Insights

Effect of VAT ‘normalising’ on service charges

Wednesday, October 28th, 2009 in Commercial, Landlord, News, Residential, Service Charge

The short term reduction of the standard rate of VAT, from 17.5% to 15%, introduced from 1 December 2008 in a bid to help alleviate the effects of the recession is due to come to an end at 31 December 2009.

The rate will then return to 17.5%, unless the Government decides that the economy still requires the added stimulus that this reduction was designed to provide and extends the period beyond that date.

Our experience shows that when the rate was reduced some suppliers passed on the benefit of the reduced VAT rate, as the Government had intended, by keeping their net costs unchanged, resulting in a reduction in the gross cost. Other suppliers kept their gross costs unchanged, effectively taking advantage of a “hidden” increase in their net charges.

Presumably, when the VAT rate returns to 17.5%, the gross cost for the former group will simply return to the previous level, whilst the latter group will retain the increased net cost and apply the higher rate of VAT.

In terms of service charge situations the overall effect on a service costing £1,000 plus VAT prior to 1 December 2008 can be summarised as follows :-

Therefore, for residential tenants and tenants of commercial non-opted buildings there has been a short-term benefit of lower costs from those suppliers who “played fair” and passed on the benefit of the VAT rate cut, offset by a disadvantage of a higher cost base going forward from January 2010 for those suppliers who took advantage of a hidden price increase.

Watch out for your next service charge statement.

For commercial tenants of opted buildings there is no up-side from suppliers who passed on the benefit of the VAT reduction (other than in cash flow terms), only higher costs going forward from 1 December 2008 for those suppliers who took advantage of a hidden price increase.”

Alternatively, you could just use the first paragraph as a bald statement of fact if you think that my subsequent comments are a bit too cynical!

The Companies Act 2006 may have arrived

Wednesday, October 21st, 2009 in Landlord, Managing Agent, News

The final parts of the 2006 Companies Act bring changes of interest to landlords, managing agents and company secretaries of property management companies.  On 1 October 2009 the following changes will take effect:-
 
1.                   New forms must be used to notify Companies House of events occurring after 1 October 2009.
2.                   PROtected On-line Filing (PROOF) has been introduced at Companies House to prevent unauthorised and malicious filing of incorrect documents.
3.                   The private addresses of directors no longer need to be published at Companies House, although such information has to be available to regulatory authorities such as the police and Inland Revenue. Previously filed private addresses can be removed for a fee of £140.
4.                   In addition to the registered office, companies can nominate a Single Alternative Inspection Location, where registers can be kept for inspection.
5.                   New companies can now have a “Constitution” based on model articles, which are much simpler than the old “Table A”.  There are a number of simplifications available under the Constitution and therefore it is generally preferable for companies to make the transition.
6.                   In future, the Articles may be set up to permit the change of the company’s name, which will be a far simpler process than the previous requirement for a special resolution.
7.                   Redeemable preference shares no longer need special authority from the Articles.

This is necessarily a very brief review of the changes.  Please let us know if you would like further details or clarification about how they affect your business.

Ian Stubbs, Partner

Tenant dissatisfaction continues?

Wednesday, October 14th, 2009 in Commercial, Landlord, News, Service charge audits

A recent article in Property Week written by Christopher Hedley, a director of IPD, about Occupiers and Management highlighted the general dissatisfaction of tenants with how their managing agents and landlords deal with service charges.

The majority felt that the large increases in service charge costs could not be justified and that control and communication of costs by managing agents was poor – so much so that fewer than 10% of occupiers felt they were getting value for money.

The tenants also expressed major concerns over exceptional expenditure and improvement costs.  At best these create unpredictable variations in service charges year on year and at worst may be outside the scope of recoverable service charge expenditure.

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