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HMRC internal manual

VAT Government and Public Bodies

HM Revenue & Customs
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Other local authority activities: housing and community projects: third party management of housing stock

As part of their statutory housing obligations local authorities must ensure that their properties are kept in good repair. Most now delegate the management and maintenance to a tenant management company.

Tenant Management Co-operatives

Tenant Management Co-operatives (TMCs) approved by the Secretary of State for the Environment were the first vehicle for putting tenants in charge of their own estates. TMCs can be companies or charitable trusts. They enter into standard agreements with local authorities that can be tailored to meet the particular needs of either party.

Under these arrangements repairs and maintenance are the delegated responsibility of the TMC. The TMC acts as principal in purchasing materials and carrying out the work or engaging contractors. The TMC, rather than the authority, receives the supplies of goods or services and in turn makes taxable supplies to the authority Consideration for the supply is the management and maintenance allowance paid to it by the authority.

The local authority is not entitled to recover input tax on the supplies received by the TMC. VAT registered TMCs can recover the input tax incurred through their own VAT registration, subject to the normal rules. Those TMCs must, in turn, charge VAT and account for output tax on their onward supplies to the local authority.

Because the delegated maintenance relates to the non-business activity of providing housing, an authority can recover any VAT charged by a TMC acting as a principal under section 33 (see VATGPB4000).

Tenant Management Organisations (TMOs) came into existence in 1994. This followed a legislative change which saw the introduction of the Housing (Right to Manage) Regulations 1994, made under section 27AB of the Housing Act 1985, (inserted by section 132 of the Leasehold Reform, Housing and Urban Development Act 1993). As part of these Regulations the Secretary of State introduced guidance notes, a modular management agreement (MMA) and an allowance calculation booklet.

Under the MMA, a TMO is able to take on varying degrees of management responsibility and receive payment from the local authority for the range of services it may undertake. It can also administer and collect rents.

As a result of this change most supplies received by the TMO, whose costs are reimbursed by the local authority, can be seen as supplies to an agent acting in their own name. These supplies are made both to and by the TMO as agent under section 47(3) of the VAT Act 1994. For more information about this see theTaxable person manual (VTAXPER) (external users can find the guidance at Input tax can be claimed by the TMO only in the same VAT period in which it accounts for output tax on the charge to the local authority.

The only supplies a TMO normally makes in its own right (as principal) are its management services in running the estate as managing agent. The VAT charged by the TMO can be recovered by the local authority under section 33.

Arms Length Management Organisations (ALMOs) have been established by some local authorities to manage housing stock that is not to be transferred to the private sector. They are very similar to TMOs and are seen to be acting as agent for the local authority.