Residential service charges—VAT implications
Produced in partnership with Martin Scammell
Residential service charges—VAT implications

The following Tax guidance note Produced in partnership with Martin Scammell provides comprehensive and up to date legal information covering:

  • Residential service charges—VAT implications
  • Service charges payable to landlords
  • Concession
  • Sinking funds
  • Electricity and gas
  • Water
  • Insurance
  • Optional services

This Practice Note is about the VAT treatment of residential service charges.

Service charges payable to landlords

Service charges are often payable to the landlord under a lease or licence, in the same way as rent, and in this case they follow the same VAT treatment as the rent. This is because there is no separate supply—the rent and service charge together are payment for a letting of serviced premises.

This means that a service charge for residential property is normally exempt. The tenant incurs no VAT, but the landlord is unable to recover VAT on the related costs.

Service charges for holiday accommodation, however, will normally be standard-rated, in the same way as the rent (see Practice Notes: Exclusions from the exemption from VAT for land and buildings—Hotel and similar accommodation and Exclusions from the exemption from VAT for land and buildings—Holiday accommodation).

Some charges may need to be dealt with differently:

  1. there may be a separate supply, typically because tenants pay only according to their own consumption—metered utility charges are an example

  2. the charge may sometimes be a disbursement, because the landlord is meeting and recharging a cost that is legally the responsibility of the tenant—the Tribunal has largely not seen matters in this way

Concession

The position is different where the person supplying the services is not also renting