Subletting premises and VAT

Wednesday February 2019

1. Your client is making supplies of land. Usually, the grant, assignment or surrender of an interest in land; a right over land, or a license to occupy land is an exempt supply, unless there is an option to tax in place.

The rental of the office would be a license to occupy land if it meets the following criteria:

• The new tenant has an occupation of a defined area of land,
• For an agreed duration,
• In return of a payment, and
• Has the right to occupy that area as an owner and to exclude others from using it.

As it stands at the moment, your client would be making an exempt supply of the office space, as they do not have their own option to tax in place. An option to tax exercised by the landlord does not bind anyone other than the landlord. The joinery company will need to opt its own interest in the land, by submitting a VAT1614A, in order to charge standard rate VAT and avoid any partial exemption issues.

The provision of storage space is one of the exceptions when it comes to supplies of land.  Since 1 October 2012, there has been no distinction between the VAT treatment of storage services and self-storage; both are taxed at the standard rate regardless of whether an option to tax has been made. This exception is not one of those listed in VAT Notice 742 section 3.1 but you can find more information in the VAT manual covering land and property: https://www.gov.uk/hmrc-internal-manuals/vat-land-and-property/vatlp17600.   

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