VAT changes hit charities

Recent changes to the VAT regime could have a big impact on charities wishing to acquire or construct buildings.

If a charity acquires or constructs a new building to be used solely for ‘charitable uses’, it will be zero rated for VAT purposes. The same principle applies to the renting of property for such uses.

Currently, HMRC interpret ‘solely’ as a minimum of 90 per cent of the building being used for charitable purposes but from July, this will rise to 95 per cent. Charities could suffer significant loss if they cannot prove that their non-qualifying business use of the building will be at 5 per cent or less. Some will struggle to comply with this low level which may make some charity building projects or current leases unviable.

There is also a requirement to monitor the use of the building for a period of at least 10 years. If a charity originally acquired or constructed a building free of VAT they have to repay it if the 5 per cent threshold is breached.

Charities planning to acquire, construct or lease buildings should take great care and seek professional advice.

If you need clear and pragmatic legal advice, we’re here to help so please get in touch.

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