Landlord and Connected Tenant: Deferred payment of waiver cancellation amount on becoming members of a VAT Group

Section 70 of the Finance (No. 2) Act 2008 introduces a new subsection (6) into section 7B of the VAT Act 1972 (as amended). This new provision is a rule for dealing with situations where a landlord, who has a letting of less than ten years with a waiver in place to a connected tenant, becomes a member of a VAT group (where the tenant is a member of that group) on or after 1 July 2008. In such cases, the subsection provides for two separate scenarios –

1. Where the landlord enters the group between 1 July 2008 and the date of passing of the Finance (No. 2) Act 2008 (i.e. 24 December 2008), a waiver cancellation adjustment is triggered and the person in the group liable to account for VAT (the group remitter) is liable to pay the cancellation amount as if it were tax due in the taxable period in which the Act is passed (i.e. Nov/Dec 2008).
2. Where the landlord enters the group after the date of passing of the Finance (No. 2) Act 2008 (i.e. 24 December 2008), a waiver cancellation adjustment is triggered and the person in the group liable to account for VAT (the group remitter) is liable to pay the cancellation amount as if it were tax due in the taxable period in which the landlord enters the VAT group.

This rule ensures that connected persons cannot use the grouping provisions to avoid the rules in section 7B VAT Act 1972 (as amended) for lettings between connected persons where a waiver of exemption has been exercised. The rule does not apply where the tenant is entitled to deduct at least 90% of the tax chargeable on the rent.

When is the cancellation sum payable?

In relation to cases where (1) above applies, Revenue are willing to accept that the cancellation amount may be accounted for in the return for the taxable period following the passing of the Finance (No. 2) Act 2008, i.e. Jan/Feb 2009 return. This is to take account of the fact that there is a very short time period between the passing of the Act and the end of the taxable period (Nov/Dec).

Can such a landlord apply to Revenue to leave the group and avail of the 12-year rule as provided for in section 7B(4)?

Revenue are willing to accept that where a landlord applies to leave the VAT group before the end of February 2009, the landlord can keep the waiver in place by availing of the 12-year rule. In order for this to be acceptable the landlord must–

• Apply in writing to their local Revenue Office to leave the group and specify that the reason they wish to leave is to avail of the concessional treatment provided for in this e-Brief.
• Ensure that VAT accounted for in respect of the rents charged to the connected tenant meets the minimum amount in accordance with the formula in section 7B(5) VAT Act 1972 (as amended).

For further information in relation to VAT on Property please consult the VAT section of the Revenue website.