I just bought a retail property. The property is elected for VAT, and I send VAT invoices to the tenant. With reference to the property insurance based on the lease term, I have to pay the insurance and then charge it to the tenant. When I recharge the insurance to the tenant, do I charge VAT on the VAT inclusive insurance cost, or on the VAT exclusive insurance cost? Do I have to add the VAT to the insurance charged to the tenant?
Arthur Weller replies:
It is your choice how much to charge the tenant, and it is understandable that you charge your tenant rental income plus an amount equal to the insurance. However, you can reclaim the VAT you pay in relation to the insurance (I am not sure what this is exactly) as your input VAT (see Public Notice 742A, section 9.1), so you don't have to charge the tenant for this.
This question was first printed in Business Tax Insider in March 2017.