ÐÇ¿Õ´«Ã½

The development of VAT shelter arrangements for stock transfers was supported by government – both the ODPM and Customs & Excise gave the system the thumbs-up.

However, government is a broad church: the Inland Revenue's interpretation of the arrangements in relation to corporation tax has serious implications for non-charitable housing associations.

In stock transfer schemes, KPMG argues that corporation tax should apply as if property had been bought by the housing association, with expenditure then incurred on refurbishments: after all, this is what the arrangements amount to in reality.

This would give the association a tax deduction against rental income for the revenue (but not the capital element) of such work.

The Inland Revenue thinks differently.

It believes the entire amount paid by associations to councils should be treated as an acquisition cost. Under this analysis, no tax relief is allowed for the revenue element of refurbishment expenditure against rental income. Instead, relief is only available against any gain made on property sales.

A number of transfers have been put on hold as a result of the Inland Revenue's view. In some cases, transfer business plans may only work with both VAT benefit and more favourable corporation tax treatment. Even if transfers proceed, there will be less cash available to fund the work aimed at meeting the government's decent homes standard and the shortfall will be considerable.

All is not lost. Customs & Excise has adopted an accommodating approach to the issue. The ODPM is keen to drive forward the decent homes standard. It would be unfortunate if the Inland Revenue was not prepared to take a similarly pragmatic approach.

This is surely a prime opportunity for government departments to apply a little joined-up thinking.