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Landlords and Tenants - VAT on Cleaning

HM Revenue and Customs (HMRC) have now published their interpretation of an ambiguous decision of the European Court of Justice (ECJ), made last summer, which is relevant for landlords that supply ancillary services to tenants.

It involved the common case in which the cleaning of a building that has not been opted to tax for VAT is supplied by the landlord to the tenants, but a tenant is free to obtain cleaning services from a third party instead if they prefer. The ECJ ruled that in such a case there are two separate supplies for VAT purposes – an exempt supply of leasing and a standard-rated supply of cleaning services.

HMRC have decided that this means that where cleaning services are supplied by the landlord (or the landlord’s agent) as a condition of the lease, there is a single supply. However, where the tenant has the choice of suppliers, there will be two separate supplies.

For tenants who have paid their landlord for cleaning but were not obliged to use the service under the terms of their lease, a claim to recover unclaimed input VAT may be available.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.