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HMRC internal manual

VAT Land and Property

HM Revenue & Customs
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Taxable person: managing agents for property: properties where the option to tax has not been exercised

There is a particular danger where the landlord has not opted to tax the lease. Here, the landlord has no right to deduct input tax, and so the temptation to allow the managing agent to bear and reclaim as much input tax as possible will be particularly strong. In this situation, you must ensure that all costs relating to the repair and maintenance are invoiced on to the landlord by the managing agent, in addition to the normal charge for the managing agent’s services.

The tribunal case of W S Atkins (Services) Ltd (VTD 10131) demonstrates this policy on input tax.

The tribunal addressed the issue of whether the managing agent was entitled to deduct input tax on costs borne in managing a building where he was also a tenant. In dismissing the appeal, the Tribunal agreed with the Commissioners that:

  • these goods and services were supplied to the landlord, not the managing agent; and
  • that the managing agent had no right to deduct input tax unless he used section 47(3) of the VAT Act 1994 and passed the same sum on to the landlord as output tax.

In most circumstances the managing agent makes supplies to the landlord. However the managing agent is not prohibited from making supplies to the tenant. We would expect to see a specific written agreement to substantiate situations where these supplies occur, which would be considered taxable. An example of a situation where the managing agent was considered to be making independent supplies directly to the tenants is the tribunal case of Canary Wharf Ltd (VTD 14513)