Key tax considerationsfor housingassociations

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PwC has a tax team with extensive experience of working in theHousing sector, to provide joined up corporation tax, VAT, StampDuty Land Tax (‘SDLT’) and employment tax advice which addressesthe complex issues faced by the sector as well as providing the taxcompliance services they require. We have outlined below some ofthe key tax considerations.

Over time, groups often develop cumbersome and inefficientstructures that include multiple entities undertaking similaractivities. Simplifying those structures can help groups tobetter meet their commercial objectives and reduce costs.We can advise on all of the tax aspects (including direct tax,SDLT and VAT) of the transactions required to simplifyexisting structures as well as the ongoing tax implications(e.g. VAT grouping, transfer pricing etc).

Group simplification 1

Groups are increasingly considering their strategic approachto tax and how they manage tax risks (reputational,transactional and compliance/reporting). We can advise onthe development of a clearly defined tax vision that isaligned to the overall business strategy so that tax risks areclearly identified and managed.

Managing tax risk 2

Entities within Housing Association groups with charitablestatus can suffer tax liabilities if they undertake activitiesthat fall outside of prescribed exemptions. If a charitableentity undertakes trading activities, these need to be‘primary purpose’ if the profits are to be treated as non-taxable. We can review all of the activities of a charitableentity and advise on the tax treatment and structuringalternatives for addressing situations where taxable profitscould arise.

Claiming charitable reliefs 3

We are increasingly seeing Housing Associations enteringinto joint ventures with private developers and localauthorities. We can advise on the appropriate joint venturestructure to ensure that tax costs are not unnecessarilyincurred whilst ensuring that the commercial objectives ofthe parties are not hindered.

Structuring joint ventures with developersand local authorities 5

Development/Private RentalSector/Design and Build subsidiaries

As a consequence of the reforms placed on the sector, moreand more organisations are looking to develop housing toeither bolster the stock numbers they currently have ordiversify and develop units for the private rental sector(“PRS”) and units for outright sale. Housing Associationsundertaking ‘non primary purpose trading’ (e.g.development for open market sales) can establish subsidiarycompanies for carrying out these activities. This enables giftaid payments to be made out of profits to the charitableHousing Association which reduces corporation taxliabilities. Effecting developments through a Design andBuild subsidiary can enable VAT costs to be reduced. Care isneeded in implementing such structures and we can adviseon all of the tax aspects of utilising such vehicles.

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Housing Association groups often use group financecompanies for the purpose of raising third party financethrough the issue of bonds. We can advise on the taxaspects of this including maximising tax relief for interest,the withholding tax position and the group transferpricing aspects.

Group finance company 7

Corporation tax compliance 4We have a dedicated corporation tax compliance team focusedon the delivery of efficient tax compliance for the charitableand non-charitable entities of Housing Association groups.

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professionaladvice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members,employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decisionbased on it.

© 2016 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please seewww.pwc.com/structure for further details.

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We have extensive experience of advising HousingAssociation groups on their partial exemption methodologyto ensure the method accurately reflects their activities,maximises the input tax recovery and is agreed with HMRevenue & Customs (“HMRC”). A number of the activitiesdescribed above will have an impact upon the partialexemption position of the group and will requirecommunication with HMRC with regard to the impact onthe current partial exemption method. This couldnecessitate the requirement to agree a new partialexemption method.

VAT – Partial exemption methodology 8

The cost sharing exemption applies when two or moreorganisations with exempt activities join together to form aseparate independent cost sharing entity to supplythemselves with certain services at cost and exempt fromVAT. This enables charitable Housing Associations toeliminate irrecoverable VAT in relation to these services.PwC were at the forefront of the consultation concerning theintroduction of the cost sharing exemption, activelyengaging with HMRC and HM Treasury about how theexemption could be introduced in the UK. In addition, PwCwere part of the working group of the Charity Tax Group(‘CTG’) which framed the CTG’s response to HMRC’sconsultation. We have experience of implementing severalcost sharing arrangements, including agreeing them withHMRC’s policy division.

VAT – Cost sharing exemption 9

Housing Association groups should consider whether any oftheir expenditure could qualify for research anddevelopment tax relief. Research and development takesplace when a project seeks to achieve an advance in scienceor technology and resolve scientific or technologicaluncertainty. This could apply to certain housingdevelopments or IT systems established for managinghousing portfolios.

Research and development 12

We have significant experience of assisting with the design,implementation and testing of systems from a VATperspective. We help our clients to put in place efficientprocesses to correctly account for VAT, which reflect theagreed partial exemption method and which make sure thatVAT costs are not being unnecessarily incurred.

VAT – Systems and processes 10

Our VAT team can advise groups on whether it isadvantageous to put entities into a VAT group tomaximise recovery and minimise administration onintragroup transactions.

VAT – Grouping 11

If a group is considering a merger with another HousingAssociation, we can provide tax due diligence supportcovering corporation tax, VAT, SDLT, the ConstructionIndustry Scheme and employment taxes as well as advisingon the tax efficient structuring of the merger itself.

Mergers 13

If you would like to discuss anyof the above matters, pleasecall your usual PwC contact orone of the following:

Kevin LeaverCorporation Tax

E: kevin.j.leaver@uk.pwc.comT: +44(0)20 7213 8434

Mark BirtlesCorporation Tax

E: mark.h.birtles@uk.pwc.comT: +44(0)117 309 2152

Keith LawsonVAT

E: keith.lawson@uk.pwc.comT: +44(0)20 7804 9064

Gavin TuckerVAT

E: gavin.s.tucker@uk.pwc.comT: +44(0)161 245 2899