March Q&A
Sub-letting trading premises, should we charge VAT?
Q. The landlord of our trading premises charges VAT on our monthly rent, and we claim input tax. We are planning to sub-let one of the floors to another business but are not sure if we should also charge VAT? If we don’t, does this mean we will not be able to fully claim input tax on our building costs?
A. To start with, the rental income you will receive from the sub-tenant will be exempt from VAT as a land supply. This could create an input tax problem but, depending on the numbers, you might be able to fully claim this anyway because of the partial exemption de minimis rules. These are an important part of the legislation for a business with a small amount of exempt income, see HMRC Notice 706.
Alternatively, you could opt to tax your interest in the property with HMRC and charge VAT to your tenant on their future rent, which will remove your partial exemption problem. However, this could be a problem if your tenant is not registered for VAT and cannot claim input tax. An option to tax election also means that you will need to charge VAT on all rental income you earn from the building for the next 20 years.
Tax and late-night taxis
Q. One of our employees is required to work late on a few evenings to deliver a particular job and we agree to pay for them to get a taxi home because public transport is no longer an option, but what is the tax position?
A. Where an employee is provided with a taxi paid for by you for a journey from their permanent workplace to their home, this normally represents a taxable benefit in kind to them. However, there is a special tax and NI exemption available where all of the following conditions are satisfied:
1. The employee is required to work later than usual and until at least 9pm.
2. This occurs irregularly.
3. By the time the employee ceases work, either public transport has ceased, or it would not be reasonable to expect them to use public transport.
4. The transport is by taxi or similar private road transport. In addition, the exemption will only apply to a maximum of 60 qualifying journeys per employee per tax year.
If you pay for a late-night taxi home from work for an employee, it is only exempt from tax if all four of the statutory late night working conditions are satisfied.
Is a 50:50 rental income split with my spouse possible for tax purposes?
Q. I have inherited a property in Spain. I am tax resident in the UK. According to the tax system in Spain, the rental income can be shared or split with my spouse, like a matrimonial income, which would reduce my income tax liability. However, the property remains non-matrimonial.
Would it be possible to have the same tax treatment in the UK, where I can split the rental income 50:50 with my spouse for tax purposes?
A. For the rental income to be received 50:50 for UK tax purposes, you would need to do one of the following two things:
1. Put the property into joint legal names.
or
2. Keep the property in your sole legal name, but through a declaration of trust transfer 50% of the beneficial ownership of the property to your spouse.
If you take the first option, you could have a declaration of trust behind the joint legal ownership that enables you to have any percentage of beneficial ownership that you wish. So long as the property is in joint legal ownership, the rental income is received 50:50.
