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How to treat VAT on Tenant Recharges?

VAT on tenant recharges for general maintenance and repairs on a property

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There has been a dispute internally regarding how to treat VAT on tenant recharges. These charges are for repairs and maintenance on buildings that we own, that are NOT elected for VAT. Some of the repairs are due to general wear and tear (pot hole repairs), and others are of an emergency nature (toilet unblocking). Most of these tenants pay into an annual service charge, some do not. However these recharges fall outside of these agreements.


These repairs do not meet the criteria of a disbursement, as we are involved in the management of the repair, we add admin fees occasionally and we also gain some benefit with it being our building. These are also not dilapidations, as the properties all have active tenancies.


My understanding of the rules, is if the property is not elected for VAT, repairs recharged will be exempt from VAT as the repair follows the same rules as the rent supply (additional supply of rent). The dispute against this, is someone is saying the standard service charge bills are exempt, but anything outside of this is standard rated. They believe we should pass on the net amount we are charged, plus VAT. Or gross amount, plus VAT. Either way, this doesn’t make sense to me and I can’t find any HMRC documentation stating anything like this.


I may be missing something, so could someone please assist?

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