Do opportunities exist for almshouse charities to gain exemption from VAT on certain costs?

Although the withdrawal of zero-rating for listed building works in 2012 resulted in fewer VAT saving areas, the good news is there are a number of opportunities where Almshouses can reduce their VAT costs, provided they are aware of when the zero-rating and reduced rate of VAT applies.

The following building works are likely to be zero-rated for VAT purposes:

• The installation of wet rooms or bathrooms for disabled residents
• The widening of corridors or doorways in Almshouse properties
• The construction of ramps
• The widening of a pathway across the Almshouse grounds
• The installation of a vertical lift, chair lift or stair lift
• The installation of a warden call system

If any charities have incurred VAT on any of the above expenditure within the last four years, it is possible to approach the supplier, providing they are still in business, and seek a refund of the VAT charged.

Zero-rating can also apply to expenditure which is closely connected with the above works such as repairs, refurbishment or servicing to the lifts, warden call system and works to almshouse bathrooms.

Should any charities change the number of units within their properties, perhaps by reducing the number of flats within a building, the associated building works could well qualify for the reduced rate of 5% VAT.

If an almshouse charity has any property which has been empty for over two years and decides to refurbish the property, the VAT rate applicable to the work will again be at the reduced rate of 5%, quite a considerable saving.

The reduced rate of VAT can also apply to a number of energy saving costs, but unfortunately the legislation is much more complicated. The energy saving materials that may qualify for the reduced rate of VAT of 5% when installed by a building contractor are:

1. The insulation for walls, floors, ceilings, roofs, lofts, water tanks, pipes and other plumbing fittings;
2. Draught stripping for windows and doors;
3. Central heating system controls, including thermostatic radiator valves;
4. Hot water system controls; and
5. Solar panels

Should an almshouse charity receive a grant for the installation of certain heating equipment, the reduced rate of 5% will apply to the extent that the supply is grant-funded. The type of expenditure covered is as follows:

• Closed solid fuel fire cassettes;
• Electric dual immersion water heaters with factory-insulated hot water tanks;
• Electric storage heaters;
• Gas fired boilers;
• Gas room heaters with thermostatic controls;
• Oil-fired boilers; and
• Radiators
• Central heating systems
• Renewable source heating systems

The irony here is the reduced rate only applies to the grant funded portion of the works and should the charity use its own funds the work will attract the standard 20% rate of VAT.

Advertising by charities is zero-rated and covers all forms of adverts including newspapers, magazines, radio and television.

Finally, it is worth mentioning that for all almshouse charities’ residential accommodation, the reduced rate of 5% applies to supplies of electricity, gas and oil used for heating and lighting.

The aim of this article is to provide charity Trustees and staff with information to assist with reviewing past expenditure which may qualify for the reduced rate or zero-rate of VAT. If it is found the standard rate of VAT has been charged to the almshouse charity on any of the areas outlined above, an opportunity may be available to seek a retrospective refund of VAT.

Charities VAT Services offer a free VAT help-line for members of the Almshouse Association. Therefore if you require confirmation on whether VAT reliefs exist in connection with any of the expenditure areas highlighted above, please do not hesitate to contact us.

Glenn Havenhand, Lorraine Kimpton – Charities VAT Services. Member of the Panel of Consultants of the Almshouse Association. Tel: 01709 709727. Email: glenn.havenhand3@btopenworld.com

All housing organisations including almshouses will have insurance for buildings, offices, loss of rent and other risks but often the sum insured is not reviewed and the insurance cover continues from year to year with perhaps a small allowance made for inflation. Whilst this is not given much thought by some, it is important to review the insured figure for a number of reasons:

1. If the worst were to happen and the building burnt down, the sum insured could turn out to be inadequate to cover the cost of rebuilding the property. If this is the case the insurers will not pay the full costs required to reinstate the building. They are likely to apply an average whereby the amount of the claim is reduced proportionally to the value of underinsurance.

2. Conversely the sum insured could be higher than that actually required meaning that the premium paid could be greater than necessary, this could also serve to unnecessarily increase residents’ contributions or service charges.

3. Recent trends in building prices have shown drastic fluctuations and, depending on when the insured level was last set, the rebuilding figure could have significantly changed.

Who should set the level insured?

The person responsible for insuring the building will vary but will usually be the property owner (or managing agents where appointed), they may also be responsible for setting an appropriate level of cover. Insurance brokers will sometimes assist with the level of insurance but this is not usually the case.

Many domestic insurance policies aimed at the private householder market now offer unlimited rebuild costs up to a defined limit such as £1,000,000. This is rarely the case with policies taken out by housing organisations, which have set amounts for rebuilding included in the Schedule of Insurance.

Why does the figure need to be reviewed?

The BCIS (Building Cost Information Service) part of the Royal Institution of Chartered Surveyors, publishes regular indices of tender prices for a large range of building types. These show that tenders for new building work rose fairly consistently from the mid 1990’s until the 4^th quarter of 2007, following this it fell by 17% up to the 1^st quarter of 2010 and then increased again peaking in the 1^st quarter of 2015. So if the rebuilding sum was set at the time of any of these extremes it could now be wildly out of date. For example between the 1^st quarter of 2010 and the 1^st quarter of 2015 building costs increased by 33%!

Who should do the assessment?

The Royal Institution of Chartered Surveyors suggests using the name “Insurance Reinstatement Cost Assessment” to avoid confusion with other types of valuation or survey and defines it as an ‘assessment of building reinstatement cost for insurance purposes’. The assessment is usually carried out by a Chartered Building Surveyor either on an elemental basis or by application of a rate per square metre, typically using BCIS rates.

On particularly complex historic buildings a more detailed approach may be needed and in extreme cases production of approximate quantities by a Quantity Surveyor may be the only viable approach, involvement of an Accredited Conservationist may also be useful.

The Assessment also includes the costs of demolition, professional fees, and Local Authority charges for Planning and Building Regulations. There will be a fee to be paid to the surveyor, but the landlord can recover this cost as part of normal service charges.

What should the building be insured for?

The building must be insured to cover the full cost of demolition and rebuilding together with any other allowances required by the lease terms. Insurance policies and leases should checked to establish what is included in the cover. This may cover alternative accommodation for the tenants, the way in which VAT is covered also varies and these matters should be clarified with the insurance company or broker.

Many almshouses are listed or in conservation areas, this adds additional costs to rebuilding, as do original features such as stonework and leaded lights all of which must be taken into account in the assessment.

The RCA makes no allowance for anything other than the rebuilding cost.

An example of the application of a Reinstatement Cost Assessment

Assessments were carried out on two blocks of flats owned by a Midlands Housing Association. The first block was built in the 1970s and the second in the 1980s. Both were insured for figures set some time ago, probably based on the cost of construction at the time they were built. Assessments were made using costs per square metre based on BCIS rates and including allowances for demolition, rebuilding, landscaping, professional fees and local authority charges.

Block 1 was found to be underinsured by £300,000 – a considerable sum and one which would be difficult to cover from the association’s reserves should a total loss have occurred. By way of a contrast Block 2 was found to be over insured by a figure of £220,000.  In this case the overall impact on the organisation was minimal as the cost saving on the Block 2 went some way to cover the additional costs of the premium on Block 1, however, the assessment was invaluable as it highlighted the potential shortfall which was a considerable hidden risk to the association.

Conclusion

The Royal Institution of Chartered Surveyors recommends that an annual adjustment is made to take into account inflation (important to remember that this is building cost inflation and not general prices inflation) and a full review and reassessment every three years or when any extensions or significant alterations are made.

There are a number of Building Surveyors experienced in this type of work on the Almshouse Association Panel of Consultants.

Tim Richardson MCIAT MCIOB MSAI MRICS
Chartered Architectural Technologist, Chartered Construction Manager, Chartered Building Surveyor, CIAT-Accredited Conservationist and Member of the Association’s Panel of Consultants.

Contact details:51 Derwent Road, Stirchley, Birmingham  B30 2UY

Email: tim@timothyrichardson.co.uk

Tel: 0121 471 1478  Mobile: 07500 185203

Employees who are off sick can have a significant impact on productivity, the ability to run services and/or the business in general.  Prolonged periods of sickness absence can also negatively impact staff motivation and morale.

While it may be difficult to plan for unexpected absences, as an employer there are steps you can take to help you deal with the problem and minimise the potential disruption.

Step 1:  Clear Policies and Procedures
You should have a clear policy on sickness absence reporting and pay arrangements. These should be clearly communicated to all a staff so that policy and procedure can be followed consistently.  Your sickness absence policy should include:

• Details of how an employee should notify you if they will be late for work, they will be absent from work due to illness, or absent for any other reason.
• When they should submit a self-certification form or a medical certificate.
• Statutory and contractual sick pay arrangements – this should be covered in the written statement of terms and conditions of employment(employment contract).
• When time off might be permitted, e.g time off for emergencies involving dependents, jury service etc
• The consequences of not complying with company policy

Many organisations as a standard management activity conduct a return to work interview.  This should be completed upon their return to work and can range from a discussion on what has happened during their time off, even if only a day, to questions that might establish whether there is an underlying problem that is contributing to their absence. This approach can also deter employees from faking illness.

Step 2:  Monitor and Measure Absence

The national average for the number of sick days of absence per employee is approximately 5 days per year.  This is a good standard to benchmark your employees against.   Tracking the particular days of the week, the amount of days and the reason can help identify patterns in not just individual employees but also departments. Trends to look for are particular days of the week, or patterns linked to time of year , management style, possible bullying or poor working conditions.

Step 3:  Support Sick Employees

Maintaining regular contact with an absent employee will help prevent them from feeling isolated, whilst providing you with a clearer idea of their current situation.  Gaining an employee’s permission to access their medical reports and working with an occupational health specialist can provide an indication of how prolonged the illness is likely to be. This method can be used for both employees who are on long term sickness absence, and also those who have accumulated a number of days of absence over a period of time.  This method can identify whether their illness could be considered a disability and if so whether there are any reasonable adjustments that can be made to support them returning to work.

It is important to ensure that all cases of sickness absence are handled sensitively, even if the genuineness of the absence is in question.

Step 4:  Focus on Morale

Creating a friendly environment where staff feel valued as part of a team, are clear on their job role, goals and targets;  and where flexible, family friendly policies are in place is likely to prove effective in keeping absenteeism to a minimum. Unhappy staff are more likely to take time off.

This article was written by Judi Badenoch, an HR Consultant and Panel member of the Association.

For further advice please contact:
Ms Judi Badenoch
Cranbrook Consulting
Room 346, 5 High Street, Maidenhead, Berkshire,SL6 1JN
Tel: 01628 857771, Mob: 07979 421325
judi@cranbrookconsulting.co.uk
www.cranbrookconsulting.co.uk

Reviewed February 2018