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Can VAT on legal fees be recharged to the lessee?

VAT recharges

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Just wanted to check the VAT position as its a bit of a grey area on recharges.

Landlord has benefited from a supply of legal services from appointed solicitors to complete on a lease. The prospective lessee would like a VAT invoice however because the services are between the landlord and solicitor, is unable to provide one to the lessee. The legal fees are to be recharged, so would VAT be charged since they could be considered an additional supply to rent, or would it be classified as a disbursement with no VAT to be charged?

 

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RLI
By lionofludesch
24th Sep 2019 10:13

Not a grey area at all. The supply is from solicitor to landlord. Only the landlord can recover the VAT on that supply.

Who pays for it is irrelevant.

However, if the landlord is registered and can recover the VAT, he's only out of pocket by the net amount and that's what the tenant should be paying him. Or his solicitor. Whatever.

So, it depends. Is the landlord registered and can he recover 100% of the VAT as input tax ?

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Replying to lionofludesch:
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By Robert1981
24th Sep 2019 10:27

Many thanks.
Landlord is registered so will recover 100% of the VAT. I would assume that the recharge of fees would be considered as a disbursement and therefore exempt of VAT?

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Replying to Robert1981:
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By The Dullard
24th Sep 2019 10:34

Disbursements aren't exempt. They're outside the scope, because there's no supply. This isn't a disbursement, but it might be outside the scope as a contribution towards the landlords cost. It might though be considered to be additional consideration for the supplies being made under the lease, which could then be exempt or standard-rated, depending on the terms on which it is being paid.

Has the landlord opted to tax? Presumably he has, or he wouldn't be able to recover the VAT on the legal fees.

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Replying to Robert1981:
RLI
By lionofludesch
24th Sep 2019 10:38

He's not recharging the fees. The tenant is paying for them. There's no supply to the tenant. It's a subtle difference but an important one. The payment is outside the scope of VAT, though.

Unless the contract says different, the tenant should be paying £100 for every £100+VAT paid by the landlord. Plus any search fees or whatever.

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Replying to lionofludesch:
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By The Dullard
24th Sep 2019 10:50

I disagree. If the landlord has not opted to tax the property in question, then the supply of legal fees is directly attributable to the making of exempt supplies, and so the VAT on the legal fees is irrecoverable, subject to the de minimis rules, and the tenant should be paying £120 per £100 plus VAT paid by the landlord, subject to my further point below.

I never said the he was recharging the fees. Without sight of the agreement between the landlord and the tenant though, I cannot concur that it is outside the scope. The possibility that it is additional consideration for the supplies under the lease (ie an additional premium) has not been ruled out, and such supplies would not then be outside the scope.

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Replying to The Dullard:
RLI
By lionofludesch
24th Sep 2019 13:28

Firstly, to clarify, my reply was to the OP, I had not seen your post when I posted.

I take your point about the rest of it; though there's not enough information to be certain, imho, the likely outcome is that the input tax will be recoverable.

Nevertheless, I'll rephrase my earlier response and say that the tenant should be paying the landlord's gross fees, including disbursements, less any VAT which he can recover.

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