It is common accounting practice for land & property
businesses to allocate costs to individual properties, groups of
properties or parts of properties, as recorded in a
business’s records/rent roll. The related input tax can vary
between VAT on capital expenditure relating to a new development or
a major refurbishment programme, through to day to day running
costs including costs recovered from tenants by way of service
charges/additional rent.
If the accounting system reflects the way costs are used in
the business, it can be followed for partial exemption purposes. If
not the different activities and business structures may need to be
identified and specified so that residual input tax can be more
reasonably allocated to reflect the use of the costs in the
different activities and areas of the business.
Residual input tax can be analysed by type (e.g. maintenance
costs), perhaps also grouped into identifiable generic sectors
(e.g. property leasing activity) and/or distinct organisational
splits (e.g. regional office), in order that it can be apportioned
more fairly. For example, individual properties can be partial
exemption sectors in their own right, so that any residual input
tax incurred on a specific building is able to be apportioned in
accordance with the use of that building in the event that it gives
rise to both taxable and exempt supplies.
At a higher level, property leasing could be treated as a
distinct part of a business and a specific partial exemption sector
to deal with residual input tax incurred in respect of general
managing agents’ fees, for example. Such input tax could then
be apportioned in accordance with the use made of it in that
particular business sector by reflecting the basis on which the
agents fees are calculated, perhaps taking into account the
number/value of taxable leases managed as a percentage of all
leases managed.
Any input tax not attributed thus far must by definition be
residual. Such input tax can be treated in a number of different
ways but should still be apportioned It remains feasible that one
single apportionment calculation may be appropriate; if such a
calculation is not open to distortion and does not result in an
unfair or unrepresentative result. Separate calculations might be
more appropriate where, for example, a business has a management
structure whereby some offices deal with specific issues, such as a
local administration centre responsible for tenant relations. Other
offices are truly group-wide in their activities, for example a
head office.
