Can your business save VAT on rental payments?

Published: Thursday 23 September 2010

With the increased 20% VAT rate coming into force in January, it is more important than ever that businesses look at ways to reduce their VAT costs.

If your business is partly exempt and the business pays rent on a property, read on to see if you can save VAT. (A partly exempt business is one which incurs VAT on costs, either wholly or partly, in relation to exempt supplies. If you would like to find out more about partial exemption read our factsheet).

A VAT saving may be possible if the property you rent is subject to a longstanding option to tax.

How does it work?
The VAT option to tax regulations were introduced in August 1989, effectively giving a taxpayer the option to decide whether certain supplies involving land and property would be standard rated or exempt from VAT. If your landlord (or a previous owner of the property) elected to tax the property, the rent you pay will be subject to irrecoverable VAT.

Once made an election to tax for VAT purposes cannot be revoked for 20 years. As it is more than 20 years since the first elections were made it is now possible that some elections could be revoked. If an option to tax is revoked, then supplies involving the land or building will again become exempt and that is where you, as tenant, could save VAT.

What next?
If your business could save tax by an option being revoked you should ask the landlord if their option to tax election has been in place for more than 20 years and whether it can be revoked.

More generally, Hazlewoods can help partly exempt clients reduce their overall VAT burden by optimising the amount that can be recovered and ensuring VAT is not incurred incorrectly / inappropriately.

For more information please email Adam Lloyd or Julian Millinchamp.