Are Dilapidations taxable?
The outgoing tenant is likely to be liable for these repair costs, commonly known as dilapidation payments. Any payments that are held out to be revenue will become taxable under the Income Tax or the Corporation Tax rules, a capital receipt will be subject to the rules which apply to Capital Gains.
Should VAT be charged on Dilapidations?
A dilapidation payment represents a claim for damages by the landlord against the tenant’s ‘want of repair’. The payment involved is not the consideration for a supply for VAT purposes and is outside the scope of VAT.
Are compensation payments outside the scope of VAT?
However, recent guidance from HMRC has changed this position. HMRC’s revised guidance on compensation payments, which have previously been treated as outside the scope of VAT, in line with Revenue guidance, may now be treated as consideration for a taxable (or exempt) supply for VAT purposes.
Is compensation received VATable?
Recent consideration by the UK courts and the European Court of Justice of compensation payments has resulted in a change in the approach to their VAT status. HMRC have since released guidance supporting this change meaning that compensation payments are now generally liable to VAT.
How are dilapidations accounted for?
If the accounting provision turns out to be in excess of the dilapidations expenditure, the difference is added back to the taxable income and taxed in the year of the works. If the provision is less than is needed, any additional actual expenditure can be deducted within the year the work is completed.
Are dilapidations allowable for corporation tax?
A business’ dilapidations liability (applicable to ALL tenancies) may be recorded in business accounts as a ‘liability’ that is therefore deductible from Corporation Tax calculations. The Financial Reporting Standard (FRS) 102 (previously FRS 12) allows companies to do so based on a reliably formulated estimate.
Is Dilapidations exempt from VAT?
“A dilapidation payment represents a claim for damages by the landlord against the tenant’s ‘want of repair’. The payment involved is not the consideration for a supply for VAT purposes and is outside the scope of VAT.”
Why is there no VAT on Dilapidations?
Where a tenant is making a payment to a landlord in full and final settlement of its dilapidation liabilities, under Customs and Excise rules, the payment is not a ‘taxable supply’ for the purposes of VAT. This is because Customs and Excise deem the payment to be one of damages and not a supply of something.
Is compensation taxed UK?
The following elements of compensation are all tax free: Compensation for personal injuries awarded by the court whether received in a single lump sum or over a period of time (known as ‘periodic payments’) Compensation received under an out of court settlement with the defendant.
Is VAT payable on statutory compensation?
The basic position is that compensation payments are outside the scope of VAT, as they are not the consideration for a supply. This is because the payments are made as a result of a Court Order, or through an agreement between the two parties involved to compensate the other for loss or inconvenience.
Is compensation from HMRC taxable?
Is compensation taxable? As a general rule, personal injury compensation is non-taxable income and no capital gains tax is charged on it.
Is compensation exempt from VAT?
Consequently, provided the compensation payment relates to a contract under which the payer had or will receive a VATable benefit in the first place, VAT will be payable. But a compensation payment relating to an exempt contract should presumably remain exempt from VAT.