Tenants in rented residential property face a possible increase in service charges of 15 percent now and 17.5 percent from 1 January 2010 following a European Court ruling delivered on Thursday 11 June.
The European Court was asked to reach a decision following a case in the Czech Republic, in which the tax authorities had sought to tax the charges made by a landlord for the cleaning of the common parts in an apartment block.
The Court ruled that the cleaning of common parts of a building did not fall within the VAT exemption for let property and represented a separate supply subject to VAT.
Terry Dockley, a VAT specialist at accountants and business advisers James Cowper, said: “This decision is likely to have a big impact on both landlords and tenants as there is a requirement for UK VAT law to reflect the decisions of the European Court. As yet we do not know when HMRC is likely to adopt this ruling.
“HRMC has typically allowed domestic service charges to be treated as exempt from VAT even where these services are provided by a third party. This exemption will probably have to be dropped, even where the services are supplied by the landlord, meaning that tenants can expect to see a 15 percent increase in their service charges once HMRC implement the decision, with further increases from January 2010.
“This ruling will also present problems for landlords, many of whom are not VAT registered. They will have to get to grips with an unfamiliar tax regime, with severe penalties for late payment. It is also likely to make it harder to negotiate an increase in rents and service charges at the next rent review.
• Landlord Assist is urging Government to properly publicise the recent changes in the Gas Safety Legislation that means that from 1 April 2009 CORGI will no longer be responsible for administering gas safety requirements in the UK.
From that date the Gas Safe Register takes over and any engineer planning to undertake work in Great Britain will need to be registered.
Graham Kinnear, MD of Landlord Assist states that many landlords are not sufficiently aware of the obligations they face and the Government should publicise changes such as this to ensure the masses are made aware.
He said: “Many landlords do not know about Energy Certificates as yet let alone the changes in gas safety legislation.
“We are reassuring landlords that their existing gas safety certificates will remain valid however any future inspections must be carried out by someone registered with Gas Safe and the credentials of engineers can be verified on www.gassaferegister.co.uk.”
The Health and Safety Executive reviewed the situation under CORGI and decided that there was a strong case for modernising the gas registration scheme to provide a clearer focus on gas safety.
