If VAT is charged on Commercial Lease, at which rate should it be applied?

Question: If VAT is charged on Commercial Lease, at which rate should it be applied?

I believe it should be at 21.5%, ([broken link removed]), however the so called 'expert' says it should be 13.5%. More importantly, if it is charged at the wrong rate, who at the end of liable for the difference?

You're right. I have been dealing with commercial leases in an accounts office for over twenty years and they have always been charged at the higher rate of VAT. i.e. 21.5% since December 2008.

Problem here is that its a debatable point, and simply applying and then fighting for the 13.5% could land you in Court to argue your case.

I would use the 21.5, and then theres some way of applying to revenue, its called a disputed principle or somthing along those lines and ask can you apply 13.5%. Chances are they will say no, as above most leases do use the 21.5% but might be worth a look.

The best way to find a definitive answer is to ask a decent solicitor, not an accountant. And to be sure, make sure you get the opinion in writing in case it is incorrect.

In my experience, very very few solicitors would be competent to give VAT on property advice.

Provided the lease is not an ownership lease (eg for 99 years +) and is being granted now (rather than before the changes in the rules that came into effect in July 2008) then if the landlord is applying VAT, the rate applicable is 21.5%.

The landlord does not have to "opt to tax" the lease but may have a significant VAT clawback if they do not. If the VAT is to be a real cost for the tenant (because they can't recover it) there may be room for negotiation on the rent if the landlord agrees not to opt to tax the lease.

If the wrong rate of VAT is applied the Revenue will seek the additional tax from the landlord only. However, if the landlord's solicitor is worth their salt at all, the lease should allow the landlord to pass this cost onto the tenant.

Well any tine I have a VAT issue on a lease, my solicitors answer the queries not the accountants.

It is a standard 4 Year 9 Month Lease, the building under 25 years old. Owner has several properties and is probable feeling the pain. Rent would be under 50% of that they were originally looking and getting previously (I had to laugh when I heard our 'leader' on RTE 1 a week ago claiming commercial rents were not falling!), but VAT is not recoverable. At this stage I know more about VAT than the solicitor, who was "not too sure" about the rules changing last year. The 'expert' is a glorified estate agent, so enough said!!!

Anyway, thanks for the info, it confirmed my suspicions.

Assuming its a normal commercial building, lease for 4yr 9months, then vat is at 21.5% and is reclaimable in the normal way of any business expense assuming you are registered for vat.