The Coronavirus lockdown saw a decline in the use of commercial premises with everyone told to work from home where possible. So tenants were either unable to pay their rent, were requesting rent-free periods, or even further time to pay ...
This means an obvious loss of income for landlords, with the additional cost of VAT still to manage. VAT must be paid on any invoices already raised. The strange situation is that the tenant can recover the VAT on that invoice, even if they haven't paid it yet, so they'll actually be better off than the landlord.
However, there are steps you can take to mitigate this cost:
- If the tenant is able to recover the VAT, ask them to make a payment of that amount, even if they can't afford the principal sum. - Issue a request for payment rather than a tax invoice, then issue the invoice when the tenant can afford to pay. This defers the tax point and allows you to account for the VAT when you have received the funds. - You can claim bad debt relief of the VAT after six months, though you must keep detailed records in case HMRC query it. - If you can't afford to pay your entire VAT bill, look into making a time to pay agreement.
You can agree on a rent-free period with the tenant that normally has no VAT consequences; however, the tenant can't provide any consideration when taking the lease. Any lease renegotiations will need professional tax advice as variations can have often overlooked VAT consequences.
If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.