HMRC has published much needed guidance on the supply of on-site staff, via residential service charges, to freeholders/leaseholders and whether VAT is chargeable.

Some Property Management firms have been employing site staff (such as concierge, cleaners etc) directly and supplying them to their clients without applying VAT, relying on a concession which was, in our view, incorrectly applied.

HMRC’s guidance note ‘VAT exemption for all domestic service charges’ provides much needed clarity on the subject and explains how to correctly apply the concession. What is interesting is that any errors made in the past need not be rectified but from the 1st November 2018 onwards, the rules must be correctly applied.

So what does this mean for managing agents and their customers?

Essentially, if an agent employs staff and supplies them to the landlord or comparable client entity, VAT must be charged. It’s as simple as that. Of course, if the landlord employs the staff directly no VAT is due, be they a freeholder, Resident Management Company (RMC) or Right To Manage company (RTM).

There is a concession (Extra Statutory Concession paragraph 3.18) whereby the landlord of a common estate directly provides services mandated under the terms of the lease and charges for same, such as a caretaker. These charges are exempt of VAT when directly provided by the landlord not any appointed contractor and / or agent.

At POD, we have always felt the varying interpretation and application of the rules by agents gives rise to concerns, therefore it is pleasing to see this guidance from HMRC provides clarity for all.