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Do I need to pay VAT if I’m leasing a property for my business?

We often get asked about VAT on commercial properties. Commercial properties are exempt from VAT however this exemption can be waived.

It is important for a tenant to check at the early stages of the lease negotiations whether or not VAT is payable. If VAT is payable then this is paid on top of the rent. If the tenant is registered for VAT this effects cash flow in that the tenant will pay the VAT and then reclaim it in their VAT returns. The problem is when the tenant is not VAT registered as they will pay VAT on the rent and will not be able to reclaim it.

There is then the additional problem in that even if VAT is not payable when you initially take on the lease it could become payable during the term of the lease as the landlord can opt to charge VAT on the property at any time.

Is there anything the tenant can do? Yes. In the initial negotiations if VAT is payable and the tenant is not VAT registered he can try and negotiate a lower rent. If the VAT is not payable at the start of the lease and the tenant wants to ensure that this remains the same throughout the term of the lease, then the tenant can attempt to negotiate that a clause be included in the lease to state that during the term the landlord will not opt to charge VAT. Any landlord realistically will wish to avoid both of the above options.

It is important for a tenant at the early stages of negotiations to instruct a solicitor so that the tenant is aware of all the options available to them and ensure that they negotiate the best rental terms.

If you are a tenant and are thinking of taking on a lease please call our Commercial Property Team on 01623 468 468 as we are happy to assist with any enquires you may have.

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