Three UK landlords are in a battle to avoid paying VAT

Landlord Expert
By Landlord Expert April 11, 2011 16:53

Bromford, Orbit and Midland Heart believe European law allows them to set up a separate company to provide services, such as repairs and maintenance for other organisations, without being eligible for VAT.

In a landmark move, the associations, through law firm Trowers & Hamlins, will submit a ‘clearance application’ to HMRC stating their position and asking whether HMRC agrees.

A European directive states that not-for-profit companies including housing associations, can share services without paying VAT, but this has yet to be incorporated into UK law as required by the European Commission.

The landlords believe the VAT directive takes precedence over UK law.

The three landlords, which jointly own more than 89,000 homes, are frustrated that last month’s Budget did not set out details of a timetable for launching a formal consultation on bringing the exemption into UK law. The Budget document merely stated: ‘The government will continue to consult on implementation of a VAT exemption for services shared by VAT-exempt bodies, including charities.’

Paul Tennant, chief executive of Orbit, said the 20 per cent VAT rate means associations looking for effi-ciencies through sharing services will have to save 25 per cent or 30 per cent to make it worthwhile, which is not realistic. He said: ‘The new operating environment demands we find creative ways to deliver more and shared services are a crucial part of that mix.’

Ian Graham, partner at Trowers & Hamlins, said: ‘This is about trying to force some sort of answer. While the government has indicated it is reviewing the whole question of exempting shared services from VAT, it is, in our view, essential it is clarified urgently.’

Adam Cutler, senior manager for indirect taxes at consultancy Deloitte, said there was no need for housing associations to wait for the UK legislation. He said: ‘However, if associations are setting up arrangements now, it is worth discussing them upfront with HMRC to avoid challenges in the future.’

A HMRC spokesperson said it was not in a position to give guidance about how the EU directive should be interpreted as the UK implementation is to be consulted upon. He said: ‘Therefore, we are currently unable to give advice or rulings to taxpayers about whether their arrangements qualify for the exemption under “direct effect”.’

 

 

Landlord Expert
By Landlord Expert April 11, 2011 16:53

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