Many RSLs are having to consider developing on brownfield land, especially in London. But these sites often have land contaminated by chemicals and oils from former industrial use. Clearing the contaminated soils is essential but, with landfill tax at £14 a tonne, the tax bill alone could be huge. Happily, reclaiming contaminated land is exempt from landfill tax. You must apply to Customs for an exemption certificate and pass this to the contractor at least 30 days before the waste is landfilled – the contractor has to be able to prove the waste is exempt. Andy Rogers, VAT director of KPMG, says one housing association client saved £18,000 in landfill tax and £2000 in VAT from this exemption on a site where 1300 tonnes of soil were removed. But if you've already paid the tax, it's too late – you cannot claim it back.
Corporation tax
Some non-charitable RSLs are carrying out activities that could be classed as charitable. Sheltered housing, for example, could – depending on the profile of tenants – be a charitable activity. If these activities are carried out within a charitable subsidiary, they could take advantage of a charitable tax exemption that would save corporation tax, at 30% of any surplus. Consult your advisers to see if any of your activities can be defined as charitable.
Charitable RSLs often also operate taxable non-charitable operations such as building housing for open market sales and generate an unexpected tax liability. These activities could be carried out by non-charitable subsidiaries. These subsidiaries must pay corporation tax, unless they make a Gift Aid donation. Kathryn Austin, a tax manager at KPMG, says: "Charities can't make Gift Aid payments but a non-charitable subsidiary should be able to donate any profit to the charitable RSL before the profit is taxed."
VAT
Printed material such as tenant handbooks and leaflets all qualify for zero rate VAT for RSLs. Zero rate means that although you pay 0% VAT, the supplier can recover their VAT costs. This is a complex area that some suppliers don't understand, so make sure you're not being charged.
Adverts placed by charitable RSLs also qualify for zero rate VAT. Specialist housing publications should know this but if you are placing an advert elsewhere, remind them you're a charity. If it's too late, you can get the money back from the publication as long as the ad ran less than three years ago.
Bring forward your insurance renewal date and renew just before it rises again
Andy Rogers, VAT director, kpmg
If you are building new homes, and you have a combined demolition and development contractor, they will charge zero rate VAT, but if the two are separate, the demolition company can only zero rate the work if it can be shown that there is a build contract starting reasonably soon afterwards. If not, VAT must be charged.
If you buy land or a building from someone who has incurred costs developing the site, they can "opt to tax" – add VAT. But if an RSL buys land to use for social housing, it can stop the seller from doing this. This should always be the first approach. Associations often overlook this when buying pubs to convert to housing.
Stamp duty land tax
If the property is in a qualifying ward for disadvantaged area relief, you don't pay stamp duty land tax. Check the postcode of any site you are buying to see if it qualifies. "Sometimes parties aren't aware they're in a disadvantaged area," says Rogers. "It can be a bonus if at the end of the sale you realise you don't have to pay, but it is much better to realise this when you're doing your feasibility study at the start."
Claim RSL relief rather than charity relief where you can. The RSL relief has no conditions to satisfy about "intended use" and there is no claw-back period in which the relief can be withdrawn if you sell your land soon after buying it.
Source
Housing Today
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