Q. I am a buy-to-let landlord – does this mean I cannot reclaim VAT on any of my expenses?

A. Usually this is the case but there could be an exception if you own two or more businesses using the VAT de minimis rule.

Whilst HMRC considers that renting out homes is a business for VAT purposes, it is an exempt one and exempt businesses are prevented from reclaiming VAT paid.

However, if the landlord also operates additional businesses which are VAT registered, there might be a way they can claim the VAT.

In a situation where a landlord owns two or more businesses within the same legal entity, they will be covered by a single VAT registration. So if the landlord rents out residential accommodation – an exempt supply – and owns another VAT registered business making supplies which are subject to VAT, transactions relating to both must be reported on the same VAT return.

This presents an opportunity to take advantage of HMRC’s VAT de minimis rule. This says that all VAT on exempt purchases can be reclaimed where it is no more than £625 per month on average and 50 per cent of the total VAT on purchases all your businesses incur in the VAT return period.

A retrospective VAT reclaim can also be made going back four years which could result in a healthy refund.

It’s important to note however that if you breach the de minimis limit even by £1, none of the exempt input tax can be recovered. There are potentially millions of pounds VAT going under-claimed.