Our recent survey has highlighted some important issues for RPs to consider.
Some key VAT issues arose from our recent VAT survey of the housing association sector. The survey produced a number of interesting talking points, not least of which is the quantum of irrecoverable VAT the sector incurs, which by our estimates runs into some £500m every year. This in turn underlines the need for housing associations to make sure they get the VAT basics right. The best way to make this happen is to ensure that your in-house accounts team has a sound knowledge of VAT principles, and an understanding of the method adopted for compiling the VAT return.
Nobody is expecting accounts staff to be VAT experts, but the key is being able to identify where there may be issues, and knowing when to ask a question. We are expecting a higher level of vigilance from HMRC in the future, and spotting problem areas early on in the VAT process may prove crucial to avoid VAT penalties. To help with this we regularly provide our clients with the opportunity to have informal VAT updates for their accounts teams.
Funding Arrangements
The growing complexity of funding arrangements entered into by housing associations often leaves the VAT adviser struggling to rationalise the expected VAT exempt treatment with the commercial deal. Most associations will automatically assume that any income stream tagged with the title 'grant' must mean that no VAT has to be accounted for. While this may often be the case, the arrangements should be confirmed. Our experience is that there are growing problems where more than one association is involved in providing services, and at least one of the service lines is connected with Supporting People grants. Identifying the correct VAT liability of the services can often prove problematic.
Property Development
These issues often arise where property development is key. While a material part of the development may qualify for zero rating, as representing new 'relevant residential' units, it is common to find that an aspect of the development also requires the provision of rooms, either for administration, training or meetings. The VAT liability of this part of the development is unlikely to qualify for zero rating as 'relevant residential purposes', and it will be important to confirm whether zero rating is possible using the 'relevant charitable' relief. This will inevitably require a detailed review of how the rooms are to be used before a valid zero-rate certificate can be given to the contractor.
A number of respondents to our survey appeared to be uncertain whether all the VAT reliefs available to them were being fully utilised. In the case of property works, particularly redevelopment, the value of certain zero-rate reliefs can be material, and in at least one case we have dealt with we were able to negotiate additional zero-rating with HMRC to the extent that the savings allowed for a step up in the general build specification of the development.
Temporary Staff
Finally, with the change last year to the VAT treatment of the supply of temporary staff, housing associations have been incurring much higher VAT costs on this item of expenditure, which for most associations is a material figure. The changes to the temporary concession which took place still allow agencies to charge VAT on their commission in certain cases, and Smith & Williamson is looking at ways of applying the new rules to assist associations in reducing their VAT costs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.