Residents Association


Residents Association

Postby Ashes on Tue May 11, 2010 9:37 pm

Residents association (ltd co'y, not a profit-making co'y.)owns private road and charges tenants £200 subscription per annum.

Also charges tenants "Road Levy" which are essentially payments for future repairs to grass verges etc.

Are these VATable receipts?

Thanks.
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Re: Residents Association

Postby pawncob on Wed May 12, 2010 5:03 pm

Assuming the assoc. is registered, then they're VATable. Contributions to the "sinking fund" are not VATable.
The question is, why is the assoc. VAT registered?
With a pinch of salt take what I say, but don't exceed your RDA
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Re: Residents Association

Postby Ashes on Thu May 13, 2010 9:43 am

Thanks pawncob.

The assoc. is not currently VAT registered but it does have income exceeding the VAT threshold.

There is also a Deed of Grant which is a fee paid by a property if an additional property is built on the site. The rationale is similar to the road levy but reflect the excessive burden each additional property brings to the estate, eg. increased traffic, pressure on sewers etc. I was wondering if this is VATable or would this be classed as an easement and thus exempt from VAT.
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Re: Residents Association

Postby section 44 on Thu May 13, 2010 12:26 pm

If I've understood you correctly, this a private limited company established on a not for profit basis. What business activities does it carry on in order to enasble it to register for VAT?
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Re: Residents Association

Postby Ashes on Thu May 13, 2010 12:47 pm

Hi,

"If I've understood you correctly, this a private limited company established on a not for profit basis. "
Correct.

"What business activities does it carry on in order to enasble it to register for VAT?"

Its activity is the holding of freehold property on a particular road and the laying, maintenance and general upkeep of the road tarmac, verges etc on said road. It charges its residents £200 pa subscription.
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Re: Residents Association

Postby pawncob on Thu May 13, 2010 2:24 pm

It must be a very long road!

Ignoring other income, you'd need 340 residences to make it to the VAT reg. limit.
With a pinch of salt take what I say, but don't exceed your RDA
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Re: Residents Association

Postby Ashes on Thu May 13, 2010 2:30 pm

The road levy and Deed of Grant of easement would take it over the threshold.
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Re: Residents Association

Postby section 44 on Thu May 13, 2010 2:39 pm

Ashes wrote:Its activity is the holding of freehold property on a particular road and the laying, maintenance and general upkeep of the road tarmac, verges etc on said road. It charges its residents £200 pa subscription.


That may be the company's activity but if it is a not for profit company then it does not have a business for VAT purposes. Carrying on something without a view to making a profit isn't a business. Charities (for example) carry on activities that involve money but that doesn't amount to a business and hence why VAT can sometimes be a a problem for them because they have no basis for registration.
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Re: Residents Association

Postby pawncob on Thu May 13, 2010 6:03 pm

The grant of an easement is exempt for VAT purposes and would not form part of the turnover when calculating the registration "turnover".
I don't think the company has a business for VAT purposes, so to answer the original question, none of these items are VAT able.
With a pinch of salt take what I say, but don't exceed your RDA
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Re: Residents Association

Postby spidersong on Fri May 14, 2010 9:59 am

That may be the company's activity but if it is a not for profit company then it does not have a business for VAT purposes. Carrying on something without a view to making a profit isn't a business.


Unfortunately HMRC, and Lord Emslie from the Court of Sessions would disagree with you, and probably insist on using the tests established since 1977 that say that whether you aim to make a profit or not is immaterial. Here in fact are the venerable (I assume) Lord's remarks in his judgement on the case of Morrisons Academy one of the two primary case law judgements used to determine whether an activity is business "“I now ask myself first of all whether the Tribunal were correct in concluding that no activities carried on continuously by a taxable person can ever be business if the profit motive is absent. In my opinion they were not. I can discover nothing in the natural meaning of the word business so to restrict its scope and there is nothing in the context of the taxing provisions as a whole to require one to read “business” in such a narrow way".

From this and the decision on Lord Fishers shooting party activities there is a six part test derived to decide whether a person is in business:
1) Is it a serious undertaking earnestly pursued: That seems to be the case here.
2) Does it have reasonable continuity: Yes
3) Does it have a measure of substance to its income: since it gets in over £70K then yes
4) Is it conducted in a regular manner on sound business principles: From what we know so far it looks like it
5) Is it predominantly concerned with the making of taxable supplies for a consideration: Possibly some debate here but for the £200 annual fee that would be the case
6) Are the supplies made similar to those made by people who seek to profit from them (note: not is there a profit motive but could other people making similar supplies profit): Again this is a yes.

So the RA has a tick in every column of the business test, it's in business!

However as Pawncob says the easement or any other rights over land would be exempt and hence the taxable turnover is likely way below the threshold and there's no need to register and charge VAT.

Also depending on the make up of the limited company and its constitution there may even be a case for saying that the £200 doesn't represent consideration for a supply to the residents in the first case and so it falls outside the scope, but there's not enough info here to even start in on that route of enquiry, and without looking through a fair bit more caselaw I'm not entirely sure it would work anyway.
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