Customs & Excise is about to issue new guidance abolishing payment of VAT on many reverse premiums.
This change also means that VAT paid by property owners over the last three years can be claimed back. But under the new guidance, property owners have a time limit of three years in which to make retrospective claims. Claims for agreements signed in late 2001 and early 2002 should be made as soon as possible.
A reverse premium is paid by a landlord to a tenant to take up a lease and is often used to maintain headline rents.
John Davison, indirect tax partner at accounting firm Baker Tilly, said: “The issue of VAT and reverse payments has plagued the property world for the past 15 years or more. The imminent release of Customs’ revised notice is good news for property owners.
“VAT that has been paid on a reverse premium over the past three years may be reclaimed. However, given the time restrictions, property owners should waste no time in making such claims.”
Davison explained that generally speaking, whether VAT was due on a payment was determined by whether the payment was deemed an inducement payment, in which case VAT would be due, or a payment of no supply, in which case VAT would not be due.
Customs & Excise’s present stance is that nearly all reverse premiums are taxable. Only where landlords have elected to waive exemption — that is, where they have opted to charge VAT — could VAT be reclaimed.
However, Davison said the new notice from Customs would address this view, stating that most lease inducement payments would not be deemed as supply and VAT would not be payable.
The rethink follows a High Court ruling last year that found against the Trinity Mirror Group in favour of Customs & Excise over a reverse premium paid by Canary Wharf to acquire the newspaper group as a tenant.
