Property Management, site staff and VAT - an update.

 

It was obvious from today’s event hosted by Deverell Smith recruitment that managing agents still didn’t feel they had complete clarity on the VAT rules for site staff.

The very helpful panel session, chaired by Debra Yudolf of SAY Consulting, set out to address the confusion and it comes down to this:

  • If the person who owns the interest in the land employs the staff, VAT is not chargeable if they supply staff to the benefit of the service charge regime

  • The test of who owns the interest is what happens if the lease was forfeited – who would it return to? If there is a Resident Management Company (RMC) or Right to Manage (RTM) company that employs the staff and the lease was forfeited, then the interest would normally fall to the landlord.

  • So, if an RMC/RTM that does not own the freehold employs the staff, VAT is chargeable providing the cost of employment passes the current VAT threshold (currently £85,000) or the company itself is VAT registered.

  • If the managing agent employs the staff and supplies them to anyone, be that the freeholder, head lessee, RMC/RTM etc VAT is chargeable.

That’s it. It’s quite simple and means increased costs for leaseholders, if the VAT rules apply.

For POD, it raises several other questions/implications, and I’m sure many more we haven’t thought about:

  1.  Will developers be less keen to request on site staffing for developments when it may further increase the service charge cost to their potential purchasers? Does this impact the overall residential experience of owning a leasehold property in a development that would currently benefit from staffing on site?

  2.  Will large developers / freeholders be motivated to bring the provision of staffing in house? Will this potentially extend to the provision of other management services?

  3.  Does the provision of in-house services remove the ability to give a sense of independence and freedom of choice in relation management services?

  4.  Will this supress salaries for the on-site staff? As a result, could the onsite roles become less attractive to potential candidates.

  5.  For an RMC or RTM company historically benefiting from not paying VAT on site staff costs this can only create an increase in service charges. Will this affect a properties affordability and resale value? Will it lead RMC / RTM companies to reduce on site staffing provisions and remove added value services such as concierge?

How the industry will react to this is still to be seen and it may be a further the catalyst to a shake-up in how the various parties involved in home ownership - freeholders, leaseholders, developers and agents – operate. Only time will tell.

If you have any thoughts or questions we’ve not thought about, feel free to comment on the post.