# Vat on commercial rent



## rooney (24 Oct 2012)

Hi all,
I have currently entered a sub lease arrangement on a commercial premises. It is a nine year lease . I am the tenant. My sub landlord ,who happen to be an estate agency have been invoicing me for rent plus vat.
I am a sole trader, and not registered for vat, therefore I cannot claim the vat back. 
Is there anyway of getting around this or am I just stuck with paying this vat that I cannot claim back. Does the sub landlord have to charge the vat?
Your advice greatly appreciated.


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## mandelbrot (24 Oct 2012)

http://www.revenue.ie/en/tax/vat/leaflets/property-guide/letting-property-new-system.html#s5


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## oldnick (25 Oct 2012)

Revenue info' doesn't explain if  there a way round it for OP .

I had this problem as a nonVAT registered travel agency and the only way round was to create a VAT registered property company which renetd from the LL. 
The so-called property company of mine then let the premises to my travel agency.

Bloody stupid really and a lot of paperwork and accounting fees but in those days leases of ten years plus all carried VAT,  and renting a  few shops meant a lot of VAT I couldn't claim back without that rather phoney device of a "property company."


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## rooney (25 Oct 2012)

Thanks oldnick, the vat amounts to about 3000 euro so over over 9 years it will be 27k. Ill have a chat with my accountant re the feasability of doing as you say.


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## oldnick (25 Oct 2012)

Do check -I'm recounting  what was really a fiddle to avoid unfair VAT payments on four shops 15-25 years ago. My accountants- one of the big companies -were always telling me that Revenue could one day close what was a rather obvious ploy to avoid -evade?- VAT. 

Things are probably stricter now -and rules may be different; plus, EU rules play a much bigger role.


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## mandelbrot (26 Oct 2012)

oldnick said:


> Do check -I'm recounting  what was really a fiddle to avoid unfair VAT payments on four shops 15-25 years ago. My accountants- one of the big companies -were always telling me that Revenue could one day close what was a rather obvious ploy to avoid -evade?- VAT.
> 
> Things are probably stricter now -and rules may be different; plus, EU rules play a much bigger role.



Sorry Nick but you are WAY behind the game here, showing your age! 

The legislation around VAT on property has been completely changed, but in such a way that the problem you had is no longer an issue requiring a separate entity.

Quite simply, and this is the most superficial possible version of what is an incredibly intricate area:


Letting of property is exempt from VAT - therefore if you are buying / building a property in order to let it, you wouldn't be entitled to recover the VAT.
However, a landlord has the option to tax (ie charge VAT on) a letting.
The only reason they would be opting to do this is to enable them to reclaim the VAT incurred on their acquisition / construction of the property.
In the OP's case, the landlord has obviously reclaimed VAT on the property in question, and if they don't charge him VAT then they will be liable for a clawback of this VAT.
What I'm saying is there is no way around this for the OP, apart from registering for VAT and taking the deduction for VAT like the majority of businesses in commercial leases.



On a side note however, if the VAT on rent is 3k, that means a rent overhead of nearly 18k annually - how can you be in business and paying that level of rent without being VAT registered...?!


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## oldnick (26 Oct 2012)

Yeah, Mandelbrot,I had wondered if things had changed since the Easter Rising...

Now, only because you are pretty damn good at these things ...

If OP is a charity shop, funeral director selling medical or financial services is he not exempt from VAT? I may have got the trades wrong  but assuming he can't charge VAT on his products/services  does that mean there is no way round his problem?


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## mandelbrot (26 Oct 2012)

oldnick said:


> Yeah, Mandelbrot,I had wondered if things had changed since the Easter Rising...
> 
> Now, only because you are pretty damn good at these things ...
> 
> If OP is a charity shop, funeral director selling medical or financial services is he not exempt from VAT? I may have got the trades wrong  but assuming he can't charge VAT on his products/services  does that mean there is no way round his problem?



OK, well without trying to rub it in, I'm so young I didn't have a huge amount of experience with VAT on property under the old system except from bog standard stuff!; but...

My understanding of the "SPC" special purpose companies was that they created a layer between the VAT exempt trader and the vendor / developer, which meant that they could recover the VAT on the cost of the property up front and then repay it over time via VAT on the letting from the SPC to the VAT exempt trader. It was purely a cash flow thing, the VAT wasn't permanently avoided, they just paid it over 9 years 11 mths instead of upfront on the acquisition of the property.

That loophole has now been closed under the new system.

Anyway the OP's case (or the charity /funeral director etc.) is actually no different than that I just described, except that they aren't paying the VAT in order to acquire the property; they're paying it as a tenant, just like you paid it to the SPC back in the day... 

If you think about the way the VAT system as a whole works, it makes sense - exempt persons, whether they are businesses or individual consumers, are the ones who ultimately bear the cost of VAT in the system. This is it applying to property the same way as it does to any other VATable good/service.

Hope that makes sense!


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