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Any effects of Opting to Tax on his non-VAT registered business?

Any effects of Opting to Tax on his non-VAT...

My client has recently acquired a property which he is considering to Opt to Tax for VAT purposes.

He also has the following financial interests:-

1. Sole trader (selling vending machines) - turnover £1000 p/a

2. Partnership (with wife) (retail consultancy) - turnover £10000 p/a

3. Rental of canal boat (self) - turnover £NIL, but expected to be £50000 p/a (income starting imminently)

4. Rental income (with wife) (small industrial unit) - turnover £15000 p/a (plus VAT because of a previous Opt to Tax election made about 5 years ago)

5. Rental income (self) (small industrial unit) - turnover £31000 p/a

His total sole earned income turnover (i.e. non rental income) is £1000 and clearly below the VAT registration threshold, as is the joint earned income turnover (i.e. joint with his wife) of £10000.

A few of questions please:-

1. Is the canal boat income a trade or a rental business and will if figure in any VAT registration threshold calculations?

2. Ignoring the Opt to Tax position, is it right that the there has hithereto been no requirement to register for VAT?

3. If he Opts to Tax the recently acquired property, will this mean he has to register/charge VAT on his other interests (trading and/or rental), or is the new property ring-fenced without affecting his other interests?

Many thanks for any assistance.


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By puzzel
03rd Apr 2012 11:14

Recently acquired property,

is it domestic or commercial?.

The other debate is whether the income from the canal boat is truly income from land & property or a trading income. 

The canal boat, I assume is not static on dry land?

Income arising from canal, inland navigation & docks are not included in the section for income from land & property. Thus a canal boat in the water would be a trading income


Canal boat  50,000

Ind unit       31,000

Vending       1,000

Total          82,000

No doubt others will contribute

Thanks (0)
03rd Apr 2012 11:41


Trade and earned income is more a direct tax consideration than VAT based.

VAT looks at whether income is by way of business, that is: an undertaking earnestly pursued, making supplies based on sound principles, with a measure of regularity and value, similar in nature to those made by people seeking profit, and mainly made in order to receive consideration. [The business test as propounded by the cases of Lord Fisher, and Morrsions Academy]

So all of the activities are business activities. They are currently made by two different entities, and in sufficiently different types of business that there seems little chance that HMRC will seek to aggregate the income of the two entities. Remember that it's the entity that is registered for VAT and not the business. So we have:

Partnership (Husband and Wife):

Consultancy (VATable) £10,000

Rental Income (VATable due to option) £15,000

So total taxable turnover for the partnership is £25,000 below the reg threshold, although presumably charging VAT on it all as the partnership is registered since you say at 4 that the partnership is charging VAT on the opted property.


Sole Trader income:

Vending machines (VATable) £1000

Canal Boat rental (VATable) £50,000

Small Ind Unit (Exempt as unopted) £31,000

Total Taxable turnover £51,000 below the limit no need to register


If he opts to tax a new property as a sole trader then he's looking at charging VAT on the Canal Boat and the Vending machines as this will all be caught under the new registration. it still wont affect the iInd. Unit as the option is building specific, but it will mean the business is partially exempt and need to do the calculations that entails each month.


If he purchases under the partnership, then that's already registered and charging VAT on all its income (or should be, I have doubts that that actually what's happening from the way the questions set out), so an option to tax will not affect any other part of the activities and the business would not be partially exempt.


Alternatively he could set up a limited company and register that, opting to tax, and becoming fully taxable so that he has no partial exemption worries and no effect on the other businesses.

Hope this helps.

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By neileg
03rd Apr 2012 12:06

VAT Partnership?

spidersong wrote:
So total taxable turnover for the partnership is £25,000 below the reg threshold, although presumably charging VAT on it all as the partnership is registered since you say at 4 that the partnership is charging VAT on the opted property.

But HMRC don't recognise that jointly owned property is a partnership. Or is that only for Income Tax?

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03rd Apr 2012 11:44

Constantly Confused

As my name suggests, I'm confused...

Why would he opt if he wasn't VAT registered?

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By neileg
to lionofludesch
03rd Apr 2012 11:54


Constantly Confused wrote:

As my name suggests, I'm confused...

Why would he opt if he wasn't VAT registered?

If the tenant is VAT registered then they will be unaffected by opting to tax. The landlord will be able recover input tax in connection with the letting
Thanks (0)
03rd Apr 2012 11:59

But he isn't registered

I'm missing something...  Are we saying his rental business IS VAT registered, but he wants to know the effect of this on his other (unrelated) businesses?  Actually now I read Spidersongs reply with that in mind, it makes more sense.

I misunderstood the question :)


Thanks (0)
03rd Apr 2012 14:30

Joint ownership

For VAT purposes recognising joint ownership as separate ownerships would be problematical, for instance if one owner opted but the other didn't then the VAT on a single invoice may only get charged on half of it, or maybe in proportion to whatever share each has in the property. So HMRC do not tend to accept (for VAT purposes) that property can be held or supplied by anything other than a single entity. In the present case that entity would be the husband and wife partnership.

This extract is from Notice 742, HMRC's notice on Land and Property:"7.2 Joint owners of land or buildings

Where more than one person owns land or buildings, or receives the benefit of the consideration for the grant of an interest in land or buildings, we treat them as a single person making a single supply for VAT purposes.

If the joint owners are making taxable supplies above the registration threshold they will have to register for VAT as a partnership, subject to the normal rules, even if no legal partnership exists. The joint owners may also request voluntary registration where the value of taxable supplies is below the registration threshold."

As you can see HMRC have no problem arguing one side of an argument under one tax and the reverse under another. So you can be a partnership for VAT purposes even when no partnership exists, but remember 'tax doesn't have to be taxing'!

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By neileg
04th Apr 2012 13:24


I thought I knew a bit about VAT. It's clear I know nothing! Thanks for clearing that up.

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