VAT and charity question
Discussion
My accountant says I'm well stuffed, but I thought I'd ask the question here anyway! The likes of Eric may have a view.
In summary, I'm buying a property with a view to letting it to a charity for a peppercorn rent for 10-15 years. The charity is quite dear to my heart and the property is likely to be a sound investment - so it's a "win-win". I've told the charity (which is very small with a t/o of just £8k) that they need to finance the refurb of the building - and indeed they've got backers to do that. The refurb will cost about £80k + VAT all in. However, the charity can't claim the VAT back so the real cost is £95k. I realise that there are certain VAT exempt stuff on the refurb but it only comes to about 10% of the cost.
So my question: has my accountant called it right and there's no way the VAT can be reclaimed in any way? I'd be happy to look at restructuring the deal to make it more Tax efficient.
In summary, I'm buying a property with a view to letting it to a charity for a peppercorn rent for 10-15 years. The charity is quite dear to my heart and the property is likely to be a sound investment - so it's a "win-win". I've told the charity (which is very small with a t/o of just £8k) that they need to finance the refurb of the building - and indeed they've got backers to do that. The refurb will cost about £80k + VAT all in. However, the charity can't claim the VAT back so the real cost is £95k. I realise that there are certain VAT exempt stuff on the refurb but it only comes to about 10% of the cost.
So my question: has my accountant called it right and there's no way the VAT can be reclaimed in any way? I'd be happy to look at restructuring the deal to make it more Tax efficient.
Smartie said:
Can't you refurb the place before you let it (I trust you can reclaim VAT), then charge a higher rent to allow for this. If they pay a large amount of rent up front (say £80K) then you could offer a discount on the balance? (back to the amount you originally intended?)
The problem there is that if I charge £80k rent then I'll need to charge VAT on that - which they won't be able to claim back.
srebbe64 said:
Smartie said:
Can't you refurb the place before you let it (I trust you can reclaim VAT), then charge a higher rent to allow for this. If they pay a large amount of rent up front (say £80K) then you could offer a discount on the balance? (back to the amount you originally intended?)
The problem there is that if I charge £80k rent then I'll need to charge VAT on that - which they won't be able to claim back.
Whats the limit to zero rate VAT?
Couldn't you invoice it below the limit, can they not then choose to pay in advance, even though it's not invoiced?
What a combination of "tricky" VAT points - property, charities and exemption limits!
Charities are not automatically entitled to exemptions from VAT. However, there are some exeptions to this general rule. If a charity intends to use the product purchased or the service supplied in futherance of their charitable objectives, then they MAY be able to ask the supplier to Zero Rate the supply.
The difficult part is deciding whether the goods/services purchased were DIRECTLY related to the charitable activity or ancilliary to those activities.
A landlord can only charge VAT on rents if he has taken the "Option to VAT" on the PROPERTY. It is normally assumed the income derived from properties is Exempt from VAT but HMRC allow lanndlords to "VAT the Property" ao that the landlord can reclaim VAT on the costs of the property (maintenance, repairs, refurbishments, services etc). The landlord's general VAT registration for any normal trading activities would not normally include income and expenditure on properties owned by the landlord.The landlord must exercise his "OPtion to VAT" the property as a separate exercise.
Charities are not automatically entitled to exemptions from VAT. However, there are some exeptions to this general rule. If a charity intends to use the product purchased or the service supplied in futherance of their charitable objectives, then they MAY be able to ask the supplier to Zero Rate the supply.
The difficult part is deciding whether the goods/services purchased were DIRECTLY related to the charitable activity or ancilliary to those activities.
A landlord can only charge VAT on rents if he has taken the "Option to VAT" on the PROPERTY. It is normally assumed the income derived from properties is Exempt from VAT but HMRC allow lanndlords to "VAT the Property" ao that the landlord can reclaim VAT on the costs of the property (maintenance, repairs, refurbishments, services etc). The landlord's general VAT registration for any normal trading activities would not normally include income and expenditure on properties owned by the landlord.The landlord must exercise his "OPtion to VAT" the property as a separate exercise.
Edited by Eric Mc on Friday 26th January 18:48
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