Q. My client is a limited company, which also has a pension fund and both the company and the trustees of the pension fund are registered for VAT as separate entities. Recently the company and the pension fund jointly have purchased a commercial property and the company has placed an option to tax on the property. How do they deal with the VAT returns for each entity?
A. When a property is in joint ownership, the owners are treated by HMRC as a partnership for VAT purposes. In your client’s case, each of the trustees of the pension fund and the limited company, as a corporate entity, are the ‘partners’ in a new VAT partnership and need to apply for VAT registration as that partnership entity. It is worth mentioning that where a partnership registration is required in this way for VAT, it does not necessarily follow that the partners in the VAT partnership will be viewed as a partnership for the Partnership Act 1890.
If the company and pension fund want the rentals of the property to be taxable supplies then the VAT partnership would need to make an option to tax for the property, irrespective of the limited company having its own option to tax in place. The output tax on the rent would then be declared on the partnership’s VAT return. Neither the company’s nor the pension fund’s, own VAT registration would deal with the VAT aspects of the jointly owned property.
If the company and the pension fund are not treating themselves as a partnership for accounting purposes in recording the income for the property, then care will need to be taken to ensure that rent transactions and any costs relating to the property can clearly be identified to enable the VAT return for the partnership to be completed.