Complicated VAT issue

[thepalace1]

Ok, so I cannot get my head around what disbursements are for the purposes of vat.

 

Could someone in the know please advice where we stand.

 

My friend runs his own sole trader company fixing/repairing garden equiptment (Lawn mowers etc etc)

 

He rents a commercial Unit approx 2000 sq ft.

 

His landlord purchases Buildings insurance on the unit and charges my friend (the tenant) but also charges 20% VAT on top.

 

Now I understand that Buildings insurance is exempt from VAT with only an IPT able to be charged.

 

Now, the landlord pays £1011.89 for the insurance and passes this exact amount on to the tenant with vat added on top so a total of £1011.89 + VAT at £202.38 TOTAL £1214.27.

 

Is the landlord right to add vat or wrong?

 

I don't know if it acts as a disbursement or not, and if a disbursement is vatable or not. Could someone please clear this up as the hmrc website (700) at section 25 is baffling me.

 

thanks in advance

 

thepalace1

[ericsbrother]

a disbursement is a charge or cost for processing something and as the LL hasnt actually done anything then there is no "value" to add and thus no tax. However, this doesnt stop the LL from applying VAT, it just means they dont HAVE to.

If the LL is honest then it is cost neutral as the taxman gets the money, if they arent as honest as they should be they make a small gain by the differential in their total VAT bill by claiming back the vat (not ) paid.