London/Manchester law firm Field Fisher Waterhouse LLP is carrying an interesting VAT bulletin on its website: Act now to recover VAT on service charges where your landlord has not opted to tax. In it, the firm discloses that it is challenging, for its own benefit, the Revenue’s view of the ECJ decision in RLRE Tellmer Property (Case C-572/07). In commercial leases, the VAT treatment of service charges has always followed the VAT treatment of the rent, so that, if the landlord has not opted to tax the rent, the service charge remains exempt from VAT (meaning, unfortunately for tenants, that the gross cost of providing the services is passed on to the tenants without any VAT recovery by them). HMRC did not see the need to revise its treatment of service charges in the light of the Tellmer decision (see Revenue & Customs Brief 67/09). The law firm now feels that there is sufficient uncertainty in this area to take the matter further and to argue with the Revenue that the provision of services can still amount to a taxable supply even if the lease itself is exempt. It encourages others in a similar situation to do likewise and to seek to recoup VAT.
Property PSL