VAT – Option to tax
HMRC have published a new Revenue & Customs Brief entitled ‘VAT: changes to the exclusion of the option to tax on supplies of buildings to be used solely for a relevant residential or relevant charitable purpose’.
The brief follows a number of Court decisions which questioned HMRC’s interpretation of the term ‘solely’ in respect of zero-rating new buildings where there is relevant charitable or residential use.
Where a new building is to be used ‘solely’ for a relevant charitable purpose (non-business use) it can be zero-rated subject to the charity providing the relevant certification. Historically, there was an extra statutory concession (ESC) which permitted zero-rating under certain conditions. A Brief published last year allowed taxpayers to rely on HMRC’s revised interpretation of ‘solely’ i.e. where 95% or more of a building is used for relevant charitable purpose the building is eligible for zero-rating.
The relevant ESC was withdrawn as it was no longer considered necessary. However, the ESC also allowed charities to exclude the option to tax on supplies of buildings to them if they were solely used for a relevant charitable purpose.
HMRC now accept that where the customer and supplier agree, the option to tax can be excluded on supplies of a building or part of a building that is to be used 95% or more for a relevant purpose in the following situations:
- where a building or part of a building (other than used as an office) will be used by a charity solely for a relevant charitable purpose
- where a grant is made in a building or part of a building designed solely for a relevant residential purpose
- where a grant in a building or part of a building is made to a person who intends to use the building solely for a relevant residential purpose