UK property expense VAT appearing in sole trader VAT return

Accounting
1

I am a VAT registered sole trader. I am also a landlord so now using quickfile for MTD ITSA on both income streams. But when I create a VAT return for sole trader business, I find that expenses and VAT on property related expenses (eg. agency fees) appear. That doesn’t seem right - shouldn’t sole trader VAT return only include items relating to that business? What am I doing wrong, please?

2

Hello @John_Hodge

If you have 2 MTD businesses their records should be kept separately (2 accounts). There is no way to separate vat between businesses in one acocunt.

3

Thank you very much. I may have misunderstood but when I inquired previously, I was told that as a sole trader I could use the landlord dashboard for rental income/expenses. If it’s a separate account, how will the two income streams come together for the cumulative updates?

4

Hello @John_Hodge

Both accounts would be linked using the same HMRC ITSA account.

For MTD ITSA, the key point is that they need separate records where there are separate businesses/income sources.

Where the client has separate QuickFile accounts for different income sources, the Cumulative Updates must first be filed from each relevant QuickFile account.

Business account — sole trader business

  1. Link the client’s HMRC tax account/National Insurance number to the sole trader QuickFile account.
  2. File the sole trader Cumulative Updates from the sole trader QuickFile account.
  3. Complete the Annual Summary for the sole trader business from the same sole trader QuickFile account.

Landlord account — UK property business

  1. Link the same client HMRC tax account/National Insurance number to the landlord/property QuickFile account.
  2. File the UK property Cumulative Updates from the landlord/property QuickFile account.
  3. Complete the Annual Summary for the UK property business from the same landlord/property QuickFile account.

Other Income Sources and Final Declaration

  1. Once the Cumulative Updates and Annual Summary have been completed for both business sources, choose one QuickFile account to continue the remaining personal sections.
  2. Complete the Other Income Sources section from that one chosen QuickFile account only.
  3. Complete the Final Declaration from the same chosen QuickFile account.
  4. Do not complete Other Income Sources or the Final Declaration from both QuickFile accounts, as these sections are filed at the individual/NINO level rather than against a specific business source.

In short:

  • File the sole trader Cumulative Updates and Annual Summary from the sole trader QuickFile account.
  • File the UK property Cumulative Updates and Annual Summary from the landlord/property QuickFile account.
  • Complete Other Income Sources from one chosen QuickFile account only.
  • Complete the Final Declaration from the same chosen QuickFile account only.
  • Do not complete Other Income Sources or the Final Declaration in both accounts, as these are individual/NINO-level sections.

These steps are completed on both accounts:

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Continue the next steps below, on 1 account after all the CU are filed:

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5

Thank you, Steve. All makes sense now.

6

If you’re registered for VAT as a sole trader then the vat registered entity is you, and all your sole trader business activities are VAT-able. The two businesses report separately for self assessment but they are aspects of the same vat registered entity and would be reported together on the same vat return.

However, given residential rent is VAT exempt, you probably shouldn’t be reclaiming the VAT on purchases that relate to your property income, so you would not record the VAT separately for those in QuickFile - record the VAT inclusive total as the net and set the VAT to zero.

7

Thank you very much for your reply here. If the two businesses (sole trader and property) are to report separately for SA, does that mean via two separate quickfile accounts (which is what I’ve set up) both linked to the same HMRC account?

Thank you also for advice re VAT on property related purchases. Is “VAT inclusive total as net” more appropriate than just using the actual net and ignoring VAT? Doesn’t that mean I am claiming a tax (VAT) as a deductible expense?

8

If you’re not able to reclaim the VAT on a particular purchase then the cost to you of that purchase is the vat-inclusive total, so that’s what you treat as the deductible expense.

9

That makes sense - all clear now. Thank you very much for your assistance.