Reply To: When VAT is not VAT

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Trevor S

I’m assuming that there is a lease between your company and a tenant who occupies the apartment, a separate contract between your company and the letting agent and that the letting agent has no rights over the property.

If so, the letting agent is making a supply of services to you. The VAT exemption covering the rent is one on the “grant of any interest in or right over land or of any licence to occupy land” – Group 1, Schedule 9 of the VAT Act 1994 There is no reference in this legislation to it also including an agent’s services in arranging that “grant”. So the agent’s services should be subject to VAT, assuming that they exceed the registration threshold.

If they are VAT registered, they are obliged by law to issue a VAT invoice under regulation 13 of the Value Added Tax Regulations 1995 for any supplies made to a taxable person. I suspect this last bit may be the issue? A “taxable person” is defined in s3(1) of the VAT Act as “a person [who] is, or is required to be, registered under this Act”. Anyone whose only line of business was as landlord for VAT-exempt properties wouldn’t be required to register for VAT. You may find that the vast majority of the agents clients are in this position. In which case, they may well be declaring the VAT to HMRC correctly – and just failing to issue VAT invoices to you because they’re not recognising that they’re required to because of your other business activities. There’s no harm in going back to them, quoting the pieces of legislation that I have, and explaining why the position for you may differ to that for their other clients. It’s quite possible that those working for the agent will have just been told that there is no need to issue VAT invoices to landlords of VAT-exempt properties, without the reasoning ever having been explained.

Why wouldn’t the agent just issue VAT invoices to all landlords, whether they were obliged to or not? I suspect this is due to the tax point. If they issue a VAT invoice, they’re likely to be required to pay the VAT over to HMRC based on the date that the invoice is raised. Whereas if they don’t issue a VAT invoice, they don’t need to account for VAT until they’ve been paid. A potential cashflow benefit.

Even if you had a VAT invoice, you are not entitled to reclaim the VAT charged by the agent, as it relates to your exempt supply of the property (see your last post from a couple of months ago). So the amount that you’re currently paying them is correct, and the current cost to you is correct. The agent’s accounting of VAT to HMRC is a matter between the agent and HMRC. While anyone can tip-off HMRC if they believe that someone is failing to account for tax properly, you really don’t have evidence of that at the moment. The agent’s actions could simply be a misunderstanding of their invoicing obligations.

Of course, as it’s likely that the agent should be VAT registered – there is no harm in asking them for their VAT registration number so (if you haven’t already done so) and checking it on the government website