Tax News
July 10, 2023
5 Minutes

VAT for landlords and what is Option to Tax?

Mike Crocker

If you are a landlord, VAT is something you should be aware of. The rules and regulations surrounding VAT can be complicated and understanding them is important to ensure you are compliant and make the most of the opportunities available.

VAT is a tax charged on most goods and services in the UK, and landlords are no exception. If you are a landlord, you may be required to register for VAT if your annual turnover from renting out your property is more than £85,000.

Once registered, you will have to charge and pay VAT on your rental income. However, there is an alternative for landlords known as the ‘Option to Tax’. This allows you to choose whether or not to charge VAT on your rental income. If you choose to opt for the Option to Tax, you will have to charge VAT on your rental income, but you will be able to claim back any VAT paid on goods and services related to your property.

The Option to Tax is a great way for landlords to save money by recovering VAT on costs they are incurring.

It is important to remember that if you choose to opt for the Option to Tax, it is an irrevocable decision and you may be liable for backdated VAT. Therefore, it is important to seek advice from an accountant or tax advisor before making any decisions.

One negative of opting to tax is you have to charge ALL tenants VAT on the rental income. Even if they aren’t VAT registered themselves. So a consideration would be if you are renting small spaces to consultants and smaller businesses you may want to avoid opting to tax the premises as these tenants may not be VAT registered and therefore unable to recover the VAT.

In conclusion, if you are a landlord and your annual turnover from renting out your property is more than £85,000, you may have to register for VAT. However, you may be able to make the most of the Option to Tax and save money on your rental income. It is important to seek advice from an accountant or tax advisor before making any decisions.

How can Gravitate Accounting Help?

We can help you weigh up your options and make the right decision for you, your business and your tenants.

Mike Crocker

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