FA89/SCH3 gave landlords the option of charging VAT on rent on
non-domestic property from 1 August 1989. Many of the breweries
decided to charge VAT on the rent charged to tenants of their tied
houses., By so doing they could obtain relief for the VAT they bear
on expenditure on the premises, for example, repairs. The tenant
can also obtain relief for the VAT he pays in respect of the rent.
There is a widespread impression amongst tenants that the
breweries reached an agreement with Customs and Excise that 90% of
the rent be deemed commercial with the remaining 10% representing
the charge for domestic accommodation. Although an agreement was
made, it was not in those terms.
The Inland Revenue was not a party to this agreement.
ICTA88/S74 (c) denies a deduction for rent on any part of a
dwelling house and each case should be considered be reference to
its own facts. Since most public house rents are calculated by
reference to turnover a percentage disallowance by reference to
area is rarely appropriate. Accounts, or adjustments in
computations, which use this 10% figure as the measure of the
domestic accommodation, for tax purposes, are not acceptable
(except in those cases where 10% happens to be a reasonable figure
based on the particular facts and circumstances).
Do not make any general attempt to reconsider private
adjustments for such rental payments.
