Decision threatens non-charitable associations' efforts to meet decent homes target
Housing associations look set to lose their tax battle with the Inland Revenue.

The row over VAT shelters is set to cost non-charitable transfer associations hundreds of millions of pounds (HT 21 November 2003, page 14).

The Revenue has long suggested that non-charitable associations with VAT shelters, which mean they do not have to pay VAT on repairs needed to bring the transferred homes up to scratch, should not also offset those repair costs against their corporation tax bills.

Its head office has reconsidered the technical position twice but still believes tax deductions will not be available against rent for repair work included in the VAT shelter.

Some associations will end up paying millions more in corporation tax than they save through the VAT shelters. Others will lose millions saved in VAT.

Eleven of the 20 associations affected will have to pay a total of £170m extra in tax, a National Housing Federation survey showed.

The NHF said the tax bombshell could prevent some associations from meeting the government's decent homes standard by 2010.

However, Mike McGowan, tax partner at accountant KPMG, said: "This is now clearly a policy matter. The most likely way to achieve a result is if the ODPM regards it as critical in achieving its wider policy objectives."

A number of associations are considering becoming charities in order to reduce the tax bills caused by the VAT shelters, even though this would limit their profit-making ventures, such as building homes for sale.

Walsall Housing Group, which stood to save £40m in VAT through its shelter, is considering becoming a charity because its corporation tax bill will exceed the money saved.

The group's finance director, Martin Robertson, said: "It's serious. We were encouraged by government to go down this route and it would be a bit rich if another arm of government was allowed to take this money – and more – back."

The association is considering becoming a charity in 2005/6, a decision it would usually have taken longer to make.

Robertson said: "We are forced into a structure review that would not be well timed, so it's hardly an example of joined-up government."

A spokesman for the ODPM said the problem was a matter for the Inland Revenue.

Source

Housing Today