Over the last couple of years, our VAT specialists have attended a significant number of HM Revenue and Customs (‘HMRC’) compliance visits to support clients in the housing sector. There is an increased focus on the possible VAT cost of doing something for free that is non-business.

There is an increased interest by HMRC as to whether non-business activities are being undertaken and how VAT incurred on associated costs is identified and subsequently not recovered through the VAT return process.

What are non-business activities?

In the housing sector, it is usually one of two activities:

Firstly, activities that are wholly grant funded, for example, domestic abuse services or helplines for vulnerable groups may be funded through Local Authority grants.

As a side note, be aware that such income streams might not always be grants for VAT purposes, just because the Local Authority refers to it as a grant, it could be a contract. If it is a contract, VAT may be chargeable, and this might be beneficial overall.

Secondly, if an activity is carried out for free by a housing association, it would usually be considered non-business. Examples may be job fairs, financial planning support, community fairs etc.

VAT recovery issues

Any VAT incurred on costs that directly relate to non-business activities should not be recovered.

In addition, HMRC will usually seek to determine whether a non-business restriction should be applied to VAT incurred on overhead or residual costs. Whilst creating a further VAT cost for housing associations, such a restriction can also be extremely complex, requiring additional staff or cost analysis work.

We have successfully agreed with HMRC that such restrictions are not required depending on the volume and the exact nature of the non-business activities.

For further information with regards to non-business activities or the HMRC compliance visit support, then please do get in touch – we will be more than happy to have a discussion with you. Contact us today via [email protected] or call 0345 6866551.