The Gazette 1982

GAZETTE

APRIL 1982

Car-Park Licences Lettings of areas in, say, a modern office block usual- ly provide the Lessees with the utilisation of car-parking accommodation. This provision is effectively part and parcel of the Lease, and will, under ordinary cir- cumstances, be covered by the V.A.T. charge thereon. There is, however, another type of case, which is now met with increasing frequency in practice - the separate long-term Licence (possibly running coterminously with a Lease) in respect of car spaces, where same is express- ed not to confer any estate or like interest and provides only limited exclusivity. So far as I am aware, the of- ficial view is that this type of transaction attracts a V.A.T. liability - always, of course, assuming that the relevant criteria apply. Management Fees charged for property and/or project manage- ment are themselves prima facie within the scope of V.A.T. This consideration leads us into the somewhat difficult territory of service charges. Here, leaving the question of fees aside, the main problem pertains to the employment of personnel in the provision of the ser- vices. Different theories have been propounded. It is ap- parently accepted that the element of the charge at- tributable to wages paid by an owner, who manages his own property, will not attract a V.A.T. charge. However, the opposite position may well obtain with regard to such part of the ultimate charge as reflects payments to employees of an independent manager, particularly where the employment covers work spread over properties in different ownerships. Ordinarily, the constituents of a service charge, apart from those referrable to management fees and personnel engage- ment, will, I understand, be ignored for V.A.T. pur- poses, unless the party providing the services enters claims for input credits in their regard. Registration I do not propose to deal here on a general basis with the above topic, but it is, perhaps, worth mentioning that registration in respect of specific activities may be available to parties (as, for example, pension funds) who would not otherwise be within the scope of V.A.T. This can be a helpful measure in financing, joint- venture and other similar operations. Indeed in kindred cases there may be a requirement (as opposed to a choice) to register as where, for example, because of the structuring of a project, the involvement of the financ- ing institution is, or equates to, that of owner. Also in certain types of transactions it may be advan- tageous to give some thought to the possibility of effec- ting Group Registrations. Minor Development Comparatively minor development may be ignored for V.A.T. purposes, notwithstanding that a tax credit or deduction may have been claimed in respect of the outlay thereon. This concession is applied basically where there is no essential change in the use of the pro- perty, and provided that the outlay in question does not exceed 10% of the total amount on which tax would be chargeable if the work (represented by such outlay) were

is not registered for V.A.T. purposes, and refuses to accept liability for the amount of the tax chargeable on the granting of the Lease. The out-and-out fixture does not really present a dif- ficulty in that the Revenue Commissioners are prepared to accept that same is part of the building, and that its supply on foot of the Lease should only attract tax at the lower rate. An item which is clearly only in the nature of a fur- nishing will, if it is dealt with under the Lease and is deemed to add to the letting value, activate the forego- ing provision, thereby rendering the entire transaction chargeable with the higher rate of tax applicable to it. Realistically, however, such a case should be avoided by dealing with the furnishing item separately from the Lease. More difficult terrain is met when one is faced with the granting of a Lease for, say, thirty-five years at an initial inclusive yearly rent of £10,000 (reviewable at five year intervals) where the Lessor provides, within the terms of the demise, items which could be deemed to be fixtures (viz. part of the immovable goods) or fur- nishings - depending, perhaps, on whose behalf you are arguing. If we assume such Lease to have a capital value for V.A.T. purposes of £62,100, then the tax will be £1,863 as per (z) above, provided that it is established that the items in question are fixtures. If not, it would seem that the higher rate of tax will be payable, which is bad enough in itself, but begs the further question as to whether same is to be applied to the full amount of the relevant figure (as the Revenue Commissioners will very likely contend) or to a proportion thereof. Taking the respective higher and lower rates to be 25% and 15%, and assuming the capital value of the rent to remain static at £62,100, the following divergencies could emerge on the granting of the foregoing Lease: - If the items are established as fixtures, the taxable element of £12,420 will as heretofore, provide a £1,863 If the higher rate is to be applied to the full capital value, the charge will amount to - (£62,100 x 25%) - £15,525 If the higher rate is to be applied to the capital value after allowing for the proportionate reduc- tion therein, the V.A.T. will come to - (£12,420 x 25%) - £3,105 From the foregoing figures, it will be seen that, in the V.A.T. context, it can be vital - particularly if you are dealing with a non-registered Lessee - to ensure that any items carried by the Lease are fixtures. The problem areas here usually relate to carpets, sanitary and like fit- tings and partitions, and, so far as I am aware, the Revenue Commissioners are prepared to concede that these are fixtures, if it can be demonstrated that they are so adhered or attached to the land or building that their removal would damage substantially either the items themselves or the building or structure, to which they have been adhered or attached. V.A.T. liability of - (£12,420 x 15%) -

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