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How long can you carry on claim vat on empty prop

How long can you carry on reclaiming vat on empty property expenses

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We have a client that has exited a high street shop but are still reclaiming the input vat on the expenses on the empty premises, they are intending to let the shop but havent yet done so, is there a time limit before the vat reclaim is inelligible. 

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Jason Croke
By Jason Croke
25th Aug 2021 16:57

You state the client has exited a shop, so that suggests the trade occupied and operated from the premises.

What is the business doing now that it has exited the property? What I mean is, if it was say a takeaway or corner shop and the trade has now left the premises, what happened to the trade - has it ceased or re-located?

Is it then intention to stop being a "shop trade" business and become a "property rental" business?

You can only reclaim VAT on the basis the VAT incurred relates wholly to a taxable business activity, if the trade has no shop, is it trading? If the shop is to be rented out in the future, how is that a taxable supply without an option to tax notified to HMRC?

To answer your question, there is no specific time limit, but input tax is always to be reclaimed in context of the business or intention of the business. For example, if shop trade is ceased and the clear intention is to rent, then from the point the decision was made to rent, input tax relating to the property is no longer recoverable because your client intends to make an exempt supply of rented property....unless they opt to tax...or intend to move back in (a change of intention).

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By CW2012
25th Aug 2021 17:03

Thanks, the trade has moved to online and a storage unit is being used, I have found the shop premises advertised as being available to let with an estate agent. There is no intention to reoccupy, they are though still reclaiming input vat having spent £20k on refurbishing the premises.

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Replying to CW2012:
Jason Croke
By Jason Croke
25th Aug 2021 18:42

If I was HMRC and saw business had left premises and advertising it for rent, I'd deny input tax on basis the business is now a property rental business and as the property has no option to tax, when it is rented out it will be a exempt supply of rent and so no input tax recovery allowed in the £20k fit out...why refurbish a property you aren't occupying yourself, you'd only do that so you can rent it, no option to tax means exempt rent, therefore no input tax allowed.

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Replying to Jason Croke:
RLI
By lionofludesch
25th Aug 2021 19:18

Whilst I agree with the general thrust of the post, it should be pointed out that the business continues and the rental income, if it materialises, may well fall within the thresholds for partial exemption de minimis.

We don't know.

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Replying to lionofludesch:
Jason Croke
By Jason Croke
25th Aug 2021 21:29

Valid point Lion, client could be de minimis (£20k spend, £4k VAT so de minimis in theory) but then client would need to do a partial exemption calculation to prove this, easy enough.

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By Winnie Wiggleroom
26th Aug 2021 08:41

of course they could opt to tax, depends as always

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By CW2012
26th Aug 2021 09:32

Thanks for the replies, I'd thought about the de minis route but having dug deeper it turns out that the property belongs to two individuals who are also partners in the online trading business, there is also an agreement in place to let part of the shop,( it was quite big and has storage), to a 3rd party and the rental agreement is between the owners of the property and not the trading partnership. It seems to me that no vat is reclaimable under the de minimis rules.

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Replying to CW2012:
RLI
By lionofludesch
26th Aug 2021 09:48

Are there just two partners in this online business ?

As Winnie says, there's always the option to tax.

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Replying to CW2012:
Jason Croke
By Jason Croke
26th Aug 2021 10:13

Things can get messy when it comes to property. So property owned by 2x individuals and presumably some sort of lease/rent between them individually and the trade partnership.

If the trade occupied the premises previously and presumably on a repairing lease then it made sense for trade to incur costs of maintaining the property and reclaiming that as it was making taxable sales from the premises.

But as you say, the rental agreement is between the 2x individuals and the 3rd party tenant, so the trade partnership which is incurring the refurb costs is not incurring them for its own taxable purposes and so input tax becomes rocky.

I suppose if part of the premises is rented to a 3rd party, the other part is available for what? If the trade partnership can justify some current or future taxable use of this part of the premises (surplus stock for the online business) then there may be an argument to reclaim all the VAT, but on first glance looks like VAT is not recoverable on basis the 2x individuals are the ones who do the renting and the trade partnership has left the property and/or terminated its lease (assuming it ever had one).

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