VAT & Property Management Charges

The recent Places for People VAT case has sent ripples through the property and tax sectors, especially for those involved with Maintenance Trust Companies (MTCs). If you’re a landlord, property manager, or developer using MTCs to look after communal areas in residential developments, this case is essential reading.

At the heart of the dispute was a simple but crucial question: who is the real recipient of maintenance services provided by MTCs? The Tribunal looked closely at the contracts and the economic reality. Their conclusion? MTCs supply their services to the lessors (the landlords or freeholders), not directly to the tenants. This distinction matters, because it determines how VAT applies.

Some argued that these maintenance services should be treated as part of a single, VAT-exempt supply of land.  Essentially, that the maintenance is just another part of the lease. The Tribunal disagreed. They made it clear that you can’t merge supplies from different suppliers (the landlord and the MTC) into one exempt transaction. Each party’s obligations are separate, and the MTC’s services stand alone for VAT purposes.

Another key point was about costs. MTCs often incur expenses like staff wages for caretakers or porters. The Tribunal ruled that these aren’t “disbursements” (which might escape VAT), but are part of the MTC’s own taxable supply. In other words, these costs are subject to VAT, just like the rest of the MTC’s services.

So, what does this mean in practice? If you use an MTC to manage communal areas, those services are standard-rated for VAT. They’re not exempt as part of the lease. This could mean extra VAT costs if your contracts and invoicing aren’t set up correctly. It’s therefore important to review your arrangements now to avoid unexpected VAT bills.