Input VAT recovery on property costs possible, even when associated with exempt accommodation supplies
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Input VAT recovery on property costs possible, even when associated with exempt accommodation supplies
Input VAT recovery on property costs possible, even when associated with exempt accommodation supplies
Tue 12 Mar 2019
The First tier Tribunal decision in Adullham Homes Housing Association has held that input VAT property maintenance costs required to deliver supplies of support services with accommodation, can be fully recoverable. This was in contrast to HMRC’s view that the property maintenance related to fully exempt accommodation supplies.
For further advice on the VAT aspects of property transactions, please get in touch with a member of the Mazars indirect tax team.
The First tier Tribunal (FTT) has held that input VAT on property maintenance costs were for supplies of taxable support services in a situation where those support services were supplied with accommodation. The case illustrates the fact that if a direct link can be shown between the costs and the taxable portion of supplies, it can be possible to obtain full input VAT recovery, notwithstanding that a portion of the outputs may be exempt.
Under contracts with Local Authorities, Adullham Homes Housing Association Ltd provided supported accommodation to people in need. There were two types of supply: (i) support services only; (ii) accommodation and support services together.
In order to bid for and deliver the second type of supply, the Association incurred costs on acquiring, maintaining, repairing, cleaning and keeping secure residential properties. It considered theses costs were used for generating taxable supplies of support services. HMRC considered these costs were incurred for exempt supplies of accommodation, reduction in input VAT recovery of £776k for the period February 2010 to April 2014.
On the facts of this case the FTT considered the taxable support services could not have been delivered without the property maintenance costs being incurred. It considered the supplies of accommodation and support services together were a single supply. It also considered that demonstrating there was a direct link between the costs and the taxable supplies was sufficient to justify full input VAT recovery, rather than having to demonstrate direct tracing between the two. The authority for this view of a direct link was taken from the CJEU cases of Iberdrola (C-132/16) and Sveda (Case C-126/14).
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