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HMRC internal manual

VAT Government and Public Bodies

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HM Revenue & Customs
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Other local authority activities: housing and community projects: home improvements and tenant contributions

Most local authorities have a rolling programme to maintain or improve the quality of their housing stock. Much of the work consists of repair and maintenance although some may be more radical including the installation of central heating, double-glazing, distress alarms and the like. Frequently these improvements are carried out irrespective of the wishes of the tenant who has little option but to accept them. On occasion, however, work may be carried out at the specific request of the tenant or the tenant may have the option of declining to have the work carried out.

Works requested by tenant

In the case of improvements carried out at the tenant’s request it is not unusual for an authority to seek a contribution. These contributions may take the form of a lump sum payment or instalments paid with the rent.

Where the contribution is either paid as a lump sum or in short-term instalments, it is regarded as the consideration for a separate supply of improvement services. The liability will generally be standard rated, but may be zero-rated where the supply is to a disabled person and all the necessary conditions are met. For more about this see Notice 701/7 ’VAT reliefs for disabled people’ (external users can find the notice at http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.por…
document&columns=1&id=HMCE_CL_000184).

Where the contribution takes the form of a permanently increase in rent it becomes part of the payment for the right to occupy the property and so is non-business.

Compulsory improvements

Work may be carried irrespective of the wishes of the tenant who is, nevertheless, then required to pay a permanently increased rent. This does not represent a separate supply for VAT purposes. In these circumstances the additional rent falls within the overall supply of the right to occupy the accommodation, which is a non business activity of the authority.