V16.1051 Applying the correct VAT liability on residential domestic service charges

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:

1.  

   —     a property management company

2.  

   —     a housing association

3.  

   —     a developer

4.  

   —     a property owner

5.  

   —     a landlord

6.  

   —     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:

1.  

   —     correctly apply the ESC 3.18

2.  

   —     pay the right amount of VAT to HMRC

3.  

   —     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:

1.  

   —     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

2.  

   —     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