In circumstances where tenants pay a single rent for the occupation of residential and commercial parts of premises, the Upper Tribunal has ruled that the rent payable should be apportioned between the two uses for VAT purposes.
The owners of a large chain of public houses had argued that rent payable by their tenants is attributable in its entirety to commercial parts of the premises and that living accommodation should be treated as being provided free of charge. The extent to which rent was attributed to residential accommodation had a significant bearing on the extent to which the landlords could recover VAT input payments on their property-related and overhead costs.
However, in an important ruling for commercial landlords whose tenants both live and work on the premises, the Upper Tribunal has accepted arguments put forward by Her Majesty’s Revenue and Customs that part of the rents paid should be attributed to occupation of residential accommodation.
In dismissing the landlords’ appeal against a ruling of the First Tier Tribunal, the Upper Tribunal noted that tenants were invoiced for a single rent in respect of their occupation of both residential and commercial parts of the premises and that the landlords’ assertion that residential accommodation within the public houses was provided free of charge was not corroborated by documentation issued to tenants.