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De Minimis VAT / commercial property

I have two properties, one opted, one not.

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I have two commercial properties.

The larger one is opted to tax (it needed to be when purchased for TOGC) and brings in rental of £10k + vat.

The smaller one is not opted to tax, as we converted it after purchase, and it is possible tenants would not be vat registered in all cases.

The smaller property is only recently bringing in rent on an ad hoc basis - obviously with no vat charged. Expected rental probably no more than 2k per year.

There are some ongoing costs for the smaller building that do have VAT (utilities etc). As the rent is on an ad hoc basis I am retaining the bills as landlord.

I have read the de-minimis rules a few times, but have some kind of mental block, I am obviously not understanding something.

1) Can I claim the VAT on the utilities on the smaller building?

2) Do I have to do an annual re-calculation?

Total VAT is probably less than £200 per annum.


Replies (7)

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Jason Croke
By Jason Croke
03rd May 2021 19:19

Hi Tom

Short answer is, yes, you can reclaim the ongoing VAT costs but you will need to do an annual calculation.

In simple terms, you isolate the input tax relating to your exempt income (£200). If the value of that VAT is less than £7,500 per year (and) not more than 50% of your total input in the business then you would be "de minimis" and this means you can reclaim both the VAT identified as relating to exempt income, plus your usual input tax on the taxable side of the business.

In essence, initially you can't reclaim the VAT at first glance, then you do the partial exemption calculation (each quarter/each VAT return) and if the calculation comes out as de minimis then you can reclaim the VAT you isolated and said you can't reclaim.

You do this each quarter and then you do an annual adjustment, in theory the adjustment is unlikely to be significant if at all, but an annual adjustment is part of the compliance/rules, so you still must do it even though you know the answer.

For a mainly taxable business which has a small element of exempt income and an even smaller amount of input tax (£200), I'd expect to see full VAT recovery but do the calculations as you need to have them in your file to show HMRC should they ever inspect the business.

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Replying to Jason Croke:
By Tax Dragon
04th May 2021 06:28

Jason Croke wrote:

you do an annual adjustment, in theory the adjustment is unlikely to be significant if at all

Logic (my logic, so probably flawed) says...
Tom makes taxable and exempt supplies (let's assume for my logic train here that he's provided the complete list of supplies);
costs are attributable wholly to one or the other, there's no crossover;
at the end if the year, he either meets or fails the £7500/50% tests;
so (here comes my logic)... the annual adjustment (in Tom's scenario) is all or nothing.

That logic might not apply in more complex scenarios. (I'm thinking of other readers of your post who might, against site advice, base actions upon it. The next port of call for any such persons should be VAT Notice 706 and/or their accountant.)

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Replying to Tax Dragon:
Jason Croke
By Jason Croke
04th May 2021 07:14

Agree it is all or nothing, and at the level of input tax we're talking about here, its a given that the input is recoverable under de minimis rules.

Also agree that people may mis-read my post which is why I've kept it to the OP's question.

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Replying to Tax Dragon:
By Paul Crowley
04th May 2021 10:05

Strictly speaking there are direct to each type of sale and indirect eg telephone and accountancy.

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By Paul Crowley
04th May 2021 00:52

I only have one partial exemption client.
Similarly the exempt is a not opted building being a shop with rent.
I write up records on excel with two input VAT columns, one direct for costs related directly to work done and the other column for all other VAT
Always works OK with the de minimis calculations which once familiar with I can see straight off complies.
The once a year calculation is the important one, the other three are just temporary calculations, so not really important at all.
You could just wait out and claim all non direct once a year.

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By lionofludesch
04th May 2021 06:55

Agree with all that. You can claim this input tax but, technically, not until qtr 5 of the year. Which is a bit weird, but covers the possibility of you buying more exempt properties during the year. Or selling the standard rated one, or both.

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Routemaster image
By tom123
04th May 2021 14:00

Thanks, so the driver of the apportionment relates to the input VAT for the two respective properties.

My opted one has very little, usually, as most costs fall to the tenant.

Hence, whilst there is a big disparity in the rents, the input VAT on my none opted property may end up being more than 50%.

To cap it all, I am currently buying another property that is not opted.

Think I may carry on as I am, and not claim any of it.

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