VAT – Charitable use of buildings
HMRC have published a new Revenue & Customs Brief (26/10) entitled ‘VAT: Changes to the application of the zero rate to new buildings intended to be used for a relevant charitable purpose’.
Historically, there was an extra statutory concession (ESC) which permitted zero-rating under certain conditions. The Revenue & Customs Brief is issued as a reminder that the ESC will be withdrawn on 1 July 2010. HMRC had allowed for a 12 month transitional period whereby charities could choose to use HMRC’s revised interpretation laid out in Revenue & Customs Brief 39/09 or continue to apply the ESC.
Charities that wish to use the concession must ensure that the necessary certificate was issued by 30 June 2010 and by 1 January 2011, either:
- the building must have been constructed to a point above foundation level; or
- the charity must be in occupation of the building if it is being acquired or leased
Going forward, charities can only rely on HMRC’s revised interpretation of ‘solely’. This means where 95% or more of a building is used for relevant charitable purpose it will be eligible for zero-rating. If a building is zero rated as a result of applying this new interpretation, there will then be a change of use charge (essentially a claw back from zero-rating) if it ceases to be eligible within ten years of the building’s completion. HMRC have said they will accept any fair measure to calculate ‘qualifying use’.