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  • Tax

    VAT on different rental incomes

    Hello,

    I am aware that I have to register for VAT and start paying it if I am over the £85k threshold however:
    - Does this mean I would have to start paying VAT on my residential lets?
    - I understand it would be the case for Holiday lets (https://www.propertytribes.com/vat-on-ho...1619.html) but does it apply to any other form of rental income?
    - Also, could someone pease confirm that I only have to pay VAT on the amount exceeding the threshold (ie. not 20% on the first £85k as well)?

    Many thanks!

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    Vat on residential lets other than holiday (short term) lets are exempt. You don't count them when working out whether you have exceeded the limit. Once you have exceeded the limit you have to charge VAT on total income thereafter.

    Deb

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    Debbie Franklin

    Director of Tax Peplows Limited

    CTA ACA FCCA

    Thank you Debs, much appreciated.

    Does it matter if I own the property in a limited company or not?

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    No VAT treatment as exempt is the same

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    Debbie Franklin

    Director of Tax Peplows Limited

    CTA ACA FCCA

    Hi Michael

    Domestic Residential property and the income derived from it is generally Exempt VAT which means that no VAT is chargeable on the rent and hence none is payable to HMRC.  As you mention the situation with Furnished Holiday lets is different as is the position of Serviced Accommodation, the reason being that they are treated in the same way as Hotels.  The other property which can also be different is commercial property where you can 'opt to Tax' the property and then VAT is payable on the rental income as well as the sale of the property.

    As regards your question about whether VAT is payable on all of the turnover once you register for VAT or only above the £85k registration threshold.  The answer is that the VAT is payable on all of the income from the first penny earned so it applies to all of the income once registered.

    Hopefully I have answered your questions.

    Regards Nigel

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    Thanks for clarifying Nigel, just to be clear.

    1. I'll register for VAT as soon as I reach the threshold

    2. I will thereafter pay 20% on everything thereafter (not counting the £85,000 that I earned before registering)?.

    3. After I am registered I will always pay 20% OR is the £85,000 threshold in effect an allowance that is applied again next tax year?

    (The answer here www.propertytribes.com/showthread.php?tid=127631619&action=lastpost&type=user&lid=308342 confuse me a bit)

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    Hi Michael

    The way the system works is that once you have breached the £85k limit then you are required to register for VAT with effect from the 1st day one month after the breach.  So, for example, if you exceeded £85k in February 2018 then you must register with effect from 1 April 2018 and account for VAT on all sales from that point forwards.  Accordingly you ignore the VAT on all sales up to and including 31 March as that would be prior to registration.

    I assume that since you are talking about registering for VAT that you are doing Furnished Holiday Lets rather than Buy to Let.  If you are doing both then your VAT can get messy and I would recommend that you get professional advice.

    Regards Nigel

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    You don’t pay VAT you merely collect if for HMRC, your guests / commercial tenants pay the VAT.  You of course can then claim VAT back on your expenditures.

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