Good morning. My employer has residential letting income and we use the de minimis rule to reclaim the VAT on the exempt expenses because they fall within the £625 per month average and are no more than 50% of the total VAT on purchases of all businesses. She has a retail business which is VAT registered. Recently, she has purchased a small shop to add to her property portfolio which is being let to a man selling fruit and veg. I am concerned about the de minimis rule because this property is not residential. Can expenses on this property be ignored for the de minimis rule? I'd be grateful for any help on this. Thank you.
Replies (7)
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The rental of the shop is exempt unless you opt to tax. Input tax is therefore non-deductible under Partial Exemption rules.
But don't opt to tax just to save a few pounds. In principle it lasts 20 years, and can't easily be undone.
In such circumstances I always recommend specialist input. A modest fee at this stage is a good investment.
"I am concerned about the de minimis rule because this property is not residential."
I believe this is muddled thinking here. Whilst you provide no numbers, I'd be surprised if this acquisition tipped the scales against full recovery of input tax under de minimis rules, on the assumptions that the shop rent is exempt and that the trade is not voluntarily registered. The input tax on expenses of rental income is usually quite low.
The de minimis rule applies to vat paid out relating to all exempt supplies. Residential letting is always exempt, commercial letting might be or might not be.
Maybe I am getting muddled. I thought the de minimis rule related to VAT paid on expenses for residential properties only. I thought that if the landlady also had a commercial property to rent out, in this case a small shop, then the VAT wouldn't be recoverable on any expenses relating to the shop as it's not a residential property. I appreciate all your help. Thank you.
As duggimon says, nothing to do with residential properties. It's any exempt income, ranging from property income through insurances to funeral directing.