Residential letting of property is exempt from VAT, so can’t charge VAT on the Rent.
The VAT rules say, if you only sell or otherwise supply goods or services that are exempt from VAT then yours is an exempt business and:
- you cannot register for VAT
- you cannot recover any VAT you incur on your purchases or expenses
However, if an Individual (Sole Trader), Partnership or Company has other vatable supplies, it could register for VAT and be partly exempt.
Partly exempt business
Your business is partly exempt if your business has incurred VAT on purchases that relate to exempt supplies. This is known as exempt input tax.
Generally, you won’t be able to reclaim exempt input tax. However, provided the amount of exempt input tax is below a certain amount, it can be recovered in full.
Non-business use in a partly exempt business
You can’t reclaim VAT you pay on goods and services that aren’t for business purposes. If your business is partly exempt and you buy goods or services that you use partly for business and partly for non-business purposes you must split the VAT accordingly. You then use your partial exemption method to work out how much of the business VAT you can reclaim.
Keeping records if your business is partly exempt
If you make both taxable and exempt supplies, you must keep a separate record of your exempt sales and details of how you’ve worked out how much VAT to reclaim.
De Minimis Limits
To stay below the de minimis limits, the following two conditions must both be met:
- the input VAT attributed to exempt supplies must not exceed £1,875 for the quarter (£625 for a monthly return and £7,500 for an annual calculation); and
- the input VAT attributed to exempt supplies must not exceed 50% of the total input VAT incurred in that quarter.
Effectively, this allows up to £7,500 of input VAT, relating to exempt supplies which would not otherwise be recoverable, to be recovered each year by a partially exempt business.
Vatable Business Activity
You could
- Provide Freelance Services
- Rent out vatable commercial property
- Let property as holiday accomodation
- Or provide other business services
Generally, my recommendation would be to keep your business activities in separate businesses so you need to be careful not to focus on a small VAT saving for the sake of the overall business structure.
