When to reclaim input VATWhere accommodation is provided for employees who work on the farm, any VAT incurred in relation to the provision of such accommodation is regarded as being for business purposes and therefore it may be reclaimed in full.
If a charge is made by the business to the staff for the provision of such accommodation, no VAT is due as it is regarded as being an exempt supply of residential accommodation. It is important to note that this means that any VAT incurred on providing the accommodation becomes subject to VAT partial exemption restrictions, but for any reasonable sized business, if the provision of property to employees is the only exempt activity undertaken, it is very likely it will fall under the de minimis limits and so VAT will be recoverable in full.
HMRC also accept that exactly the same rules apply to retired employees and their families as apply to current employees.
Different rules apply if the accommodation is provided for directors and their families rather than regular employees. In such cases, unless it can be proved that the accommodation has been provided for business purposes, and not just as somewhere for the director to live, VAT cannot be reclaimed on any maintenance expenses incurred as it is deemed to be for the personal benefit of the director and not for the benefit of the business.
For further information on any of the elements raised within this article contact us today.
Next we will be covering income tax and VAT on legal fees, explaining the different rules and what can be reclaimed.