Registered providers (RPs) are now facing unprecedented financial pressures with year on year cuts in rental income on the horizon. Boards and officers addressing this challenge should look carefully at innovative opportunities to generate new income and reduce costs. Whilst cutting operating costs and stock investment may appear to be the simplest approach to dealing with the forthcoming changes to rental income, innovative methods may help soften the blow.
We set out your other options below:
Many RPs have managed to raise income through taking advantage of the feed-in-tariff scheme. Through the installation of solar PV equipment on roof space or renting roof space to contractors for the same purpose, RPs are able to receive tariff payments for the generation of electricity or a commercial return for the rental of roof space to third parties.
There is still scope to participate in the scheme but time is of the essence should you wish to take part. The government is currently consulting on the future of the feed-in-tariff scheme and proposes to cut the tariffs available for generating electricity with an overarching objective to phase it out by 2018-2019 at the latest.
Commercial leases could potentially generate income where the lessee wishes to alter or change the use of the relevant property. Should the RP have an unfettered right to refuse consent, this opens up the possibility of charging lessees for such consent.
A different approach to dealing with the financial pressures is to look at alternative ways of delivering services. Two attractive alternatives are cost sharing groups and design and build companies.
Cost sharing groups
By establishing a cost sharing group (CSG) two or more RPs can receive services from the CSG that are exempt from VAT. This represents a significant tax saving that can be exploited where a RP is providing services to other RPs or where a RP is approached with the option of sharing certain services. A number of CSGs are up and running in the sector across a variety of service lines. Perhaps the service line with the greatest scope for VAT savings is sharing repairs and maintenance services but CSGs could also be established around careline services, for example.
In order to set up a CSG, five key conditions have to be satisfied. These are that:
Design and build companies
Currently RPs are unable to recover VAT charged on professional services incurred when developing new housing - this amounts to an additional cost on development.
It is possible to adopt a more tax efficient approach to engaging professional advisors when undertaking development activity which would enable the recovery of VAT.
Through setting up a subsidiary company to undertake all future development activity, the subsidiary company takes over the role of engaging surveyors, architects and planning consultants when developing new sites for social housing.
The subsidiary company (usually referred to as a design and build company) is able to recover VAT (ie 20%) on the professional services it incurs. It is then open to the design and build company to gift aid any surpluses to its parent RP. This could amount to a significant source of income that previously could not be recovered.
Finally, would it be appropriate to consider in greater depth a merger with another RP? Economies of scale delivered through mergers can be significant, but before proceeding with this option it would be vital to work through a rigorous and thorough assessment of alternative arrangements.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2015. Specific advice should be sought for specific cases. For more information see our terms & conditions on www.TLTsolicitors.com