VAT – Property related service charges
HMRC have published a VAT business brief to clarify the UK’s position following a recent European Court of Justice (ECJ) case in connection with property related cleaning and service charges.
The ECJ concerned a Czech landlord’s supply of cleaning services. The key issue was whether this was part of a single exempt supply comprising the leasing of apartments and cleaning services to common areas, or did the landlord make a separate taxable supply of cleaning services? The ECJ ultimately agreed with the Czech tax authorities and found that the cleaning services could be considered to be a separate taxable supply.
HMRC believe that the ECJ case can be distinguished from HMRC’s position relating to service charges provided under a lease agreement. In the ECJ case, the Czech tenants had an explicit option of using a third party to provide the cleaning services which ultimately resulted in a separate taxable supply.
On this basis, since the UK only treats leasing of property and related service charges as a single supply, where the services are provided by the lessor (or his agent) as a condition under the lease agreement, HMRC considers that the findings in the ECJ case are consistent with existing UK policy.