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Dear All,
A friend of mine is running a company that provides accommodation for local authority. For children +16 yrs. The company charges local authority per week cost for each children.
If they reach the threshold of £85k, are they required to VAT register? Will the company be exempt from VAT.
Company gets properties on rent and provides semi-independent accommodation.
As the company does not purchase anything or provide any goods. They simply take properties on rent and do all the necessary furnishings. They take tenancy and pay estate agents/landlord the rents promptly. For all the furnitures and setup goods purchased includes VAT.
Friend needs advice and guidance. If anyone can help, it will be much appreciated.
Thank you
If the company is simply renting “unfurnished” residential accommodation, then furnishing it and renting it on as “furnished” residential accommodation, their supply to the Local Authority (LA) will be exempt from VAT – in the same way as the landlord’s supply to them would be exempt from VAT. Income which is exempt from VAT does not count towards the £85k threshold.
However – are they providing anything else? You mention that the accommodation is “semi-independent” – so are there also (for example) any supplies of care, catering or cleaning – or maintenance other than that for which a landlord would normally be responsible? You mention that the charges are processed weekly – so are the supplies of accommodation potentially short-term, which might be more aligned to provision by B&Bs? Or is the company just a management agency – i.e. are there two separate leases (landlord to company and company to LA), or is there just one lease (landlord to LA) with the company just handling rents and providing furnishing? The exact nature of what is being supplied needs to be known in order to be certain of the VAT liability, and the key to this will probably be in the contract between the company and the LA. It may be that there is nothing extra being provided by the company – but if that was the case, I can’t see why the LA wouldn’t contract with the landlords directly?
In the event that the exact nature of the supplies make the charges potentially liable to VAT, bear in mind that LAs are generally able to recover from HMRC any VAT that they are charged. This means that (subject to any contractual terms) if VAT registered, the company could add VAT to their charges at no cost to the LA. This would then entitle the company to reclaim the VAT incurred on furniture and any other VATable purchases … so VAT registration might be beneficial. But this is only possible if the income is not exempt.
Good Afternoon Trevor,
I cannot express my gratitude enough in words, merely for the effort, you have taken to respond and ask further questions. I joined the VAT forum and was sceptical about the quality of responses I will get out. But I am convinced this is the best platform and will recommend it to all my friends.
Coming back on my queries, I will explain further and hopefully, you can share more of your wisdom with us.
The friend’s company are only accommodation providers without any support element, the company provides accommodation for +16 yrs up to 21 yrs. They are looked after children or UCAS (asylum children) some may have status and some may not have status.
The LA sends a referral to the company, the company looks for properties in the preferred areas, the company gets properties from estate agents, landlords and get a tenancy for 1 Yr or 2 yrs. Depending on how the property is provided, some are furnished and some unfurnished. Some include bills and some do not include bills.
Once properties are identified, the company provides details of property and costings to the LA placement commissioning team. The placement commissioning team shares this info with social workers and young people. The company sends a breakdown of cost, that includes all bills etc. The agreement is usually for a year, but it keeps extending until the young person gets permanent social housing.
The company later furnishes the property if required, the company also looks after council tax, utility bills, wifi etc. In some cases the Young person pays bills.
If accepted the company provides keys to Young person and get the young person to sign an excluded licence agreement and house rules. Which states the cost per week, dos and don’t of the house. Also specifies about the eviction process if the house rules are breached.
The company charges a weekly cost, which is paid on a monthly basis by LA. Usually calculated for 52 weeks. Most of the properties provided are on block contact, minimum 1 year. In case there is an eviction, LA will replace with another young person to avoid paying for voids.
The company only takes care of accommodation and any maintenance issues of the property. There is always another organisation involved that takes care of the support element for the young person. So my friend’s company is only liable for property and its maintenance.
Until now no VAT has been charged, but the company is getting closer to the VAT threshold, hence wanted to clarify if the company is exempt from VAT?
I tried my best to explain, what the company does. However, I may not have expressed clearly for understanding. In that case, excuse my ignorance and way of writing.
If it will be easier, Trevor you seem to be a reasonable person and with in-depth knowledge.
I don’t know if it’s appropriate to ask? But I will ask anyway.
Trevor would you be kind enough to provide my friend with an appointment over the phone or in person. To express all his queries and doubts about the company and VAT information.
Your time is valuable and my friend is happy to pay an appropriate consultation fee for your time and expertise. As he wants to do the right thing. There are people around my friend with little knowledge and who provide bad advice. Hence he asked me to check on a reliable forum.
If you feel I have crossed the line. Trevor or moderator of the forum, please let me know, so I don’t do this mistake again.
I look forward to your valuable feedback and comments.
Thank you
Thanks for your reply. Hopefully it will help if I explain the logic behind my questions. I was the in-house VAT advisor within local authorities with housing and social services functions for over 20 years, and never came across an arrangement like this!
Supplies covered by VAT exemption are detailed in Schedule 9 of the VAT Act 1994. The potentially relevant extracts are as follows. The word “land” here also includes “buildings”:
Quote:Item 1: The grant of any interest in or right over land or of any licence to occupy land, or, in relation to land in Scotland, any personal right to call for or be granted any such interest or right, other than:
…
(d) the provision in an hotel, inn, boarding house or similar establishment of sleeping accommodation or of accommodation in rooms which are provided in conjunction with sleeping accommodation or for the purpose of a supply of catering;
…
Note 9: “Similar establishment” includes premises in which there is provided furnished sleeping accommodation, whether with or without the provision of board or facilities for the preparation of food, which are used by or held out as being suitable for use by visitors or travellers.So first I was trying to ensure that there were no other elements to the supply which would prevent it falling within item 1. Then I needed to be sure that it wouldn’t be excluded from exemption due to the exception in (d). The final issue was to ensure that your friend’s company actually did both “receive” and “make” supplies of the properties, rather than just acting as more of a letting agent.
In my opinion these appear to have all been met – assuming that the “other organisations” providing any care and support aren’t “related” to your friend’s company, and provides their services direct to the LA or young person, rather than via your friend’s company. The arrangement wouldn’t seem to be caught by the exception (d). And the fact that the landlords grant a tenancy to your friend’s company, which then grants Excluded Licence Agreements – often for different periods and with different terms and conditions (the “house rules”) to the individual young people, shows that the company is receiving and making supplies of the properties. Therefore I believe that the income from the LAs would not count towards the VAT registration threshold for the company.
As far as I know, there’s nothing in the forum rules that would prevent members offering paid advice “off-forum” – however I’ve always chosen not to. If I were to provide paid advice, I would want to be able to “back” it with the type of professional guarantees that you’d expect from an advisory firm – which isn’t practical for me to do for the occasional opinions I post on forums! However, other advisors on here may be prepared to offer a paid consultation – in which case the information and opinions here would provide useful background information. Another alternative might be for your friend to seek their accountant’s view on the opinions I’ve given. If they’re prepared for a small fee to write confirming they agree with the opinion, your friend has something to hold on file just in case HMRC ever did ask questions. Ultimately the key with VAT is to always be able to demonstrate that you have taken what HMRC refer to as “reasonable care” – and even seeking advice here would help with that.
Hope this helps – but if you or your friend have any further queries or doubts, please feel free to post them here.
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