EC ruling on VAT could hit landlords - changes to tenancy tax pose problems - Mazars - United Kingdom

Landlords may face an extra 'layer of accounting' following a European court ruling on VAT on rental properties.

08/07/2009

The ruling, if upheld, will require tenants to pay VAT for property services such as cleaning. At the moment, VAT is only payable on service charges if it is also charged on the rent.

Advisers Mazars warn that, for some landlords, this could mean they ‘may find themselves becoming liable to VAT registration for the first time, which brings its own compliance headaches’, according to Stacy Eden, head of property and construction.

He added: ‘Landlords will suffer as they are faced with an additional layer of accounting.’

As for tenants, it will also bring bad news for them as service charges rise from 15% to 17.5% in the new year.

But Eden said the change could benefit VAT-registered businesses.

He said: ‘VAT-registered businesses that have historically been paying exempt service charges may be able to benefit from a one-off windfall VAT recovery.’

There are, however, ‘strict time limits for the submission of claims to HMRC and therefore businesses are strongly urged to review their tax positions at the earliest opportunity’.

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About Mazars:

A jpg image of Stacy Eden is available on request.

Mazars is an international firm specialising in audit, tax and advisory services that operates as an integrated partnership in 50 countries worldwide.

In the UK, Mazars is the eighth largest partnership in terms of audit fee income, has the fastest growing tax practice amongst the Top 20 firms, and was named ‘Large Firm of the Year’ at the Accountancy Age Awards 2008.

The firm employs more than 1,100 people and has over 100 partners based in 18 offices throughout the UK.