I have been a partner in a business (with one other partner) since 2010. My entire income has always come from the partnership. I purchased a new-build commercial property (£100,000+VAT), intending to run the partnership from there. My accountant registered me for VAT in the form of an Option To Tax in order that the VAT on the purchase price could be reclaimed. The partnership is not VAT registered as turnover is below the threshold. My accountant informed me that I must charge the partnerhip rent + VAT.
Due to the Covid-19 pandemic, my partner and I have stopped trading. The partnership has ended permenantly. As such, there has been no income or expenditure on the property, so nil returns have been submitted. If I keep submitting nil returns, will HMRC want back the VAT reclaimed when the property was purchased?
Also, if I was to set up as a sole trader am I stuck in the position of having to charge VAT on anything I earn? Is there any way of adding my wife to the VAT registration in order that I am not personally VAT-registered?
I have called HMRC and asked these questions, but the call operator I spoke to did not know.
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Option To TaxWhy not run this through with your accountant as they know the history, the logic and reasoning and are best placed to advise you further now your circumstances have changed.I have been a partner in a business (with one other partner) since 2010. My entire income has always come from the partnership. I purchased a new-build commercial property (£100,000+VAT), intending to run the partnership from there. My accountant registered me for VAT in the form of an Option To Tax in order that the VAT on the purchase price could be reclaimed. The partnership is not VAT registered as turnover is below the threshold. My accountant informed me that I must charge the partnerhip rent + VAT.
Due to the Covid-19 pandemic, my partner and I have stopped trading. The partnership has ended permenantly. As such, there has been no income or expenditure on the property, so nil returns have been submitted. If I keep submitting nil returns, will HMRC want back the VAT reclaimed when the property was purchased?
Also, if I was to set up as a sole trader am I stuck in the position of having to charge VAT on anything I earn? Is there any way of adding my wife to the VAT registration in order that I am not personally VAT-registered?
I have called HMRC and asked these questions, but the call operator I spoke to did not know.
PLEASE don't call HMRC, you could easily trip yourself up. The call handlers can prove extremely unreliable and mistakes surrounding property and options to tax can prove mightily expensive. If any of my clients spoke with HMRC direct about such matters they may get a first warning but after the second would become ex clients.
Agreed - the one HMRC department that one should never turn to for assistance is the VAT Help(sic)line.
My accountant has retired and seeing as I am not working/earning I can't really justify paying anyone else.
I don't see how I might 'trip myself up'. I'm not trading or earning and I am only trying to clarify what my VAT liabilities would be if I was to set up a new business.
My main concern is that they will ask for the VAT back if I continue submitting nil returns for a period of time. I called to explain the situation and ask if this would be the case - they could not tell me.
I don't see how I might 'trip myself up'.
Which is exactly why you should engage professional help. Some here might be prepared to offer some free, generic, advice but it could well be a false economy. You need to speak to someone that can understand your exact circumstances and intentions.
As above, don’t ask HMRC for advice.
Don’t deregister as you will become liable for the VAT on the property value. Ideally keep the registration open for the eventuality that you will be able to let the property in the future.
Thanks. Yes, I intend to keep the registration open, my concern was that HMRC might deregister me if I filed nil returns for a period of time?
In an ideal world, I would set up as a sole trader - but I am stuck with the VAT registration which makes things more tricky.
As already advised, DO NOT TALK TO HMRC
The biggest VAT area of error is property options to tax
HMRC has the function of collecting as much tax as possible
They are not there to help you avoid tax
Call HMRC for advice. They're fun, fast, efficient and always in the know! They'll help you minimise your liabilities you'll make some great friends along the way :)
HMRC Do Not Give Tax Advice
The operatives on the phone don't get trained to do so and the best you'll get is them searching the gov.uk website and reading the first semi-relevant thing they find. Not only is this an ineffective approach, the gov.uk website itself is often inaccurate or misleading.
You literally have a potential VAT bill of £20,000 at stake, get an accountant.
As others have posted, don't deregister for VAT just yet else you will have a self-supply on the market value of the property.
What is your intention with this property? If the Partnership is no longer occupying it (did it ever occupy?), then you are either going to i) rent to someone else or ii) sell it.
You could of course just retain the property and do nothing with it, but there is potential risk that HMRC may take the view that there is no business here, one of your responses here notes that "you are not trading", but you need to be trading or intending to trade to maintain your VAT registration - it is not clear if you ever rented the property to the Partnership or when you purchased the property.
If you never rented the property at all, and only filed Nil VAT returns then was there ever any (property rental) business here? If you aim to rent it or sell it, then you may have to evidence that you are doing this, such as adverts for rent, engaging with an estate agent, etc. If you intend to do nothing with it for the remaining years of your option to tax, then I think that will present an issue eventually both for VAT and also the property itself will degrade or be open to vandalism if left unoccupied.
Of course, a landlord will struggle to find tenants in the current climate, but it comes back to my initial question, what are you intending to do with this property long-term? once you know your long-term plans, then the VAT solution will be easier to see.
Thanks for this answer.
Yes - my 2 options are 1) rent to someone or 2) sell the property.
In hindsight, I didn't word my question very well last night - I certainly did not contact HMRC asking for tax advice.
My issue is that, whether letting or selling, in the current climate the property may well remain empty for the short term (say 3-6 months). A nil return has already been submitted for July, August, September as there was no income or expenditure.
My question was: If I was to keep the property, with the intention to rent it out, but it took me a further 6 months to get a tenant, would the fact that I would have submitted 3 consecutive nil returns by that point cause me issues with my VAT registration?
I certainly don't expect to do nothing for the remaining years of the option to tax.
<My question was: If I was to keep the property, with the intention to rent it out, but it took me a further 6 months to get a tenant, would the fact that I would have submitted 3 consecutive nil returns by that point cause me issues with my VAT registration?
No.
So you've filed 3 Nil returns to date (July, August, September 2020) and you will probably file another 3-4 nil returns.
That shouldn't cause any issues with the registration or HMRC, usually after about 18mths-24mths of Nil returns, HMRC may send a courtesy letter asking if you are still intending to trade and if you do get that letter, you just reply with "Yes, I am still intending to trade" and they'll not revisit this for another 18 months or so.
My suggestion re evidence of intention to rent is just more a protection, HMRC may in the long-term ask if there was ever a business here from day 1 seeing as its never been let and with no evidence of it being let, but that'll be much longer down the road, by which time you'll have rented or sold the property.