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We’re setting up a new business, and have agreed to lease an old warehouse which we’ll renovate and turn into offices which we are going to sublet (our landlord is fully aware of our intentions!). We won’t be based in the premises (if that has any bearing)
We’re not going to be charged VAT on the rent we pay, as the building is not opted to tax. But, we want to recover the VAT on our fit out cost (we estimate circa £25k of VAT will be spent).
If we opt to tax the building then this means we charge VAT on the rent to our own tenants (they will be VAT registered so no issue), and we can recover the VAT on our fit our costs. Is this correct in the first instance, and can we opt to tax even though our landlord has not?
Also, timing wise – we are due to sign the lease on 1 December. Should we register now for VAT, and opt to tax from that date?
Any help gratefully received.
A seller’s option to tax does not transfer to a purchaser and a landlord’s option to tax does not transfer to a tenant. Each party in the chain of supply should consider whether or not it is appropriate for them to opt to tax their interest in the property. Therefore as a tenant is sub-letting you should independently consider whether you should opt to tax the property.
Before you opt to tax, it may be worth reading some materials on HRMC website on the implications as the decision is not easily reversible. The link below also explains how to opt to tax:
https://www.gov.uk/government/publications/vat-notification-of-an-option-to-tax-land-andor-buildings-vat1614a
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