V16.1051 Applying the correct VAT liability on residential domestic service charges
Information Sheet 7/18, September 2018
1 Overview
This information sheet, together with Revenue and Customs Brief 6 (2018) (RCB/6/18, Division V16.3), addresses the incorrect application of Extra Statutory Concession (ESC) 3.18 VAT: exemption for all domestic service charges. You also need to read the updated section 12 of Land and property (VAT Notice 742 (Part V8)) if you are:
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— a property management company
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— a housing association
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— a developer
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— a property owner
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— a landlord
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— offering similar services connected with residential dwellings
You should take action from 1 November 2018 (see Revenue and Customs Brief 6 (2018) (RCB/6/18, Division V16.3)) to ensure that you:
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— correctly apply the ESC 3.18
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— pay the right amount of VAT to HMRC
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— recover the right amount of VAT incurred on costs and overheads
2 Background
2.1 ESC 3.18 VAT: exemption for all domestic service charges
Customs and Excise Brief 03/94 introduced this concession in April 1994. Its purpose is to enable the same VAT treatment on mandatory service charges to a freehold occupant as to a leaseholder or tenant living on the same common estate. Such charges are:
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— exempt from VAT when made to leaseholders or tenants as they directly link to an exempt supply of an interest in land from the landlord
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— standard-rated for VAT when made to freeholders as they constitute a separate supply not linked to a supply of an interest in land
If you're a landlord of