Charity Concession Withdrawn
HMRC has announced that the 'charitable building' concession will be withdrawn on 1 July 2010.
The VAT legislation allows the construction or acquisition of a building intended to be used 'solely' for charitable use to be zero-rated. Under the concession, HMRC permitted zero-rating where the building was used 90% or more for a relevant charitable use. In place of the concession, the legislation will introduce a de minimis use test of 95% or more. The method of calculating the 'use' of the building will no longer be defined by HMRC, but should be on a 'fair and reasonable' basis.
HMRC has decided to allow a transitional period until 30 June 2010, where either the old concession or new interpretation under statutory law can be adopted by a charity, subject to conditions.
If the building is put to business use within ten years of the building's completion, a change of use charge may apply. Therefore, charities should keep under review the reduced limit of 5% for business use going forward.
This will be of most concern to organisations wishing to take advantage of the zero-rating provisions for construction or acquisition of a building intended for charitable use, but with a small amount of business use.
Deposits On Land For Dwellings
HMRC has made it clear that deposits received by developers for the purchase of land for residential developments not yet started will not attract VAT where they are released to the developer before the building work commences (e.g. deposits paid to and released to developers by purchasers buying off plan).
This should be of interest to registered providers of social housing for whom the VAT implications could be significant where the deposit is, in practice, released to the vendor before the 'golden brick' stage of construction has been reached, thus calling into question the VAT zero-rating of such land.
Care needs to be taken in the way the contracts are put together and advice should be sought where there is any uncertainty as to the VAT position.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.