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VAT and charitable buildings: Don’t get caught out

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2nd Nov 2009
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Scott Craig offers a brief summary of the change in VAT rules for charities’ premises.

Misinformation about HMRC withdrawing a valuable concession that allows the zero-rating of charitable buildings has resulted in concern among charities. Unsolicited mail shots are one of the prime causes of this current confusion, but the fundamental fact is that the concession was never available to many organisations in the first place.

To qualify for zero-rating, a building must be used by a charity ‘solely’ for non-business purposes. Broadly speaking, the existing concession defines ‘solely’ as 90% of the time. From 30 June 2010, the term ‘solely’ will be defined as 95% of the time, and HMRC wants this position monitored for a further ten years. This is expected to reduce the number of applications for this concession, although it would never have been used by all charities in any case.

Thanks to the current economic climate, grant funding is being cut for many organisations and business activities are being developed to make up funding shortfalls. This could mean that more charities will fail to qualify for zero rating. The additional VAT incurred on building projects will result in a cost to the charity and additional income for the government.

There are opportunities to reduce or remove the cost of irrevocable VAT on building works and anyone constructing a new building or annexe should carefully consider their VAT position. Where certain conditions are met, VAT savings are available on the construction of new buildings, approved alterations to listed buildings and conversions of commercial buildings. In all cases it is worth considering the VAT position at an early stage of any building project.

Scott Craig is VAT partner at Scott-Moncrieff.

 

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