Beware the tax man on property lettings
Farmers diversifying into letting of commercial or residential property must be careful when reclaiming VAT on building work, amid closer attention from H M Revenue & Customs.
“The tax man is taking a more aggressive stance on agriculture, and this is one area where it is easy to fall foul of the rules,” says Mike Butler, partner at accountant Old Mill Rural Services. “People are diversifying and in particular developing buildings to let out either commercially or residentially. They assume that VAT is recoverable on the work done, but this often isn’t the case.”
When buildings are let out for residential use, VAT cannot be claimed on the initial, or maintenance, work, as tenants are not charged tax on the rent they pay. However, where buildings are let out for commercial use, VAT can be reclaimed on both capital and maintenance work, as long as the tenant is VAT registered and pays tax on their rent.
Landlords can also reclaim VAT on properties used by farm workers, as long as they are not paying a rent, says Mr Butler.
Fortunately, there is an allowance whereby landlords can recover up to £625/month in VAT, even if the property is one where the tax cannot normally be reclaimed. “This means that you can spend up to £42,000 a year and reclaim the VAT – saving yourself £7500,” says Mr Butler. “But if you spend a penny more you cannot claim any of the VAT back at all. The tax year for these purposes runs from April 1 to March 31, so be careful to spread any larger projects over two years.”
Ends.
Notes to editors
For more information contact
Alan Stone - Marketing Manager
Tel: 01749 335007
E-mail: alan.stone@oldmillgroup.co.uk
About Old Mill Rural Services
Old Mill accountants and financial advisers employ 140 staff in three West Country offices. The rural services teams are headed by Partners Mike Butler (Yeovil) and Ian Sharpe (Shepton Mallet). Looking after nearly 1,000 farmers they are one of the leading specialist farm accountants.