NHF hits back at plans set to cost sector millions and jeopardise decent homes target
Two councils have delayed their stock transfers because of an escalating row over tax that could cost the whole sector hundreds of millions of pounds.

Maidstone and Scarborough councils have delayed transfers involving 10,900 homes until the uncertainty is resolved – which will be December, at the earliest.

The row surrounds the Inland Revenue's plan to stop housing associations that have VAT shelters offsetting the cost of repairs to transferred homes against corporation tax (see "A taxing argument", below).

The National Housing Federation and accountant KPMG will meet with Inland Revenue officials on 1 December to argue against the ruling.

The NHF has also written to the Inland Revenue, Treasury minister Ruth Kelly and housing minister Keith Hill to express its fear that the move would have a major impact on the housing sector's ability to deliver the decent homes standard.

If the Inland Revenue gets its way, associations could end up paying millions more than they save through the VAT shelters, a system that means they don't pay VAT on repairs to transferred homes. For example, Maidstone Housing Trust in Kent would be faced with a £15m corporation tax bill while saving only £8m on VAT.

That is why Maidstone council, which was due to transfer 6300 homes to the trust on 24 November, now intends to wait until the row is resolved.

The trust's chief executive designate, Peter Stringer, estimates that the delay could also cost the council £200,000 during the next three months in staffing and legal costs.

Scarborough council, which was expected to transfer 4600 homes on Monday to Yorkshire Coast Homes, plans to delay the move until mid-December.

The problem will be particularly acute for associations that factored savings from VAT shelters into their business plans because when transfer was agreed, there was no question they would be taxed.

Many will have to scale back or abort community projects they planned to fund from money saved through VAT shelters.

Walsall Housing Group ploughed £5.6m of the proceeds from its £40m VAT shelter into business plan projects, including refurbishment work.

However, group finance director Martin Robertson said he believed he could use tax planning to plug the financial gap.

A taxing argument

  • What is a VAT shelter?
    It’s a tax arrangement that means post-transfer housing associations don’t have to pay VAT on the repairs needed to bring transferred homes up to scratch. The shelters have saved associations hundreds of millions of pounds and offer councils an incentive to transfer
  • When were they invented?
    Stock transfer organisations have been able to use VAT shelters since 2002. Some of the country’s largest landlords, including Bradford Community Housing Trust and Knowsley Housing Trust, used the shelters in their transfers
  • What’s the problem?
    As well as reclaiming VAT, associations thought they would be able to offset the cost of repairs such as replacing windows against corporation tax. But the Inland Revenue challenged this in August and said non-charitable housing associations with VAT shelters could not deduct repairs expenditure from the tax. In the worst cases, this means associations paying millions more in corporation tax than they gain through the VAT shelters

    • Source

    Housing Today