Return to vendor
August 2009
The removal of the ‘charitable building’ concession means non-profits must be extra vigilant in ensuring their use of new buildings meets VAT requirements
Charities face significant tax relief changes following HM Revenue and Customs’ decision to withdraw tax-free allowances on any new building constructions from July 2010.
The ‘charitable building’ concession (ESC 3.29) previously allowed non-profits to acquire or build VAT- free buildings where the ‘business use’ for the property would not exceed 10 per cent. This exemption under the ‘sole’ use of provisions permitted charities to painlessly supplement their grants and donations income through small business ventures such as selling goods.
This 10 per cent window of opportunity is to be slashed to 5 per cent. HMRC’s announcement means that from 1 July 2010 charities wishing to obtain the zero-rate of VAT for constructing or buying a building must prove that the property concerned is intended for a 95 per cent or more relevant charitable purpose (‘RCP’). Any method may be used to prove business use doesn’t exceed 5 per cent, provided it is ‘fair and reasonable’.
If a charity increases its business use of a building above 5 per cent – so the ‘RCP’ comes under 95 per cent - within a ten year period, then it will be required to pay back the equivalent VAT to HMRC.
Charities planning new building projects are advised to review the new VAT treatment as soon as possible. ‘This [the transition] unhelpfully re-introduces a legal provision which was previously seen as holding many charities back from making efficient use of their buildings,’ said Alison Broadley, technical director at advisory firm The VAT Consultancy. ‘The self-supply concession that was introduced in 2007 has now effectively been overruled which does nothing at all to help the good work done by charities.’
VAT certificates must be issued to the builder or vendor before 30 June 2010.
The full report is downloadable at: http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&propertyType=document&id=HMCE_PROD1_029657
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