Are Dilapidations taxable?

The outgoing tenant is likely to be liable for these repair costs, commonly known as dilapidation payments. Any payments that are held out to be revenue will become taxable under the Income Tax or the Corporation Tax rules, a capital receipt will be subject to the rules which apply to Capital Gains.

Are rent deposits outside the scope of VAT?

VAT is not actually payable when the money is put on deposit, since the landlord is making no supply at that date. It is only if and when the Landlord makes a deduction from the deposit monies that a taxable supply is made that is liable to VAT.

Do you pay VAT on premises?

As a general rule, the sale or lease of a commercial property is exempt from VAT, which means neither a purchaser nor a tenant would have to pay VAT. The latter may occur where a property has been refurbished or renovated, and the vendor or landlord is looking to recover the VAT costs associated with that work.

When can a landlord charge VAT on rent?

This means that VAT must be charged on any rents received and any leases or sale of the property in future, although in special circumstances VAT might not be charged on a lease or sale. Once opted, a property investor can recover VAT on any expenses that relate to the opted property.

Is dilapidations exempt from VAT?

Dilapidations payments under commercial leases are currently outside the scope of VAT, but proposed new guidance issued by HMRC in Revenue & Customs Brief 12/20 suggested that position could be changing so that dilapidations could become subject to VAT where the landlord had opted to tax.

Do dilapidations have VAT?

“A dilapidation payment represents a claim for damages by the landlord against the tenant’s ‘want of repair’. The payment involved is not the consideration for a supply for VAT purposes and is outside the scope of VAT.”

Is there VAT on cancellation fees?

VAT is a tax on the supply of goods and services. Most early termination and cancellation fees are therefore liable for VAT. This is the case even if they are described as compensation or damages.

Is there VAT on hotel cancellation charges?

HMRC’s guidance has stated that a cancellation charge for a hotel room is outside the scope of VAT (unless it is for a ‘guaranteed reservation’, where the hotel is contractually obliged to retain an empty room for a customer who can arrive at any point within the guaranteed period).

Is the sale of a residential property exempt from VAT?

The sale and rental of property is normally exempt from VAT with some exceptions. These are the sale of new residential property which is zero-rated and the freehold sale of new (less than 3 years old) commercial property which is standard rated.

Do you pay VAT on Dilapidations?

Can a landlord charge VAT on rent?

If the landlord has ‘opted to tax’ for VAT purposes, then the rental payments will be subject to VAT; otherwise, rental payments are exempt from VAT. If your business is VAT-registered, your costs will not normally be any higher whether the landlord has opted to tax or not.

Can a landlord charge VAT on rates?

The rental of a property for residential accommodation – for example flats, apartments and houses – is exempt from VAT in terms of section 12(c). It is common practice in the property rental industry for the landlord to pass on service-related charges such as property rates, electricity, water and refuse to the tenant.

Why are dilapidations considered outside the scope of VAT?

Historically, HMRC have accepted that dilapidation payments are compensation payable by an outgoing tenant to relieve it of the obligation to return the property to the landlord in good repair. As compensation, these payments have been treated as outside the scope of VAT in practice.

Can a landlord claim VAT on a dilapidation?

At the time of writing, paragraph 10.12 of HMRC’s VAT Notice 742 states the following: “ A dilapidation payment represents a claim for damages by the landlord against the tenant’s ‘want of repair’. The payment involved is not the consideration for a supply for VAT purposes and is outside the scope of VAT.”

When does HMRC have to deal with dilapidation payments?

HMRC’s September 2020 briefing raised some uncertainty on the status of dilapidation payments as it does not expressly deal with dilapidation payments but is so widely drawn that it could potentially be read as covering such payments.

Why are dilapidations payments not considered for supply under lease?

This is primarily because the basis on which a dilapidations payment is made is not ordinarily set out in the underlying contract (i.e. the lease); such payments cannot therefore be consideration for a supply under the lease for the purposes of the cases cited by HMRC in RCB 12/20.