I am the company accountant of a subsidiary of a registered charity.
We are considering taking out a lease on a property for use as a regional office by the subsidiary.
The annual rent is approx. £22,000 + VAT and business rates are approx. £10,000 p.a.
Both the charity and the subsidiary are registered for VAT, the subsidiary being able to recover all input tax, and the charity being partially exempt due to the nature of the bulk of its income.
If the lease is taken out in the name of the charity, I understand that it could get 80% relief on business rates (worth around £8k p.a.).
If the lease is taken out in the name of the subsidiary, it would be able to recover all of the input VAT on the rent, but would not be able to get any business rates relief.
It appears that to arrange the lease in the charity's name would be the best option as the saving in business rates (£8k p.a.) would be greater than the cost of potentially irrecoverable VAT(£4.4k p.a.).
What I am unsure about is, in these circumstances, whether the charity would be able to recover all of the VAT on the rent, on the basis that the supply of the property to the subsidiary could be argued to be standard rated (as the property is subject to an option to tax by its landlord) and, if so, would this mean it could recover all input tax on the rent.
Any help would be greatly appreciated.