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Possible VAT reclaim for playgroup

A client runs a successful pre-school playgroup, which is a registered charity.

They are now looking to extend, and have asked if there is any way they can reclaim the Vat on the costs of building the extension.

I suspect that as their supply is exempt they cannot register for Vat, but does anybody know different, or can point me to the relevant legislation.

Tony Collins

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By Anonymous
11th Feb 2008 11:49

Depends
Zero rating applies to buildings which are used for a relevant charitable purpose: Sch 8 Group 5.

"Relevant charitable purpose" does not include business. I picked up Tottel's VAT by A St John Price to have a refresher on this, and he has a section called "Confusing cases on non-business nurseries"...the nub of which is whether the charitable activity disqualifies itself as being a business. Given that his conclusion is that he has difficulty in reconciling some of the judgments, I would suggest that us lesser mortals might tread with care!
Cases to read up on:
Yarburgh Children's Trust and St Paul's Community Project
John thinks that HMRC's Business Brief 4/03 is of little practical help. But I would read through all HMRC's leaflets and see how you go. You may have a really easy case, or it may be more complex, depends on the activities!

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By Anonymous
11th Feb 2008 15:46

Zero rating wouldn't apply to an extension
so we're left with standard rated supplies and a means to recover that input tax.

As previous poster has commented, unless the facts fits that of Yarborough - which basically meant they were providing a service at below cost, subsidised by freely given grants - then the charity will be in business and therefore unable to reclaim VAT due to playgroup activities being exempt.

Even if they could argue they were 100% non-business, they'd still struggle to get an extension zero rated on the basis it is not a new building. An updated Business Brief (2/2005) :-

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_GuidesAndBusinessBriefs&propertyType=document&columns=1&id=HMCE_PROD1_023746#P64_4918

may be more helpful than the previous brief as HMRC had time to lick their wounds.

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