I have a private school client looking to build a new annex. It will be a complete new build. It's not going to be used for residential accomodation which I understand means that it will be standard rated. The school is not VAT registered.
I've been looking into ways to get around a sizable VAT bill and came across the Newnham College Library case. Does anyone know if a similar scheme would work here? If so does anyone know someone who would look into this on a no win / no fee basis?
Thanks
Tim
Replies (4)
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Do you need Newnham College?
I can't recall how their scheme worked, only that it concerned the OTT anti-avoidance provisions on own occupation by an exempt business.
In the case of a private school, is it not a registered charity, such that the building will be for relevant charitable use, thus being zero-rated?
In respect of the is it a charity point, I assume you're aware of the Independent Schools Council's judicial review proceedings. See HERE and HERE.
Thanks Steve,
My understanding of relevant charitable use is that although being a registered charity it is being used for 'business purposes' per HMRC:
Buildings typically seen as being used for business purposes:
membership organisations where the organisation charges a membership feeschool buildings where a fee is charged for the provision of education;offices used by charities for administering business activities, such as fund-raising events where an entrance fee is charged; andvillage halls and similar buildings, but see below.
I wasn't aware of those judicial review proceedings. Will have a look now,
Thanks again
HMRC guidance is not the law
HMRC have a habit of writing guidance which reflects how they wish the law was, not how it actually is. You need to start at The VAT Act 1994: Schedule 8 Zero rating: Group 5 Construction of Buildings etc:
Item 2: The supply in the course of the construction of—E+W+S+N.I.
(a)a building designed as a dwelling or number of dwellings or intended for use solely for a relevant residential purpose or a relevant charitable purpose; or
...
Notes:
(6)Use for a relevant charitable purpose means use by a charity in either or both the following ways, namely—
(a)otherwise than in the course or furtherance of a business;
Now I would argue that the accomodation is an integral part of the function of the school and provided the whole school is charitable....
Talk to Bill Lewis
I am afraid that Tim is correct.
The key point is that Sch 8 Group 5 Item 2 Note (6) clearly states that to achieve zero-rating the charity has to be using the building concerned for non-business purposes. It is a well established principal of VAT law (not HMRC guidance) that providing services in return for consideration (payment) is a business activity. Providing educational services in return for the payment of fees is therefore a business activity as HMRC's guidance confirms. All private fee paying schools (whether or not they are charities) are therefore carrying on a business activity and buildings used for that purpose are not eligible for ZR relief under item 2.
I should add that the Newnham case won't assist here because that was a 'library' scheme where the subsidiary used in the planning was occupying a library building and supplying library services to the College - not the case in Tim's scenario.