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Flat Management and VAT

Flat Management and VAT

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Hi

I have just taken on a company that manages a small number of Flats in a building. The company owns the freehold and common areas and maintains and repairs these. The flats are owned leasehold and the ones on the ground floor have full business use and one other partial use. The company has a shareholder for each flat.

The company have opted to tax the building and are charging VAT on ground rent and services for business use and no VAT to residential only properties and making full reclaim on expenses. Initially I thought my main issue was partial exemption which has not been done BUT

The company accounts show all the income and expenditure (net of VAT) a the company's and yet there is a note in the accounts to say CT would only be due on any interest earned by the company.

It seems to me I have a mixed economy - for VAT purposes they appear to be saying its business income but the tax side of things is done on the basis of money held in trust for repairs/services which is what I might expect for a FMC.

I know there are different situations and models for these companies so I just want to know if I've missed something as I've picked this up from another firm of accountants.

Any ideas?

Mike

Replies (4)

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By bajones
06th Nov 2014 14:01

a right pickle

The issues surrounding trust assets v company assets are nothing, your main concern should be the VAT non-compliance.  As it stands, the company is illegal reclaiming VAT it has no right to.

I have encountered partial exemption on mixed use block management before, and it can run quite smootly.

What I have done is agreed a partial exemption calculation with HMRC on the basis of the percentage contributions; it seems to work and is easy enough to administer.

The service charge percentages charged to commercial units are a taxable supply, the service charges charged to the residential units are not. 

 

 

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By shaun king
06th Nov 2014 18:01

Partial Exemption

Agree with @bajones - unless you agree a Special Method as suggested you will have to use the standard method. The standard method rarely produces a benefit to the taxpayer so you need to devise a special method.

However, before that I suggest you look closely at the agreements in force with the tenants to establish whether the VAT liabilities are correct?

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By coolmanwithbeard
07th Nov 2014 00:09

I do understand the difficulty of the patial exemption!

But in my mind if there is no CT then there is no business income and therefore no VAT as creating a pot (trust) for repairs is outside the scope. The VAT charged seems to say that this is a business?

 

If they are being charged ground rent then that surely is company income? Similarly if the service/repair element is within the scope of VAT it must mean that it is also business income and liable to CT

 

It is the inconsistency between the two codes I cannot get my head around at the moment

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By bajones
07th Nov 2014 09:05

VAT notice 742 states:

"If, as a landlord or licensor, you are obliged under the terms of the lease to provide services similar to those above, the service charges follow the same VAT liability as the premium or rents payable under the lease or licence (normally exempt, unless you have opted to tax)."

This does differ from CT treatment, but if the service charges raised only meet the costs, then there is no loss to the treasury.

 

However, just re-reading your post, ground rents receivable are taxable under CT rules, it's only the mutual trading (service charges) that are not.

 

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