Services: Should the Landlord Charge VAT?
In general, rents on property are exempt supplies for VAT. However, a landlord often supplies other services to tenants, such as cleaning and maintenance, which would normally be subject to VAT.
When both taxable and non-taxable supplies are made as a single supply, the general rule is that the VAT treatment of the larger supply (usually the rent in these cases) dictates the VAT treatment of the whole. In such cases, it is therefore important to determine whether there is one supply or more than one.
Until recently, this issue was straightforward, because supplies ancillary to letting (an exempt supply) which are ‘closely linked’ to it were also treated as exempt. However, a 2009 decision by the Court of Justice of the European Union (CJEU) has complicated the matter somewhat. In the case in point, the Court took the approach of considering whether or not the ancillary services (cleaning) could have been supplied by a person other than the landlord. It reasoned that if they could, and the provision by a third party would be a taxable supply, so would provision of the services by the landlord.
More recently still, two cases have come before the First-Tier Tribunal on this topic. One has been referred to the CJEU for certain issues to be resolved. In the other, the supply of water to tenants was ruled to be a separate supply, despite the fact that the tenancy agreement required the tenants to take water from the landlord.
If you would like further information or advice regarding the matters raised within this article please contact Lynn Onyett by e mail to lynnonyett@stones-solicitors.co.uk or telephone 01392 671434