Services - Should the Landlord Charge VAT?

In general, rents on property are exempt supplies for VAT purposes. However, a landlord often supplies other services to tenants, such as cleaning and maintenance. These services are usually subject to VAT.

When supplies of a VATable and a non-VATable nature are made as a single supply, the general rule is that the VAT treatment of the larger supply (usually the rent in these cases) dictates the VAT treatment of the whole.

The question of the appropriate treatment for VAT purposes turns, therefore, on whether there is one supply or more than one. Until recently, this issue was straightforward, because supplies ancillary to letting (an exempt supply) that are ‘closely linked’ to it were also treated as exempt.

However, a 2009 decision by the Court of Justice of the European Union (CJEU) has thrown the whole area into doubt. The CJEU approached the issue by considering whether or not the ancillary services (in this case cleaning) could have been supplied by a person other than the landlord. It reasoned that if the provision by a third party would be a taxable supply, so would provision of the service by the landlord.

More recently still, two cases have come before the First-Tier Tribunal on this topic. One of these has been referred to the CJEU for certain issues to be resolved. In the other, the separate supply of water to tenants was ruled to be a taxable supply despite the fact that the tenancy agreement required the tenants to obtain their water from the landlord.