The VAT Tribunal of the Field Fisher Waterhouse case TC/2010/01947 has requested a ruling from the ECJ to establish the correct treatment of common area service charges in respect of leased properties (where no option to tax has been exercised, or one cannot be exercised).
The case questions whether service charges under a lease of a non-opted building are consideration for a separate supply subject to VAT. Essentially, the Tribunal is asking if the decision in the Tellmer case (C-572/07) can be used within the Field Fisher Waterhouse situation.
In the Tellmer case, the ECJ held that the letting of flats in a block and the cleaning of its the common areas should be considered as individual components of two separate supplies for VAT purposes, and that the cleaning services are a separate taxable supply, rather than subsumed within the exempt supply of letting.
The outcome of this case will be very important as it will confirm whether or not landlords make single or multiple supplies of similar services for VAT purposes. Currently, the UK VAT perspective holds that service charges are viewed as closely linked to the supply of letting and attract the same VAT liability. This is because the maintenance and cleaning of common areas of leased properties are usually provided for by landlords within tenancy agreements.
The forthcoming decision will provide much needed clarification for NHS Bodies and the potential for VAT recovery in respect of service charges which could potentially fall under the COS rules (e.g. cleaning, maintenance). It will also have a bearing upon the VAT liability of property leased by Trusts to non-NHS tenants (e.g. GPs, CICs, etc).