From 21st March HMRC will no longer enforce a self-supply charge on charities where there has been an unanticipated change of use of a zero-rated new building.
A charity is entitled to the zero-rating of the supply of:
- a new building;
- construction services to construct a new building;
- a substantially reconstructed listed building;
- an approved alteration to a listed building,
where the building concerned will be used solely for a relevant charitable purpose.
Under ESC 3.29, a charity is entitled to ignore non-qualifying use as long as it does not exceed 10%, but there was a provision whereby the charity will be liable for a ‘change of use’ taxable self-supply charge, if the qualifying charitable use of the building falls below 90% within 10 years of the zero-rating.
This change means that any charity using the ESC to obtain zero-rating and whose non-qualifying use subsequently exceeds 10% within the 10 year adjustment period, will not be required to account for a self-supply charge. If it is apparent that, at the time that zero-rating was obtained, it was intended that non-qualifying use would exceed 10% within the 10 year adjustment period, HMRC will consider that the original supply should never have been zero-rated in the first place.
Any charity that has paid a ‘change of use’ charge in the last 3 years may be entitled to a refund. Those who are, or have been but are no longer, VAT registered can make an adjustment in accordance with Notice 700/45 (How to correct VAT errors and make adjustments or claims. Those who have never been VAT registered can apply for a refund if they have accounted for the charge.