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VAT treatment of residential domestic service charges

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HMRC has confirmed that from 1 November 2018 it will require all property management companies to account for VAT at the standard rate on fees they charge landlords for providing common services to the occupants of residential property.

Revenue and Customs Brief 6 (2018) and VAT information sheet 7/2018 set out HMRC’s view of the correct application of ESC 3.18, which allows landlords to exempt mandatory service charges paid by both freehold and leasehold occupants of residential property. These publications explain what property management and similar companies must do if they have wrongly applied the concession, which could have resulted in incorrect amounts of output tax or input tax being declared.

The concession has been available since April 1994 and applies only when residential leaseholders and freeholders pay a mandatory service charge for the same common services on a common estate. Its purpose is to allow the same VAT treatment of these service charges for all of those living on the estate.

Leaseholders and tenants are exempt from paying VAT on these charges, as the charge is directly linked to an exempt supply of an interest in land. Freeholders do not have this link, so for them these charges are normally taxable at the standard rate of VAT. Landlords that are contractually obliged to provide services to all occupants of a common estate may choose to use the concession to treat these supplies, when made to a freeholder, as exempt from VAT.

The concession cannot be used by property management companies providing services on a landlord’s behalf. HMRC knows of a number of property management and similar service companies that provide goods and services to landlords of residential buildings, but do not correctly account for VAT. Some common examples of where companies have incorrectly applied or relied on the concession are given in VAT information sheet 7/2018. These companies cannot use the concession to:

  • treat their supplies as if made to the occupant rather than the landlord;
  • recharge costs borne on behalf of the landlord, back to the landlord; or
  • recharge staff or personnel costs to the landlord.

HMRC refers to the Upper Tribunal (Lands Chamber) decision in Ingram v Church Commissioners for England [2015] UKUT 495 (LC), as providing confirmation of its view of how the concession operates.

See Revenue and Customs Brief 6 (2018) ( and VAT information sheet 7/2018 (

Issue: 1412
Categories: News