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VAT on late payments of rent

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25 November 2014

If a commercial  tenant is late in paying their rent this could leave the landlord with obvious cashflow problems.  In addition, further cashflow difficulties may occur where the landlord is also VAT registered.

For example, if the landlord issues a VAT invoice requesting payment of the rent, this fixes the tax point as the date of that invoice. This may be well in advance of the time when the tenant actually pays and hence the landlord could pay over the VAT to HM Revenue & Customs some time in advance of receiving the money from the tenant.

One way around this is to move to a ‘cash accounting’ basis for VAT, such that you only have to pay the VAT to HMRC once the tenant has paid you. There are, however, conditions which would need to be satisfied and certain drawbacks that would need to be weighed up before adopting this approach.

Another potential solution is that a rent demand is issued rather than a VAT invoice. The VAT invoice is then only issued once the rent has been paid, delaying the VAT. This approach would increase the amount of administration required by the landlord but would avoid having to account for VAT on unpaid rent, and subsequently having to claim bad debt relief.

Please get in touch with Julian Millinchamp if you would like to discuss the options available in more detail or would like further information.