VAT treatment of residential service charges
In Revenue & Customs Brief 67/09, issued on 27 October 2009, HMRC has confirmed that its current policy on the VAT treatment of residential service charges is unchanged following the decision of the European Court of Justice in RLRE Tellmer Property sro v Financni Reditelstvi v Usti nad Labem. Therefore, where:
- The service charges arise under the terms of the lease and services are provided by the landlord (or his agent), without tenant choice, the supply of property and services form a single composite (exempt) supply.
- The tenant is required to pay service charges, but the services are provided by a third party or the charges do not arise under the lease, then the services are a separate taxable (standard-rated) supply from the exempt supply of property under the lease. However, under certain circumstances, HMRC Notice 48 (July 2009): Extra statutory concessions, ESC 3.18; Exemption for all domestic service charges can be applied to treat services as also exempt for VAT purposes.
In view of HMRC’s guidance, VAT-registered residential landlords (or those not registered but who are taxable persons) may wish to check that they are applying correct VAT treatment to service charges.
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