Social landlords have been buoyed by a new EU law that could see them make huge savings on their repair and maintenance bills.
Landlords Take Advantage of VAT Savings
The introduction of a new EU legislation could result in housing providers working together to save costs. At present, a large number of landlords outsource repair work. However, many of these services are subject to VAT costs and for social housing providers, this can result in a 20% surcharge.
Legislation
To counter this, housing providers are being urged to exploit EU legislation and merge together to offer repairs and maintenance. The legislation regards VAT-free services which are to be offered by a cost sharing vehicle, CSV. CSV members can perform activities that are VAT-exempt.
In terms of housing, a registered CSV could provide a VAT-free service to any members. Despite EU legislation being applicable to the United Kingdom, this particular piece of ruling has not yet been sanctioned to be exercised in the British Isles at present. However, HM Revenue & Customs (HMRC) has agreed to implement VAT exemption in Britain next year.
Practicalities
Despite the announcement, there remain a number of practicalities to be overcome before the VAT exemption can become law. The HMRC has advised that it will be consulting with taxpayers in order to overcome the problems.
With hopes that the guidance from HMRC will see a number of housing providers save on their repair bills, concerns are rising that the rules may not stretch as far as was first thought. Neil Cohen, a Tax, Trust and Pensions Team Partner at Trowers and Hamlins, writes: “HMRC is understandably concerned that the exemption might be misused, particularly by the financial services sector, the fear is that attempts to mitigate this risk will render the provision useless.
“And even if the exemption works at a technical level, will providers take advantage? The set up cost will be an issue and therefore landlords will need to be convinced that the savings will be worthwhile, not only in terms of VAT but by creating economies of scale. The scheme requires a degree of collaboration which may be a difficult choice for some, and completely out of the question for others.
“It would be a shame, however, if after having waited so long this potential saving were to be left on the shelf.”[1]
[1] http://www.theguardian.com/housing-network/2012/feb/21/vat-exemption-savings-housing-providers