The arithmetic
VAT in the United Kingdom is charged at twenty percent. So a fee of ten percent plus VAT becomes ten multiplied by one point two, which is twelve percent. The two are the same number described from different ends.
| Quoted as | Including VAT | On rent of 1,000 pounds a month | Per year |
|---|---|---|---|
| 9 percent plus VAT | 10.8 percent | 108 pounds | 1,296 pounds |
| 10 percent plus VAT | 12 percent | 120 pounds | 1,440 pounds |
| 12 percent including VAT | 12 percent | 120 pounds | 1,440 pounds |
| 12 percent plus VAT | 14.4 percent | 144 pounds | 1,728 pounds |
| 15.6 percent including VAT | 15.6 percent | 156 pounds | 1,872 pounds |
Look at rows two and three. Identical cost, quoted two ways. Now look at rows three and four. Both can be described in conversation as twelve percent, and they are two hundred and eighty eight pounds a year apart.
Why agencies quote it differently
Partly convention. Agencies that also act for commercial landlords, who can generally recover VAT, are used to quoting net figures. Partly it is a legacy of pricing pages written for other agents rather than for customers.
And partly, plainly, because plus VAT sounds smaller. Ten percent reads as a round, modest number in a way that twelve percent does not, and the extra two points arrive later on an invoice.
You can see all three habits in the tariffs collected for this site. Most Scottish agencies quote plus VAT. Martin and Co Aberdeen quotes twelve percent including VAT. Thornley Groves in Manchester quotes fourteen point four percent including VAT and then says in the same document that this is twelve percent net, which is the clearest of the three approaches.
What the confusion costs
On a property let at one thousand pounds a month, the gap between twelve percent including VAT and twelve percent plus VAT is two hundred and eighty eight pounds a year. Over a five year tenancy that is one thousand four hundred and forty pounds, which is roughly a month and a half of rent.
It also distorts comparisons in the wrong direction. An agency being straight with you and quoting fourteen point four percent including VAT looks more expensive than one quoting twelve percent plus VAT, when they are the same price. The clearer agency loses the comparison for being clearer.
Comparing quotes properly
Convert everything to one basis before you compare. Including VAT is the sensible one, because it is what leaves your account.
- To convert plus VAT into including VAT, multiply by one point two.
- To convert including VAT into plus VAT, divide by one point two.
- Do the same for the one off charge, which is also subject to VAT.
- Then add the one off charge to twelve months of the ongoing fee to get a year one total, which is the only number that lets you compare a low percentage with a high set up fee against the reverse.
The one question to ask
Do not ask what your fee is. Ask what will appear on my invoice each month, in pounds, on a rent of my amount.
A number in pounds cannot be quoted two ways. It also tells you something about the agency: a firm that answers immediately and in writing is a firm that expects you to check, and one that keeps returning to percentages is telling you it would rather you did not.
Common questions
Do letting agents charge VAT?
Any letting agent registered for VAT must charge it, and almost all of them are, because the registration threshold is far below the turnover of a working agency. If a quote seems unusually low, check whether VAT has been left out rather than assuming the agency is cheaper.
Can I reclaim the VAT on letting agent fees?
Not as an ordinary residential landlord, because residential letting is exempt from VAT, so you cannot recover input tax on it. You can still deduct the full fee, VAT included, as an expense against rental income. Commercial property works differently and is worth taking advice on.
Which way should an agency quote?
Including VAT is clearer, because it is the number that leaves your account. One Manchester agency quotes fourteen point four percent including VAT and states that this is twelve percent net, which is the most transparent phrasing we have found.
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