Within a property lease the landlord often agrees to be responsible for:
- repairs and maintenance to the building
- the management of repairs and maintenance
- management of the lease
- provision of security
- provision of utilities
- other services
The critical factor in whether they are vatable of not is wording of the lease.
If they are additional consideration to the main supply of rent they will be treated the same as the rent, which for residential usually means they are exempt (unless its a commercial property opted to tax).
However, if the lease doesn’t specifically cover these costs then they will be standard rated for VAT!
Management Agents will be supplying the landlord not the tenants so their costs will always be standard rated unless the extra-statutory concession is applied.
If you provide services to freehold owners of dwellings your supply is taxable because there is no supply of domestic accommodation to link those services to. However this is unfair to freehold owners, especially those living on the same estate as leaseholders. To address this inequity an extra-statutory concession allows all mandatory service charges paid by occupants of dwellings toward the:
(a) upkeep of the common areas of a housing estate, such as paths, driveways and communal gardens; or
(b) upkeep of the common areas of a block of flats, such as lift maintenance, corridors, stairwells and general lounges; and
(c) general maintenance of the exterior of the block of flats or individual dwellings, such as painting, and
(d) provision of an estate warden, house manager or caretaker,
to be treated as exempt from VAT.
Where you apply the concession and treat the service charges as exempt your right to recover the associated input tax may be restricted. This may also have an impact on your eligibility to remain registered for VAT.
To read the rules in more detail see VAT Notice 742