Housing Association Wins Over VAT Claim

Sometimes, you have to gaze on in awe at just how far the authorities will go in pursuing lost causes when it comes to tax.

In a recent case, a housing association, which is a registered social landlord, was taken to task over a claim to recover input VAT. The supply of registered social housing is an exempt supply, which means that the input VAT paid by a housing association cannot be reclaimed. However, the association had set up a subsidiary to carry out development projects (which are not VAT exempt) and it was registered for VAT. The association then transferred to the subsidiary the benefit of its development projects.

Because the transfer was a taxable supply, the association claimed the recovery of the input VAT relating to the projects transferred.

HM Revenue and Customs (HMRC) took a dim view of this and succeeded in persuading the VAT Tribunal that the input tax should be 'blocked', since it was related to the exempt supply of social housing. Unsurprisingly, the housing association appealed the decision.

The High Court agreed with the housing association's argument that the input tax which was reclaimed was directly related to the taxable supply of development and not to the wider supply of social housing. It was therefore recoverable.

The moral of the story is that if you are sure you are right, don't give up. Property tax and VAT can be complicated and HMRC often make challenges on tenuous grounds to tax treatments adopted.

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