Partial exemption landlord supplying electric

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Landlord owns property in Ltd company. Not VAT registered, no opt to tax.

Thinking of converting whole unit into 12 seperate smaller units upon current tenant vacating. Current tenant presently has own supply of electricity.

Upon conversion, 12 pre-pay submeters will be utilised due to ridiculous quote by power company for seperate supply.

Landlord will thus pick up whole electric cost including VAT at 20% and will effectively recharge 12 tenants for electric via the pre-pay meters.

It is my understanding (forgive me, VAT is my rustiest subject!) that if the company registers for VAT then under the partial exemption rules the whole of the input tax on the total electric bill is matched with the output tax on each supply to each tenant.

Am I correct please?

If so, upon the supply, is 5% or 20% charged?

Many thanks.

 

 

 

Replies (11)

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chips_at_mattersey
By Les Howard
26th Mar 2021 12:27

Are your tenants commercial or residential?

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VAT
By Jason Croke
26th Mar 2021 12:35

Are these residential units or commercial?

As you mention 5% and partial exemption, then presumably these are residential units? Or is the thinking its a commercial property, charge VAT on the electricity and exempt rent thus partially exempt?

The main supply of electricity is supplied to the landlord and the landlord makes a separate supply of electricity to the tenants (via the sub-meters) charged at 5%, if the supply is part of the rent/recharged by some other method, then it may be seen as ancillary to the main supply of rent and be an exempt recharge.

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By Paul Crowley
26th Mar 2021 13:36

Is this building the complete trade of the company. Any other buildings or trades?

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By paul.benny
26th Mar 2021 14:35

Not the question asked, but nevertheless...
- meter installation isn't the sole preserve of the electricity distribution company. There is guidance on the Ofgem website for new connections
- if the customers are commercial, they're not going to want prepay meters
- if the customers are residential, beware of regulations about pricing on resale of electricity. Guidance also available from Ofgem.

And whether the customers are residential or commercial, they may want to choose their own (cheaper) supplier rather than being stuck with yours

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By Stephen Bloomer
26th Mar 2021 15:47

Sorry chaps - commercial units. That's all this company will do, rent out commercial units.

Jason - thanks. Yes, rent exempt and electric chargeable therefore creates partially exempt status. I only mentioned 5% as I understand it the rate of VAT depends upon commercial/non-commercial consumption? Although the units are commercial, the customers won't necessarily be commercial. I thought that with partially exemption you are able to match exempt supplies to exempt purchases and non-exempt supplies to non-exempt purchases providing your paperwork was up to kilter?

Paul - thanks. Client has mulled all this. Western Power quoted £6k per connection = £72k....!! Apparently the pre-pay meters are 3 phase and you can top up by £10k. I've seen the spec and they are for industry application.

Thanks for the replies.

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Replying to Stephen Bloomer:
VAT
By Jason Croke
26th Mar 2021 16:39

Thanks for confirming, commercial units.

The 5% is for when the customer is not for profit charity or residential use, or when less than 33 kwh per day/1,000 kwh per month.

Partial exemption, I get your drift, input tax on purchases used for making taxable supplies is recoverable, input tax on purchases related to exempt supplies is not recoverable/subject to de minimis test.

Is the intention to register for VAT just on the basis of the electricity charges, reclaim VAT on the install cost of meters and charge VAT at 5% going forwards, but not reclaim VAT on anything else in the Ltd.

You say the units are commercial but the tenants may not be, what does that mean? I ask because you need to be mindful of the lease/contractual arrangement, if I rent a unit for whatever purpose it is of no use to me without electricity, so careful wording of the lease might be required so it is clear there are two separate supplies being made (rent/electric).

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Replying to Jason Croke:
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By Stephen Bloomer
28th Mar 2021 09:42

"Is the intention to register for VAT just on the basis..." - essentially, yes. All other VAT on conversion will just be added to cost.

"You say the units are commercial but the tenants may not be..." - only that, in the current world, modern tenants aren't necessarily businesses. I understand he's already had an offer for one who just wants to store "stuff" for two years. It's just that the VAT will be a "cost" to those types, particularly if at 20%. But it will most likely be 5% - thanks for the 1,000kw/h - couldn't find that anywhere but could find 2,300L kerosene!

Lease - thanks - yes some form of "rent/services" will have to be put in place.

Many thanks Jason, appreciate it.

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Routemaster image
By tom123
26th Mar 2021 15:54

Landlord re-charged electricity smacks of low quality high density domestic rentals.

Unless you are doing easy in easy out 30 day business type premises, your customers are going to want their own supplies.

Any type of industrial setting may want 3 phase. If you are really only supplying fancy garage type units, maybe you can get away with 240v.

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Replying to tom123:
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By Stephen Bloomer
28th Mar 2021 09:45

"your customers are going to want their own supplies." - cannot be done due to stupid quote by Western Power - £6k per unit = £72k

It is 3 phase - it was some sort of cooked meat factory that went bust a couple of years ago.

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Replying to tom123:
paddle steamer
By DJKL
28th Mar 2021 12:28

That is not so, we own a former factory which is all let (50 tenants- workshops/offices/studios), these each range from circa £2,500 pa to £35,000 pa rents, for the smaller units we just rent inclusive (power included within the rent) for the larger they are submetered and we rebill at cost, we pay the electric bill for the entire site (MD meter) which totals circa £45,000 pa.

Same for those parts that are served by the gas central heating systems, the larger units here get billed by floor area the smaller units get gas included within their inclusive rents.

We have the same situation with other units we own, though not so many tenants, we have two other sites where power is split via submeters, I also have two former offices in a stair which each has now been divided into two and we again rebill the power rather than commit to new supplies.

Splitting power can be very expensive and what you want/need today re unit size may be very different tomorrow, as an example re cost back in circa 2010 we had to split a block of 27 flats we had built in the 90s which had one metered supply submetered into 27 (one of the joys of my job was rebilling), to sort the gas and electric out into individual power company meters, in order to then sell the individual flats, cost us circa £150,000.

Having new supplies installed can be really expensive hence often why one does not bother, we repurpose buildings as trends change so how does one future proof metering if unit sizes, unit wall/partions/configurations etc often get changed to fit changes in tenant demand?

(Currently small is the new beautiful re marketing commercial property, in fact rates per sq ft increasesthe smaller the unit supplied within the secondary/tertiary market, we have some very small studio units achieving £25 per sq ft which is unheard of when a small industrial might only get £7 psq IRI and small offices £12psf IRI))

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Replying to DJKL:
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By Stephen Bloomer
29th Mar 2021 13:53

Interesting.
Thank you.

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