VAT on Commercial Properties: Understanding the Extra 20%

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Here, BloomSmith are dissecting one of the most commonly misunderstood aspects of commercial property purchase: VAT costs. This subject is often extremely confusing for vendors and prospective buyers alike, so it’s important to be able to refer to a reliable source if you’re in any doubt.

Our latest blog post aims to provide you with the most straightforward explanation of this complex subject so far. Throughout the next 5 paragraphs, we will explain the fundamentals of VAT on commercial properties, and how you might best account for it, utilising the 5 W’s.

 

Who?

Anyone involved in the purchase or leasing of a commercial property should understand VAT. It may not always be charged, but it’s important for everyone involved to have enough knowledge on the subject to make an informed decision about what to do. Whether you’re the vendor, unsure whether to charge, or the buyer, unsure whether to seek a loan, it’s essential that you’ve got a good understanding of the basics.

 

What?

VAT, put simply, is an additional 20% on costs. It accounts for additional services or occurrences at each stage of production.

 

Where?

Here, we’re talking exclusively about VAT costs on commercial properties. We’ve defined what makes a property commercial in a one of our previous posts, but it’s essentially any building used for business. As we’ve previously stated, it’s important that you have a basic understanding of VAT if you’re involved in the process.

 

When?

You don’t always have to pay VAT. Commercial property, when it’s being sold or leased, is actually often exempt. From the point of view of the buyer, this is generally preferable in the short-term.

From a vendor’s perspective, however, not charging for VAT can result in some significant losses; related costs, such as property refurbishments, can add up, and VAT could help you account for the impact of these additional fees.

 

Why?

While it’s not always the case, it is not uncommon for commercial property owners to charge for VAT. Generally, they will charge VAT to cover themselves for any significant, additional fees, such as major refurbishments. Unsurprisingly, this extra 20% can cause people to back out of commercial property purchases, simply because they can’t afford it.

It is at this stage of the process that BloomSmith comes in. We’ve got a huge amount of experience in helping people successfully purchase commercial properties, by providing them with bridging loans. To find out more about how we could help you, get in touch by giving us a call on 020 3488 3411.