Insights

There have been a number of developments and potential rebate opportunities relevant for VAT registered businesses recently. Firstly, let’s start with the good news and an opportunity we have identified for some business owners to reclaim VAT paid out over the last 4 years. This could be a possibility if you have a VAT registered business and also own residential rental accommodation under the same VAT registered entity.The reason this rebate opportunity exists is because income from rental property is classed as investment income and taxed accordingly, but for VAT purposes, it is classed as trading income, which means this income and the associated expenditure must be included in VAT returns. So, VAT incurred on expenditure for this property can be claimed back - subject to certain thresholds. . The types of VAT-able expenses that will qualify include decorating expenses, property repairs and maintenance and also management fees to letting agencies.

Since the tax implications of owning residential property through a limited company have become less favourable for company owners and directors, this situation is most likely to be applicable to those operating either through a partnership or as a sole trader. It is also applicable to LLPs (limited liability partnerships) who own residential property, which is rented out. Most of our clients will already have restructured their property investment portfolios to avoid owning a rental property through a limited company, however if this circumstance applies to you, it is worth investigating the possibility of making a rebate claim.

VAT Rebate Opportunity – Rules in Summary
In order to qualify for the VAT rebate, the following conditions need to apply:
The property must be owned by the same entity that is VAT registered and must be rented out as residential accommodation. So for instance it would be possible to reclaim VAT paid over the past 4 years if a husband and wife are partners in a VAT registered business and also own a property.

Examples
Rebate opportunity applies: A VAT registered husband and wife (Mr & Mrs Smith) partnership runs a hairdressing business; Mr & Mrs Smith also own three residential properties, which they rent out. They do not include any of the rental income or associated expenditure in their VAT returns for the hairdressers.

Rebate opportunity does not apply: Mr & Mrs Smith also have their daughter Miss Smith in the VAT registered hairdressing partnership but it is only Mr and Mrs Smith who own the three residential buy to let properties.

Outstanding VAT Returns Campaign

Onto the less welcome, but no less important, VAT news. HMRC is launching a major campaign – unsurprisingly named The Outstanding VAT Return Campaign - aimed at the 50,000 or so business owners who have failed to submit their VAT returns on time and owe money.

Starting from 28th February 2013, this new initiative will target offending businesses in order to recoup VAT owed. If you have VAT returns outstanding, you will be given an opportunity to get up to date and pay tax owed before 28th February. After this date, HMRC will be taking a much closer look at your tax affairs.

By using this campaign to come forward voluntarily, business owners will be dealt with more leniently. Any penalties to be paid will be lower than if HMRC comes to them first and it will be possible to avoid criminal prosecutions.

For many businesses, completing quarterly VAT returns is an unwelcome administrative burden. A number of schemes are available support smaller businesses, for example, cash accounting, annual accounting and the flat rate scheme for small businesses.

If you need any additional support to resolve outstanding VAT issues, please contact RJP, we have experienced VAT advisors and they may be able to identify additional ways for you to reclaim VAT paid out. Help is also available from HMRC through their VAT Helpline on 0845 010 9000 or you can visit www.hmrc.gov.uk/campaigns/vator.htm.

For VAT advice through RJP, please contact Simon Paterson by emailing sp@rjp.co.uk.