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VAT for Estate Management Company

Does an estate management company have to be VAT registered.

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The way I see it is if an estate company charged all it's residents VAT, there would be one return a year with VAT OUTPT on it and three returns claiming this mony back?

 

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By Accountant A
31st Oct 2019 12:25

What's an "Estate Management Company"?

Who is supplying what to who (whom?)?

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Replying to Accountant A:
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By welshwizard62
31st Oct 2019 12:38

Hi
Thank you for quick response. The estate where I live is a private estate, and at the moment we pay into a residents association, and we manage the common areas out of that fund. It is spent each year. From April 1st next year we are forming a limited company, and we are buying the roads off the current landlord so the company will own the roads, and the company will be owned by the residents by way of shareholding. Someone has said that as we will be raising just over £100k per year from residents contributions to the the estate we will have to be VAT registered. We are not VAT registered now, and we raise £68k from residents.

Ian

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Replying to welshwizard62:
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By Wanderer
31st Oct 2019 12:49

welshwizard62 wrote:

Someone has said ................

Why don't you ask 'Someone' what their reasoning is.
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By welshwizard62
31st Oct 2019 13:04

He is a resident, retired FD from FTSE blue chip co. Seems to think that as the annual charge is over the VAT threshold we have to register for VAT, though we have no clients, and do not provide service. The shareholders will all be making an annual contribution to the running of the estate.

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By lionofludesch
31st Oct 2019 13:14

Is this hypothetical company trading ?

Or is it just pooling household costs and sharing them out ?

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By welshwizard62
31st Oct 2019 13:24

Hi It's not hypothetical, it's being formed in the next week or so. All it is going to do is collect fees off residents (£300) per household per year, and spend it maintaining the estate - groundsmen, road works and gardening security and the like.

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By lionofludesch
31st Oct 2019 13:35

Well, it's hypothetical until next week. I'm not even seeing this as a business, personally, but, if it is, I agree with Les, it's exempt from VAT.

What do you do at present ? Do you submit a Corporation Tax Return to HMRC, showing your £68ooo income and the related expenses ? I'm guessing no.

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By The Dullard
31st Oct 2019 13:37

On what basis do you agree with Les that it's exempt, if there are supplies being made in the furtherance of a business?

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By lionofludesch
31st Oct 2019 14:01

The Dullard wrote:

On what basis do you agree with Les that it's exempt, if there are supplies being made in the furtherance of a business?

I think the supplies being made in the furtherance of a business is a remote possibility but, in the highly unlikely event that they were, I'd say they were exempt.

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Replying to lionofludesch:
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By The Dullard
31st Oct 2019 14:10

In such a scenario, on what basis would you say they were exempt? That was my question.

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Replying to lionofludesch:
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By welshwizard62
31st Oct 2019 13:43

Hi no we do not file corporation tax returns, the association receives £68k and spends it all in twelve months.

I assumed it was VAT exempt going forward as the residents are all tennents of the landlord, which owns the common areas.

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By The Dullard
31st Oct 2019 13:47

Lager, lager, lager.

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By lionofludesch
31st Oct 2019 14:04

The Dullard wrote:

Lager, lager, lager.

[chuckle]

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Replying to welshwizard62:
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By lionofludesch
31st Oct 2019 14:03

welshwizard62 wrote:

Hi no we do not file corporation tax returns ....

So that suggests you're not in business.

VAT only affects businesses.

Which is why folk don't charge VAT on their wages.

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chips_at_mattersey
By Les Howard
31st Oct 2019 13:28

I would expect a residential service charge to be exempt from VAT. HMRC Notice 742, chapter 12 explains HMRC's view. If you think that does not apply then seek further views.

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Replying to leshoward:
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By The Dullard
31st Oct 2019 13:36

I think it doesn't apply. It describes service charges paid by tenants to landlords, and then goes on to say that supplies by management companies are standard-rated. I expect the supplies in question to be outside the scope, as not being provided in the furtherance of a business, applying the Lord Fisher tests.

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Replying to The Dullard:
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By welshwizard62
31st Oct 2019 13:51

Hi, The management company won't be supplying anything, they will collect an annual fee off the tenants to maintain the estate, and spend it all throughout the year. So income will equal expenditure, and all VAT returns bar one will be repayment returns. The landlord will be the company, which the residents will be shareholders of.

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By The Dullard
31st Oct 2019 14:11

Eh? Isn't there already a landlord?

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Replying to The Dullard:
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By welshwizard62
31st Oct 2019 14:38

There is currently a landlord, they own the common parts of the estate. They passed the running of the estate to the residents in 1974 - residents association. They are now selling the common parts to the residents, who are forming a ltd co to buy the parts

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Replying to welshwizard62:
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By The Dullard
31st Oct 2019 14:46

And these "common parts" are roads, rather than common parts of a building, with the residents outright owning their homes?

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By welshwizard62
31st Oct 2019 14:52

Hi yes roads, and verges and islands. All freeholders have legal right of way over the roads to their property.

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By The Dullard
31st Oct 2019 15:02

So it will not be a landlord with the freeholders as tenants? It will be the the owner of the roads, verges and islands that the freeholders have a legal right of way over, and will make charges to the freeholders for the maintenance of those roads, verges and islands, without looking to make a profit. It should probably make a little bit more to cover accountancy and VAT/tax advisory, I think, as there is a risk of VAT being an issue, and there will be some niceties (like persuading HMRC that the activity is mutual trading) to attend to in relation to Corporation Tax.

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Locutus of Borg
By Locutus
31st Oct 2019 23:20

I am a director of the residents management company in the development where I live.

The service charge collected from residents is considerably more than £85k per year.

We have never charged VAT on the service charges, since it is not a commercial activity. The main role of the residents management company is simply as a vehicle to collect service charges and then spend that money on costs relating to common parts. For the same reason, the residents management company does not pay corporation tax if it makes a profit.

We use a large firm of managing agents who, amongst other things, keep the accounting records and send out the service charge demands to lessees. They deal with hundreds of developments like ours and I'm sure they would have told us if we needed to register for VAT.

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By nick farrow
01st Nov 2019 11:42

this is an interesting thread as I think it answers a question that has bothered me some years. Our offices are in a block which is now 80% residential 20% business but 8 years ago 100% commercial. The managing agent had never charged VAT on service charge which is usually not massively material. However a few years ago the block was repainted and our share of the additional charge was say £6,000 which included £1,000 of VAT that the contractors had charged - I assumed this VAT was irrecoverable.

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Replying to nick farrow:
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By The Dullard
01st Nov 2019 14:12

Yes. The contractors supply would have been to the landlord, which cost them £6,000 plus £1,000 (query not 20%) VAT. The landlord would nott have been able to recover the £1,000 VAT as it was directly attributable to the exempt supply to you of extra service charge (the alternative analysis is that your £7,000 was an outside the scope contribution to the landlord's cost.

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Replying to The Dullard:
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By nick farrow
01st Nov 2019 15:37

thanks Dullard in my example I was using £6k as the VAT inclusive figure but the principle to which you refer now makes sense viz exempt supply

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By moufflon
04th Nov 2019 10:48

I'd recommend finding the ICAEW publication: 'TECH 03/11 Residential service charge accounts'

Assuming this hasn't been superceded in some way, section 4 on page 9 'Tax treatment of service charges' looks highly relevant. You may also want to read the discussions in this document about whether service charge transactions belong to the P+L of the management company at all - in my residential management company they only go in the separate service charges account.

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Replying to moufflon:
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By The Dullard
04th Nov 2019 10:54

Superseded! Pet hate!

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Replying to The Dullard:
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By Bobbo
04th Nov 2019 14:04

Superseded by what?

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By The Dullard
04th Nov 2019 14:14

The correct spelling.

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By lionofludesch
04th Nov 2019 14:25

You mean superceded has been superseded by superseded as the correct spelling?

I don't think that's right - superceded was never correct, was it ?

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By The Dullard
04th Nov 2019 14:46

Indeed!

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By trecar
04th Nov 2019 11:58

It rather looks to me from the OP and subsequent postings that there is no consideration for services but merely an accumulation of residents monies to meet expenditure and there is no intention to make a profit. This rather suggests that a business is not being carried on and so a registration for VAT is not necessary. This a superficial view and not backed up by any research

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