Earlier this year, the ECJ held that the letting of flats and the cleaning of common parts are separate supplies (even if both are supplied by L). In the view of the ECJ, the cleaning services will not fall within the concept of ‘letting of property’, and, since those activities can be separated from each other, they cannot be regarded as a single transaction. Thus, they are separate operations – and the cleaning cannot be regarded as an exempt supply of letting.

In our September [2009] issue (p31), we suggested that the logic of this decision meant that service charges for cleaning of common parts would have to be treated separately, irrespective of whether the cleaning was done by L or someone else. In effect, VAT would have to be charged on the cleaning costs of the common parts, even if the lease itself was exempt. Now, however, we have a brief from HMRC which says that their position is that:

if the service charge (and cleaning) arise under the lease, and the services are provided by L, without T having any choice over that, then there will be a single composite supply. Thus, the cleaning supply will also be exempt;

if T is required to pay services charges, but the services are not provided by L, then the services are a separate, taxable, standard-rated supply (unless an extra-statutory concession applies).

For our part, it is difficult to reconcile that approach with the clear wording of the ECJ decision. Those concerned should study carefully the wording of HMRC Brief 67/09.