The Treasury wrote to the National Housing Federation at the end of last week to say non-charitable associations will no longer be able to offset their repairs costs against their corporation tax bills if they have a VAT shelter. Shelters exempt them from VAT on repairs.
The ruling will cost the sector more than £170m in additional tax, according to an NHF survey of 11 of the 20 associations affected.
The Treasury's decision comes after a long-running tussle over the tax between the NHF, accountant KPMG and the Inland Revenue. Last month KPMG signalled that associations had failed to sway the Inland Revenue on the issue (HT 2 April, page 14).
In a letter to associations seen by Housing Today, Treasury minister Dawn Primarolo said the government was already making considerable investment in housing and did not want to treat it in a way that would distort tax laws.
As a result of the move many associations are now applying to become charities. They will still be liable for tax from their transfer date to the day they become a charity (table, above).
Knowsley Housing Trust stood to lose about £49m in corporation tax but could reduce this to about £4m by becoming a charity next week. Its VAT shelter was set to bring in £32m.
John McHale, chief executive of Knowsley, said: "The problem of going down that route is we are limited in terms of our wider regeneration role. We then have to set up a support company for that." If Knowsley is to meet the decent homes standard, which the tax would prevent, it must become a charity.
Amber Valley Housing in Derbyshire will take the same action later this month. Brian Roebuck, its finance director, said: "It's farcical. You'd think the Inland Revenue rationale was to claim more tax – but it won't if people go charitable, apart from getting a bit before they change."
Source
Housing Today
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