Potential VAT Benefit For Housing Associations - Draft Finance Bill Opens Consultation On Changes In Tax Law

The current VAT regime

Non-recoverable VAT is a drain on the finances of many housing associations. The core activities of housing rental and resales are exempt from VAT; but the sale of new build homes and the supply of maintenance services to other organisations (such as local authorities under the terms of a stock transfer agreement) are taxable supplies and often generate a recovery shortfall.

Housing associations and other organisations that make both exempt and taxable supplies can use the Partial Exemption (PE) process to determine how much VAT can be reclaimed. Organisations with more complex structures (for example larger housing associations which perform services for smaller ones, or offer other services such as advice and education) may be able to agree a Partial Exemption Special Measure (PESM) with HMRC. These are helpful for some organisations, but make tax accounting more complicated and will sometimes ultimately work in HMRC's favour.

Potential changes in tax law

Housing associations, and other non-profit organisations such as charities, have lobbied for a change in the law to make the provision of services between organisations not subject to VAT. This would make it easier for housing associations to share call centres for dealing with tenant queries, or conduct rent collection or property maintenance services on each other's behalf. They could then achieve economies of scale which are...