smallbusiness.co.uk: Helping your business think big

Owners or tenants of a premises who do not grant other occupants an exempt licence to occupy land should make any service charge subject to the standard-rated of VAT. This applies even if they are simply passing on appropriate shares of their costs.

The only exception is if you are paying and recharging a bill that is entirely the liability of another occupant, such as a telephone bill or insurance premium in the other occupant’s name. You can treat such payments as disbursements. You can find more information on disbursements in Notice 700 The VAT Guide.

You can only reclaim the VAT if you are VAT registered yourself. This would have to be a “voluntary registration” as you are way below the minimum turnover limit for compulsory registration which is £64,000 in 2007/8.

You should weigh up whether registering for VAT would be worthwhile but it is unlikely that it will be because you would have to add the standard rate of VAT to you selling prices - an extra 17.5 per cent which I suspect might reduce the number of your clients.

There would also be the additional administration to consider in keeping track of the Output VAT (VAT charged on your sales) and the Input VAT (VAT you pay on supplies such as the rent) and making the return to HM Revenue and Customs.