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VAT on rent - charity - disapply the option to tax

When business and non business activity takes place can the disapplication be pro rated

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When a charity rents a premises, and the activity they carry out is non business,  any vat on the rent can be exempted if the option to tax is disapplied.

If the activity is 50/50 business/non business can the rent be 50% taxable 50% exempt?

or is an an all or nothing thing (ignoring the 5% for 'office' rule)

It does seem unfair to penalise the whole rent  if, say, you had just 10% business activity-  yet if that business actvity were housed in another building the original building would qualify in full for the exemption.  But perhaps the rules are as black and white as they seem.  I guess I'm appealing to exceptions such as the rules around fuel&power @ 5%, where if more than 60% is non business then the whole supply is 5%.  Or business rates where if  'mainly charitable purposes' then the 80% mandatory relief applies on the whole.







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15th Apr 2019 10:16

If the charity runs its business and non-business activities in discrete parts of the building, then the option to tax can be disapplied for the non-business areas.

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to leshoward
15th Apr 2019 10:31

Thanks for your reply.

That's what I'd hoped. So for instance, if it is specific rooms where staff work then floor space allocation. And presumably shared spaces would be ignored from the pro rata %.

If it's open plan, perhaps workstations?

Is it the sort of thing that HMRC would be able to approve, a bit like. Special Method? To ensure they are happy with the approach.

Or is it actually up to the landlord to approve as they have to satisfy themselves of the correct vat treatment of the sales?

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to hairyfingers
15th Apr 2019 13:11

The split is not business/non-business but 'relevant charitable purpose other than office'. See here:

I have no direct experience, but if I were the landlord, I would want to have separate leases (or at least agreed rents) for the separate areas.

As for desk spaces, do they count as 'office space'?

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to hairyfingers
15th Apr 2019 18:18

I would not ask HMRC. Rather agree between both parties. The landlord will want some guarantee that the charity will not alter its stated uses.

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15th Apr 2019 20:41

Many thanks for your replies.

Although it says 'relevant charitable purpose' it is referring to business/non business use - definition of it is in VATA 1994 schedule 8, group 5, note 6.

Actually having read on from there (note 10) it is clear that an apportionment can be made.

It doesn't go so far as to define an appropriate apportionment but I guess floor space is appropriate?

The de-minimus office 5% is difficult to define in a charity, I find. - say in a debt charity - is an administrator who photocopies client documents for sending off to creditors, "office" or is it charitable activity. I'd say the latter. But the finance officer who processes the payroll for the debt caseworker - office? It's all a bit grey...

hey ho, one for another time... in my case now I can justify the 5% as being de minimus

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to hairyfingers
16th Apr 2019 10:34

Yes 'relevant charitable purpose' is under Group 5 note 6, but unfortunately the Option To Tax disapplication is under Schedule 10 and that says:

"An option to tax has no effect in relation to any grant made to a person in relation to a building or part of a building intended by the person for use—
(a)solely for a relevant charitable purpose, but
(b)not as an office."

Whether 'Relevant charitable activity' is organised in an office is irrelevant, if office space is office space then it's excluded from the disapplication.

So someone in an office photocopying client documents is still in an office and hence they're still being charged VAT.

It's the 'but' in there that's important, you can't just stop at the 'relevant charitable activity' and ignore the rest.

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to spidersong
16th Apr 2019 19:16

Thanks for this. Interesting. Of course you cannot take one without the other but I disagree that just because something "looks like" an office, it doesn't mean HMRC see it as an office the sense of the Act

There is no definition of office in the Act but in the HMRC Land & Property manual

it says:

"Meaning of ‘office’
‘Office’ is not defined in Schedule 10, but HMRC’s interpretation is that office used in this context means use for the administrative functions of the charity that are similar to those carried out in other organisations, such as personnel, payroll and general administration of the charity as a whole. For example, a building used as the administrative headquarters of a charity is considered an ‘office’, unlike a charity call centre set up solely for the purpose of collecting voluntary donations."

So the call centre operatives work in a office - this is not an "office" in the sense of the Act, this is charitable activity carried out that happens to be in a building that they might internally call an office - the disapplication would apply to this.

The administrator photocopying client documents is not general administration, it is specifically required to carry out the objects of the charity, to relieve the debt by copying and sending the docs to the creditors.


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