The team of specialists at The Vat People has a great deal of experience in advising housing associations on all aspects of VAT. As experts in our field, we can ensure that your organisation is not only paying the proper VAT across all income streams, but that you are taking full advantage of any exemptions or savings that you are eligible for.
The complicated nature of housing associations means calculating VAT can be incredibly complex - but we can help. Contact us to discuss your circumstances by calling 0161 477 6600, or fill out an online enquiry form and we will be in touch.
VAT for housing associations
Whatever VAT-related issues you are having, we can help. We have extensive experience in helping housing associations to ensure they are optimising their VAT liabilities.
We have dealt with:
- The negotiation of several ‘partial exemption special methods’, and the calculation of backdated claims for VAT recovery, which have led to six-figure savings for a number of our housing association clients.
- Advice on many new-build and refurbishment housing development projects, leading to significant savings for the clients in question.
- Assistance in relation to the implementation of VAT shelter arrangements on local authority stock transfer, designed to allow recovery of almost £3 million VAT on significant post-transfer refurbishment works.
- The implementation of a refurbishment under licence VAT planning structure, which resulted in savings of £350,000 for the client in question.
- Over £2 million in savings on a mixed-use commercial refurbishment scheme.
- VAT group information to remove a potential £1 million VAT bill on inter-company recharges.
- Negotiations with contractors leading to significant refunds of VAT charged in error on relevant development schemes.
What is Golden Brick?
Generally speaking, housing associations are not generally able to recover VAT on rented properties, and have limited recovery prospects for shared ownership schemes. For this reason, they will look to purchase development land that will not be subject to this tax. If the owner of the land being purchased has “elected to tax” and is unwilling to receive a notice from the housing association that will dis-apply VAT, an alternative solution must be found.
The Golden Brick allows this apparent conflict between the interests of developer and housing association to be resolved by making the property ‘zero rated’ for VAT purposes. Even where a developer has elected to tax, this means:
- A housing association will not make any VAT payment in addition to the purchase price agreed
- The developer can recover any development costs expended on VAT
For assistance in deciphering the Golden Brick concept, speak to the team at The VAT People.
Property conversions are another complicated aspect of development. However, the reduced rate of VAT (5%) is available for a wide range of residential conversion and renovation projects. Many people do not know this exists.
For housing associations, the supply of building services of conversion of a non-residential building, or part of a building, into one or more self-contained dwellings is zero-rated, but certification must be approved initially. This includes materials supplied in the course of the development, which are normally incorporated into the property. There are exemptions to this, however, including items such as white goods, carpets and fitted furniture.
Professional fees are subject to VAT at the standard rate, although it may be possible to mitigate these through a design and build contract. Works to any non-residential parts are subject to the standard rate of VAT.
VAT shelter arrangements
Previously, stock transfer housing associations receiving transfers of local authority housing stock have been unable to recover VAT that was chargeable by the contractors appointed to carry out major repairs to the transferring properties. This would usually happen for two reasons:
The primary source of income for a housing association is rents, which are treated as an ‘exempt’ supply in terms of VAT
- VAT carried by the housing association in relation to an ‘exempt’ supply cannot be reclaimed from HMRC
VAT rules for local authorities are different, and, in practice, councils can reclaim virtually all of the VAT it incurs on major works contracts from HMRC. However, a scheme has since been introduced to allow the stock transfer housing associations to benefit from the transferring local authority’s advantageous VAT position.
Named the VAT Shelter scheme, it works as follows:
- An analysis is prepared to identify all major works and improvements that are proposed and can reasonably be classified as ‘enhancements’ to the housing stock.
- These ‘enhancement’ works have typically covered most of the major repair and improvement works that are proposed by the new landlord in the first five or 10 years after the transfer.
- The local authority has an obligation to carry out these enhancement works.
- As the housing association does not have to bear the cost of ‘enhancements’, the purchase price payable for the acquisition of the housing stock is increased commensurately.
- The local authority then asks the housing association to carry out the work, ‘paying’ them in advance. There are no cash transactions between the housing association and the local authority, as the increase in the purchase price of the stock is offset exactly by the payment to the housing association for carrying out the works.
- The invoice from the housing association for carrying out the enhancement works includes VAT, which must then be paid to HMRC. The local authority must bear the cost of the VAT, but is able to reclaim it immediately.
- Then, the housing association will appoint specialist contractors to carry out the major repairs and improvements programme, who will charge the cost of the works carried out plus VAT.
The housing association is permitted to reclaim the VAT it bears up to the amount of VAT it has charged the council.
Contact The VAT People
Speaking to a professional about VAT for housing associations is recommended to ensure you are complying with all necessary guidelines, and making the most of any exemptions. Contact us by calling 0161 477 6600, or fill out an online enquiry form and we will be in touch.
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