Can a property company recover VAT on general overheads? Our client has a number of properties (residential and commercial). They are VAT registered and previously owned a property with an option to tax in place, but sold this a number of years ago. No VAT is charged on the rental income of the properties as they are all exempt, and therefore no VAT is recovered on the associated maintenance and related costs of the property. However, the company incurs a small amount of general expenses in running the company (e.g., stationery, telephone, software, printing, etc.). Can they recover the VAT on this, as it's not related to a specific property but the overall business? My inkling is no, because they do not provide any taxable supplies and therefore cannot recover any VAT.  

Arthur replies: 

Your instinct is correct. Because the company’s current rental activity is wholly exempt from VAT, the VAT on its general overheads (stationery, phone, software, printing, etc.) is residual input tax that must be attributed to those exempt supplies, so none of it is normally recoverable. So, no recovery is possible until the company begins making taxable supplies again (e.g., by opting to tax a new commercial property). The circumstance in which the VAT could be reclaimed is if the business meets the partial-exemption ‘de minimis’ tests (broadly, exempt input tax less than £625 a month and less than 50 % of total input tax).