Mitigating Property VAT Costs For Landlords
Is your tenant struggling to pay?
Posted by Helen Beaumont on 07/10/2020 @ 8:00AM
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 ...
Whilst rental incomes have reduced, VAT costs for landlords have remained the same!
copyright: cecil king / pixabay
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.
Until next time ...
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about VAT costs for landlords, call me on 01908 774323, leave a comment below or click here to ping over an email and let's see how I can help.
About Helen Beaumont ...
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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