Is VAT payable on the full rental amount received by an estate agent?
12 May 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q1: My client is
an estate agent and rents out a commercial building on behalf of the owner.
Should VAT be charged on the entire rental amount when invoicing the tenant?
A1: It is not
clear what you mean with ‘on the entire rental amount’ and there are a number
of possibilities. We assume that you
want to invoice the rental amount on behalf of the client. We submit that the supply is really being
made by the owner of the building and we accept that the owner is registered as
a vendor. If our assumptions are wrong
the guidance may not be appropriate. You
are welcome to provide the additional detail – which will be evident from the
guidance that follows.
The Act allows for an agent to issue the tax invoice on
behalf of the principal – section 54. We
copy the relevant part here for convenience sake:
"…where an agent makes a supply of goods or services for and
on behalf of any other person who is the principal of that agent, that supply
shall be deemed to be made by that principal and not by that agent: Provided
that, where that supply is a taxable supply and that agent is a vendor, the
agent may, notwithstanding anything to the contrary in this Act, issue a tax
invoice or a credit note or a debit note in relation to such supply as if the
agent had made a taxable supply, and to the extent that that tax invoice or credit
note or debit note relates to that supply, the principal shall not also issue a
tax invoice or a credit note or a debit note, as the case may be.”
As we don’t know the nature of the agreement between the
estate agent and the owner we can’t comment on whether or not the agent will be
making a supply for and on behalf of the principal of that agent.
The commission that the agent will be entitled to will be
invoiced by the estate agent to the owner as that is the supply the agent makes
(possibly the only supply).
Q2: The rental
agreement is between the owner and the lessee. The estate agent merely manages
the rental on the owner’s behalf.
The estate agent and the property owner are registered for
VAT. Is it correct to interpret the Act as saying that the commercial rental
will attract output VAT, payable by the estate agent?
And then from a practical point of view, the property owner
will need to invoice the estate agent for their portion of the rent to be paid
A2: You are
correct that ‘commercial rental’ (being a supply of property which is not an
exempt supply or a supply of commercial accommodation) will be a taxable
supply. This assumes that the supplier
is registered (or required to be registered) as a vendor. We don’t agree that there is a supply between
the land owner and the agent – you confirm that when you say that the agreement
is between "the owner and the lessee” and that the "agent merely manages the
rental on the owner’s behalf”. We submit
that the supply (in respect of which the rental is received) is made by the
owner of the property and not by the agent.
We assume that when you refer to "portion of the rent to be
paid out” you mean that the agent collects the full rental (inclusive) from the
tenant and then deducts their commission (inclusive) before the balance is paid
over to the landlord. The only invoice
necessary here is the invoice from the agent to the owner for the agent’s
As Judge Nugent (in the British Airways case) said:
"The services that passengers enjoy are supplied by the
company and the tax accrues in terms of s 7 (and is payable by the vendor of
the service) when that supply occurs. A further tax does not accrue when the
vendor of another service (British Airways) does no more than bring to account
and recover the charge that it was required to pay for the supply of that
service by the company (whether it is supplied to the passengers themselves, or
to the airline for the benefit of its passengers). The moneys that are
recovered by British Airways are not a consideration for the supply by it of
airport services simply because it does not supply them at all.”
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.