VAT on renting commercial road as Business

VAT on renting a commercial road as a mutual benefit corporation

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So there is a given area of office spaces and warehouses with the road belongs to them. The owners of the commercial buildings in the area, estabilished a mutual benefit company for the purpose of managing property related expenses. They pay in a certain amount each year to the management company to use it for any premises expenses. The company was not VAT registered until now. There is a construction going on nearby and the builder company wants to use the road belonging to the offices. The management company will invoice the building company. The question is if the management company have to charge VAT for the invoices which will be issued for the building company? Or if not obligatory, can they opt in? 

Thanks for the answers

Replies (18)

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By Hugo Fair
06th Nov 2021 18:35

"The company was not VAT registered until now."
Do you mean that it now IS registered?
Or do you mean that you are thinking of doing this?

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By User deleted
06th Nov 2021 18:54

Hi Hugo,

They did register it for VAT just now but actually I am just wondering if it was the right thing to do.

Thanks,

David

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Replying to User deleted:
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By Hugo Fair
06th Nov 2021 19:35

Well, it's not clear what your relationship is with the "mutual benefit company" - but if you're meant to be advising them and they're making unilateral decisions (like registering for VAT) without reference to you (or indeed any explanation for why they did so) - then it's not a promising situation.

Anyway, a start would be to check exactly in what form the 'company' has been created ... as a mutual benefit company is not a standard concept in the UK.
Then confirm the nature of your relationship with that company - including which services you are contracted to provide them with (and whether you are qualified to do so - and are allowed to practice in that capacity).

All this comes well before "The question is if the management company have to charge VAT for the invoices which will be issued for the building company?" ... which in itself cannot be answered without any idea as to what services (and supplied by whom) will be covered by those invoices.

If as sounds likely you are not experienced in VAT matters, then you (or rather the company) needs to appoint one ASAP.

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By User deleted
06th Nov 2021 20:33

It’s legally a Private Limited Company but was making no profit till now. It was created as a property management company so the property owners can pay in a certain amount and use the fund if any expenses occurred in the area around the offices. I am working for one of the offices and to be honest was just wondering the implications. They registered the company for VAT because there is a construction nearby and the construction company which carries out the construction work will pay a certain amount to the management company for using the road next to the offices. Other than that, there won’t be any other incomes apart from the money the office owners pays in but the office owners have also equal shares in this management company so apparently it’s not really an income what they pay in. I can’t write it in more details nor I can’t give more information and I was just curious what are the VAT implications in a scenario like this because I couldn’t really find the exact answer. I could have just asked the question in general because I am curious about the situation what happens when a Private Limited company only income is renting a road but the income will be above the 85K VAT threshold if they need to register VAT or not and supply VAT invoices to the construction company. I am not an advisor just was curious but if this info isn’t enough to get an answer then I understand and thanks for trying.

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Replying to User deleted:
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By the_drookit_dug
06th Nov 2021 20:26

Is it really a plc???!!

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By User deleted
06th Nov 2021 20:33

Sorry I meant to say private limited company, edited now

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By Paul Crowley
06th Nov 2021 22:11

Chances are that you do not know exactly what the decisions are and why made
Any answer here will need to assume or guess those decisions, so unlikely to help.

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Replying to Paul Crowley:
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By User deleted
06th Nov 2021 22:51

Maybe I wrote my question too specific. I just want to know the VAT implications regarding to renting a private road as a business if your only income is the rent from renting that private road. I couldn’t find any sources. That’s all. Someone must know the rules if they are chartered accountants. Thanks

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Replying to User deleted:
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By Paul Crowley
06th Nov 2021 23:13

That is not the case
Clearly there is income from the road and from property owners
The VAT might be a good (not related to road) decision as the road and property costs probably have VAT on them
The costs to VAT registered businesses are therefore less than they were as VAT gets recovered.
Any property owner not registered for VAT, eg finance, now is diadvantaged

It is a limited company and any other agreement on mutual trading with HMRC (if any) may now be at risk as the company is charging a third party.

You say limited company
Limited by share or limited by guarantee? different rules apply.
Most service charge companies set up merely to share costs would be guarantee and as such not able to distribute profits

There is a lot to understand, and only precise details can lead to any meaningful reply

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Replying to User deleted:
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By David Ex
07th Nov 2021 10:36

berdavid88 wrote:

I just want to know the VAT implications regarding to renting a private road as a business if your only income is the rent from renting that private road.

berdavid88 wrote:

I am working for one of the offices and to be honest was just wondering the implications.

I’m intrigued by the fact that you’re interested in something that, on the face of it, isn’t of any consequence to you.

Have you spoken to the directors of the company? They would be able to explain their thinking if it was something they were prepared to share with you.

If you want to know more about the principles of VAT, this is a good place to start:

https://www.gov.uk/guidance/vat-guide-notice-700

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By User deleted
06th Nov 2021 22:52

Maybe I wrote my question too specific. I just want to know the VAT implications regarding to renting a private road as a business if your only income is the rent from renting that private road. I couldn’t find any sources. That’s all. Someone must know the rules if they are chartered accountants.Thanks

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Replying to User deleted:
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By Hugo Fair
06th Nov 2021 23:08

But the rent from renting the private road isn't the only income is it. As you said before - the owners of the commercial buildings, who established a company for the purpose of managing property related expenses, pay in to that company.
There are all sorts of facts that, as Paul said, you probably aren't privy to - but that potentially affect the answer to the question you're asking.
There is no single 'rule', but a lot of them that interact depending on circumstances.

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Replying to Hugo Fair:
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By User deleted
06th Nov 2021 23:17

And can you forward me to a place where I can find some info about this? I just want to read and learn that’s it.

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Replying to User deleted:
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By Hugo Fair
06th Nov 2021 23:30
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Replying to User deleted:
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By Paul Crowley
06th Nov 2021 23:15

I refer to my prior answer above
I am a Chartered Accountant and not a mind reader of the directors of the company.

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By paulwakefield1
08th Nov 2021 09:33

Land and property is one of the most complex areas of VAT. If you want to do some reading, Land and Property VAT notice 742 will give you a start: https://www.gov.uk/guidance/vat-on-land-and-property-notice-742

Para 2.4 may be in play here and exempt but may not be depending on a full picture.

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paddle steamer
By DJKL
08th Nov 2021 10:21

Step one is look carefully at what this buiding company is paying for this access, over what period do they pay (just during the build or ongoing post development) , is it a rent or has there maybe been a partial disposal etc?

Second point is, has the company owning the road charged the right price? Ransoms can be very interesting (Even over fly rights re cranes can be lucrative and of course if the neighbours say build in the wrong place over a boundary things are even better- over the years we have earned money re all of these)A good commercial agent, versed in squeezing the pips out of the opposition, is essential, step one re price is, what it costs the builder if access is not granted?

Hopefully nothing has yet been signed but at least if it has the question of what is being supplied and for how long will be clear?

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By Jason Croke
08th Nov 2021 13:30

https://www.gov.uk/guidance/vat-on-land-and-property-notice-742#para21

Rights to park vehicles on land is standard rated, but potentially exempt, it depends entirely on what the right over land stipulates - What can the construction company do with this road, park vehicles on it, use it to access their own site, etc.

Else, generally rights over land are exempt, which means if the entity is VAT registered, then it will be partially exempt with a restriction/block on input tax.

With regard the entity itself, on what basis has it registered for VAT? One can only register for VAT if one intends to make VATable sales. Sounds like either it isn't making any taxable supplies and should not have registered for VAT or else, it is making taxable supplies which then makes the monies it receives from the tenants taxable....again, what are the contractual terms for these payments.

What you can't have is say all the tenants aren't VAT registered, the "management company" is VAT registered and reclaims VAT on any repairs to the road, VAT that the individual tenants couldn't reclaim on their own, the management company has to be making a supply of something for it to be registered for VAT.

I think there is a lot going wrong here or the information to make an informed view is missing.

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