefore ignored for registration purposes. But you would need to make sure it is an exempt licence to occupy, or similar.

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