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VAT - charitable status

First of all i make this posting as the putative VAT helpline remains a phone number which only tells me how busy they are and to try later. Since i work in the real world and not in the sheltered environment of public service i don't have that much time on my hands.

So, cathartic expounding finished let me ask the question.

We have a construction type contract where the employer is a charity and thus the work would normally be VAT zero rated, assuming we meet all the other checks - (assume yes). However just been informed that a small part of the works, less than 5% is now considered by the employer to be works attracting standard rate.

Am i correct in thinking that this doesn't detract from the zero rating on the other 95%.

Any views welcome.

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By Anonymous
10th May 2010 20:33

So long as the supply can be apportioned, I see no problem.

Seperate invoices for the seperate elements may be sensible?

Lisa

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By Anonymous
10th May 2010 21:24

I thought...

... that as long as charitable use was intended to exceed 90%, then the whole thing was consider "for charitable purposes".

Definitely one for spidersong though.

oxontax

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11th May 2010 09:46

Charitable Use

Thanks for the name check Oxontax, I'll try to do my best to help.

Depending on when the project was started there are two differing set of criteria for deciding 'solely for a charitable purpose' on a building. (Charitable purpose of course not including use as offices). The old one's an extra statutory concession that's being withdrawn, and the new ones just a revised interpretation of the exisiting law.

The old measure which can still be used for works started before 30th June 2010 is more than 90% non-business use by a charity, but the methods for measuring this are fairly restrictive, you either use 1) Time based method (i.e building open 24 hours, office use for 6 hours = 75% charitable use), 2) Floorspace based method (1000sq ft building, 99sq ft offices = 90.1% charitable use, result!) or 3) Headcount method (100 people through the door, 9 of them use the office = 91% charitable, result!).

Obviously this can be fairly restrictive, so from last July a new version of the test was introduced which ups the threshold to 95% which although it looks worse should work out better as you now use any reasonable method to reflect actual usage, so you could do a mixed time and floorspace method, a mixed headcount and time method, an income based method etc.

So in relation to the initial query if business/office use is set to be below 5% then the zero rating should still apply to the whole building (as long as the intention is that this will be the actual ongoing usage of the building, if usage changes over time there may be a self supply charge coming into play).

The wording of the query does worry me slightly in that the client thinks that some of the works should be charged at the standard rate, as with charity buildings it's normally all or nothing. Unless it's a complex or something with areas capable of independent use (such as in the commercial world where you might find someone developing a row of shops with flats above which can be apportioned).

So there shouldn't really be an apportioned invoice; either a building's solely for a charitable purpose or it isn't, you don't get partially solely for a relevant charitable purpose! (although VAT is of course famed for its oxymorons; 'simple tax').

So if there's any further info that can be given that might explain why they think part can be zero and part standard, then we might be able to take a stab at a better answer, but hopefully this gives a starting point.

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