星空传媒

Denis Holly is wrong to draw a link between the VAT avoidance cases taken to courts by HM Customs & Excise recently and the agreement formulated last year that enables stock transfer registered social landlords to recover VAT on "catch-up" repairs ("Public & Private", 21 February, page 15). Such a link may be valid in certain cases, but not in the example cited.

Customs has taken several taxpayers to VAT tribunals over the last couple of years, and have used some new arguments to unravel VAT-migration strategies that are within the letter of the law, but, in Customs' view, are contrary to its spirit and purpose.

Most of the cases have been in the private sector, but not-for-profit organisations such as universities have also been challenged. Customs will not and cannot turn a blind eye to the social housing sector.

However, the arrangements agreed for stock transfers, known as the VAT shelter, differ from the tax avoidance strategies Customs challenged. The VAT shelter was agreed by Customs before the first arrangements were made, and has the full backing of the Office of the Deputy Prime Minister and the Treasury.

In agreeing this structure, it has been recognised that the works in question (catch-up repairs) were the responsibility of the council, which has been unable to undertake the repairs due to a lack of funding. The stock transfer process facilitates the improvement of such homes by placing the properties into the hands of organisations that have access to external financing.

Had the council undertaken such works, it would have been able to recover the VAT incurred by virtue of section 33 of the 1994 VAT Act. RSLs do not enjoy the same beneficial treatment and the potential VAT cost has been a significant factor in determining whether the RSLs' business plan can be made to work.

Without the enabling mechanism, the whole stock transfer is put at risk.

Any parties contemplating a stock transfer, should also note that the local authority does not continue to hold title to the land under the VAT Shelter. There are alternatives to stock transfer, such as arm's-length management organisatons, where this is the case, but these are different arrangements.