Value Added Tax

Landlord and tenant ― service charges

Produced by Tolley
  • 21 Dec 2021 16:47

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Landlord and tenant ― service charges
  • What are service charges?
  • VAT treatment of service charges relating to commercial property
  • Other charges
  • Shared premises
  • VAT treatment of service charges relating to dwellings
  • Charges levied on freehold owners
  • Other services
  • Tenant-controlled management companies

Landlord and tenant ― service charges

This guidance note deals with the VAT treatment of service charges. If the transaction you are dealing with is not covered, please refer to the Landlord and tenant ― general principles guidance note for more information.

What are service charges?

Leases commonly contain provisions that state that the landlord shall provide for the upkeep of the building as a whole and the tenants will be required to pay for the upkeep. The lease may include a charge for the upkeep of the building or the tenant may be required to pay a separate service charge. These charges are usually referred to as a service charge, maintenance charge or additional rental charge.

VAT treatment of service charges relating to commercial property

If the business provides services to someone who owns the freehold interest in the property, the charge will always be liable to VAT. This is because the person supplying the services is not supplying the accommodation that the charge relates to.

If the landlord or lessor of the property provides services of a general nature to the tenant(s), the service charge will normally follow the same VAT treatment as the lease itself.

Therefore, if the lease is exempt from VAT, the service charge will also be exempt. In order to be treated as services of a ‘general nature’, the service must be:

  1. connected with the external fabric or common parts of the building or estate

  2. paid for by all of the tenants via the service or maintenance charge

A general

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