Commercial service charges—VAT implications
Produced in partnership with Martin Scammell

The following Tax practice note produced in partnership with Martin Scammell provides comprehensive and up to date legal information covering:

  • Commercial service charges—VAT implications
  • General position
  • Exceptions to the general position
  • Commercial implications
  • Utilities
  • Electricity and gas
  • Water
  • Business rates
  • Insurance
  • Office services
  • More...

Commercial service charges—VAT implications

This Practice Note is about the VAT treatment of non-residential service charges.

General position

Service charges are typically payable to the landlord under a lease or licence, in the same way as rent, and in this case they follow the same VAT treatment as the rent. This is because there is no separate supply—the rent and service charge together are payment for a letting of serviced premises.

Some charges may, however, need to be dealt with differently:

  1. there may be a separate supply, typically because the tenant pays only according to its own consumption—metered utility charges are an example

  2. the charge may be a disbursement, because the landlord is meeting and recharging a cost that is legally the responsibility of the tenant—business rates are an example, if it is the tenant that is the rateable person

These and other particular types of charge are considered in more detail below.

Exceptions to the general position

The position is different:

  1. if someone other than the landlord, such as a management company, is contractually obliged to provide the services to the tenant. It may be necessary to analyse the contractual relationships—in particular, it makes no difference if the service charge is actually paid to an agent managing the property, if the contractual obligation is still between landlord and tenant

  2. if the services are being supplied by the landlord, but

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