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I have recently signed contract to let small office space, agreeing to pay the refundable deposit to cover any damage I would make. The company issued the invoice for the deposit including 20% VAT. According to HMRC, refundable deposits are not accounted for VAT: http://www.hmrc.gov.uk/vat/managing/special-situations/instalments.htm:

You may ask your customers to pay a deposit when they hire goods from you to make sure they bring the item back safely. No tax point is created - and you don't have to account for VAT - if the deposit is either:

  1. refunded in full to the customer when they return the goods safely
  2. kept by you to compensate you for loss or damage

Is there anything I missed or should I argue the invoice is incorrect?

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A year ago, I took a lease for premises and I had been informed to pay VAT on top of that.

My solicitor sent a request to the landlord, who then changed the agreement so no VAT had to be paid.

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