The plan, to be debated by European Union finance ministers over the next few months, would allow member states to change the VAT rate on certain items, including repairs and refurbishments to social housing.
Housing associations spent £1.5bn on repairs last year, according to the National Housing Federation. VAT is levied at 17.5%. Under the EC plan, that could be cut to 5% – slashing the total tax bill by more than £100m.
However, any agreement would require changes in other areas, likely to include a 5% VAT rate on new-build social housing and children's clothes, both currently VAT-exempt.
A Treasury spokesman said: "As things stand, we are going to veto the EC proposal – we cannot allow VAT to be charged on children's clothes. Either the EC drops the threat to zero-rates or the whole thing is off."
The National Housing Federation has argued for the past few years for the Inland Revenue to change VAT rates. However the Treasury has always refused to reduce VAT on social housing repairs and refurbishments as it raises crucial revenue that funds other housing investment.
But if pressure is exerted both by the EC and the NHF In the form of a strong lobbying campaign, the Treasury could alter its position.
NHF policy officer Bob Wilson said: "This move by the EC gives our work fresh momentum and affords a further opportunity to press the case with government.
"We are presently doing a survey of our members as to the potential saving of reducing VAT on repairs to 5%. We hope to have this finalised in the next two weeks to bolster our case that we present to the Treasury."
Meanwhile, transfer associations look set to win a tax battle with the Inland Revenue.
Associations that used a legal agreement to reclaim VAT on repair work were set to face multimillion-pound corporation tax bills after the Inland Revenue challenged one scheme.
However, the Inland Revenue looks set to back down after a meeting with tax and social housing experts from KPMG and the NHF.
Source
Housing Today
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