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August Question and Answer Corner

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Newsletter issue - August 07.

Q. I am about to sign a lease for a new shop, but the landlord wants to charge VAT on the lease rental payments. The solicitor has grossed up the lease payments including VAT for the full lease term, to calculate the Stamp Duty Land Tax due. This means I am paying Stamp Duty on the VAT on the rents. Is that right?

A. Unfortunately the solicitor is correct. If the landlord has opted to tax the building for VAT purposes he must also charge VAT on the rents due under the lease. Stamp Duty Land Tax is calculated on the net present value of the gross amount of the rents, including the VAT charged, whether or not you can reclaim that VAT.

Q. I applied for a VAT number for my new business months ago, but it still hasn't arrived. I now need to invoice clients, or I will run of cash. What should I do?

A. Ringing the VAT office to chase up your registration application is probably a waste of time. You probably won't get through, and if you do, it won't speed up the process. You can send invoices to your clients but you can't technically charge the VAT due until you have your VAT number. You can do this by either:

  • issuing an invoice for the net amount, then when you VAT number comes through send a VAT-only invoice to collect the VAT due; or
  • sending a 'request for payment' for the full amount including VAT , but do not separate out the VAT and make it clear the request for payment is not a VAT invoice. When you VAT number arrives send a correct VAT invoice, showing any amounts that have already been paid.

In either case you need the co-operation of your clients and you will need to go through the invoicing process twice.