Can I claim VAT paid on expenses for my flat above my shop?

Posted on Posted in Income & Tax thereon, VAT

Simon owns a shop on a high street. He also owns a residential flat above the shop. He pays VAT on the income from shop sales. He also claims the VAT on the purchase of the shop. He lets his flat to a family for residential purpose and receives the rent. Since the residential property is exempt from VAT, he does not charge the VAT on his rental income. During the year, he had to pay £500 plus VAT to an estate agent to find the tenant. He also had done some repairs to his flat for which he paid £1200 plus VAT.


His total income and expense are as under.


Description Net £ VAT £
Shop Turnover  200,000.00  40,000.00
Rent  12,000.00  –
Shop Expenses  150,000.00  15,000.00
Estate agent’s fee  500.00  100.00
Flat repairs  1,200.00  240.00
Accountants fees  1,500.00  300.00


Question: Can Simon claim the VAT paid to an estate agent and for the repairs against in VAT on shop income considering the fact, he does not charge on rental income? He also paid an accountant to do his tax return which includes all this income. Shop+Rent. Can he claim the VAT paid to his accountant against his shop income considering the fact that, some of the accountant’s services relates to the rental income as well?




First of all determine total input VAT across the board which in this case would be £15,000+£100+240+300 = £15,640


Secondly, ascertain the input VAT related to each income source separately.

Shop = £15,000

Flat = £340


Finally, ascertain any input VAT related to both the income sources jointly and split that in the ratio of total income from each source.

Accountants fees = £300 which will be attributable to shop as £300 x £200,000 / £212,000 = £283.02

and it will be attributable to the flat as £16.98


In short, total input VAT for the shop is £15,000+£283.02 = 15,283.02 and this can definitely be claimed against shop income.


So, the question is can the remaining input VAT related to the flat be claimed against the output VAT of shop income?


As per VAT notice 706, such VAT for the flat can be claimed against the shop income provided it is less than



50% of the total input VAT (which in this case is) £15,640 x 50% = £7,820


In this case, the input VAT for the flat is £340+£16.98 = £356.98 being less than the above limits can be claimed back.