Resident Management Company Budgets VAT Increase from 4th January 2011 In the lead-up to the 6th May General Election, the Conservatives announced that, if victorious, they would hold an ‘Emergency Budget’ within 50 days of taking office, primarily to tackle the UK’s economic deficit. As it turned out, the hung parliament and the subsequent formation of the Coalition Government meant that many Conservative and Liberal Democrat pre-election pledges were superseded by a ‘Programme for Government’, which included elements from the manifestos of both parties, as well as numerous compromises and some new policies. In order to meet the fiscal mandate, the Chancellor announced a combination of tax rises and spending cuts. In the Emergency Budget on 22nd June 2010 it was confirmed that VAT will rise from 17.5% to 20% with effect from 4 January 2011. Your resident management company is not VAT registered, and therefore the service charge includes the VAT inclusive costs of works and services carried out by the management company. The increase in VAT will therefore increase the costs to the management company of works and services such as: • • • • • •
Managing agents fees Costs of grounds maintenance Treeworks costs Repair and maintenance of streetlights Gulley cleaning Road and other general repairs
As agents for your management company MITIE Scotgate will take whatever steps it legally can to mitigate the effect of the VAT increase. Insofar as increased VAT costs in the current financial year are unavoidable, then the increase can be met from reserve funds. However, shareholders must note that in the 2011/2012 financial year there will be an increase of 2.5% in the cost of annual works and services provided by the management company on top of any other increases that may be incurred. The Chancellor has also announced a 1% increase in insurance premium tax that will take effect when the management company insurance policies are renewed. The service charge budget for 2011/2012 will have to be prepared to take account of these increases.