Revenue and Customs Brief 6/18 - VAT exemption for all domestic service charges
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1. Purpose
This brief, along with VAT information sheet 07/18, explains:
- when the Extra Statutory Concession (ESC) 3.18 VAT: exemption for
all domestic service charges may be applied
- what property management and similar companies must do if they
have wrongly applied the concession and, as a result, not declared the
correct amount of VAT due, or recovered an incorrect amount of input tax
2. Readership
Anyone seeking to rely on ESC
3.18 and anyone that is affected by someone who relies on it.
This includes:
- property management companies
- housing associations
- developers
- property owners
- landlords
- anyone offering similar services connected with residential
dwellings
3. Background
Customs and Excise Brief 03/94 issued February 1994 introduced ESC
3.18. The concession applies only when residential leaseholders
and freeholders pay a mandatory service charge for the same common
services on a common estate. Its purpose is to allow the same VAT
treatment of these service charges for all of those living on the
estate.
The concession came into effect from 1 April 1994. If a landlord is
contractually obliged to provide services to all occupants of a common
estate, they may choose to use the concession to treat these supplies,
when made to a freeholder, as exempt from VAT.
Leaseholders and tenants are exempt from paying VAT on these charges
as the charge is directly linked to an exempt supply of an interest in
land. Freeholders do not have this link, so for them, these charges are
normally taxable at the standard rate of VAT.
Landlords often use property management companies or companies
offering similar services, to fulfil their legal obligations to the
occupants of an estate. The property management company obtains goods
and services on behalf of the landlord and charges a management fee for
providing such a service. This management fee is taxable at the
standard rate of VAT and is not covered by ESC
3.18. Property management companies, or similar, cannot use the
concession.
The Upper Tribunal (Lands Chamber) decision of 15 September 2015 in
the case of Mrs Janine Ingram (2015) UKUT 0495(LC) confirmed
HMRC’s
view of how the concession operates.
HMRC knows of a number of property management and similar service
companies who provide goods and services to landlords of residential
buildings, but are not correctly accounting for VAT. These companies
cannot use the concession to:
- treat their supplies as if made to the occupant rather than the
landlord
- recharge costs borne on behalf of the landlord, back to the
landlord
- recharge staff or personnel costs to the landlord
4. Action needed
From 1 November 2018, all property management companies, and
companies supplying similar goods and services in similar situations,
who have not correctly applied ESC
3.18, must correctly account for VAT, as explained in VAT
information sheet 07/18.
The content of this brief, VAT information sheet 07/18 and updated
section 12 of Land and property (VAT Notice 742) cancels and replaces
any guidance or advice that HMRC has previously provided on this
subject.
VAT information sheet 07/18 provides guidance on:
- applying ESC
3.18 on or after 1 November 2018
- the direction of a supply made by the various parties and the
relevant liability of that supply
- common scenarios that arise when you apply ESC
3.18
See updated section 12 of Land and property (VAT Notice 742) for
further guidance.
If you require further help contact the VAT: general enquiries
helpline.
About the Author
© Crown Copyright 2018.
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for educational / informational purposes only. Article reproduced by
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Article Published/Sorted/Amended on Scopulus 2018-09-07 16:00:00 in Tax Articles
