ÐÇ¿Õ´«Ã½

The Inland Revenue is trying to stop associations with VAT shelters offsetting the costs of repairs to transferred homes against corporation tax (HT 21 November, page 14).

A random sample of associations with VAT shelters indicated that many will pay more in corporation tax than they save through the shelter ("Taxing times", above).

Even those who save more VAT than they pay in corporation tax can expect to suffer if their net savings are reduced.

Bob Taylor, finance director of Knowsley Housing Trust, said the RSL may have to register as a charity to resolve the problem, even though this would prevent it from creating mixed-income estates, doing repairs for its homeowners or working on derelict land.

"If things stay the way they are, we would have a critical problem in our business plan," he said. "We will need to look at turning charitable because if we don't, we will have a potentially unfundable plan."

The Council of Mortgage Lenders lent its support to the housing sector in a letter to Treasury minister Dawn Primarolo this week.

Andrew Heywood, the CML's senior policy adviser, warned the extra tax burden would threaten associations' business plans and make stock transfer less attractive to councils.

He said: "It could affect future investment and mean covenants on existing loans have to be renegotiated."

Two transfers – Maidstone and Scarborough – have already been delayed while a decision is made on the corporation tax issue.

Accountant KPMG, which designed the VAT shelters with input from the ODPM, has also pressed the Revenue not to claw back the tax.

A decision is expected later this month.