Retail surgery: What are the implications of the VAT rise on the taxes we pay on our shop leases?

Retailers that have entered into leases since January 3 2006 need to consider how the VAT component of stamp duty land tax levied by Her Majesty’s Revenue & Customs (HMRC) will rise with the change in VAT from 17.5% to 20% on January 4.

Peter Busby, a partner in law firm Thomas Eggar’s retail team, comments: “Under the legislation, stamp duty land tax is calculated on rents payable under leases. The relevant rent figure includes VAT. The regulations state if the rent is uncertain or otherwise due to vary in the first five years then, when it becomes certain or is varied, a new tax return has to be completed and any increased stamp duty land tax paid.”

The announcement by HMRC clarifies that it regards the VAT increase as being a variation of the rent that triggers the obligation to file a return and to pay any increased duty shown.

He advises retailers to identify leases taken since January 3, 2006, and use the calculator on the HMRC website to see whether the recalculation triggers a liability for stamp duty land tax. If a return had previously been filed, file a new return and pay the increase in tax, giving yourself credit for tax already paid.

He adds: “In general, returns need to be filed within 30 days of the relevant event. The indications are that the obligation will occur on the fifth year of the term, but it is not clear how this is to be calculated. Guidance is to be published shortly, which should make this clear.”