VAT Myths
Have you ever received tax advice that sounded a little too good to be true? This happens more often than you might think, and at Price Bailey, we often hear horror stories where individuals have been given the wrong advice while down at their local.
Unfortunately, following incorrect advice can lead to serious compliance issues and unexpected costs. That’s why our VAT specialists are here to separate fact from fiction and help you stay on the right side of the rules.
In our series of VAT Myths videos, we debunk some of the most common VAT myths once and for all.
Option to Tax
Myth: Once you opt to tax a property, it’s permanent
This misconception is that opting to tax a property creates a permanent VAT obligation that carries over to future owners. This myth suggests that once the option is applied, the property is “stuck” with VAT forever, regardless of changes in ownership.
Reality: The option to tax applies only to the current owner
The option to tax applies to the interest held by the person or entity making the election. This will make any grant of that interest subject to VAT at the standard rate, such as when they rent out or sell the property. When the property is sold, the new owner is not bound by the previous owner’s decision. They can choose whether to opt to tax themselves. The option does not transfer automatically and is not a permanent feature of the property.
VAT and private school fees
Myth: You can reclaim VAT on private school fees through your businesses.
A common misconception is that VAT charged on private school fees can be reclaimed by processing the expense through a VAT-registered business. Some believe that if they operate as a sole trader, personal costs such as school fees can be treated as business expenses for VAT recovery purposes.
Reality: VAT on private school fees is not recoverable as a business expense
VAT can only be reclaimed on costs that are directly related to your taxable business activities. Private school fees are personal expenses and have no connection to the goods or services your business supplies. Even if you’re a sole trader, the rules are the same, only VAT on legitimate business expenses can be recovered. Trying to claim VAT on school fees could lead to compliance issues and penalties from HMRC.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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