In Revenue & Customs Brief 39/09 dated 1 July 2009 HMRC announced that the ‘charitable buildings’ concession (ESC 3.29) would be withdrawn on 1 July 2010. The purpose of Brief 26/10 “Changes to the application of the zero rate to new buildings intended to be used for a relevant charitable purpose” is to remind charities of this withdrawal.
Any charity wishing to make use of the concession before 1 July 2010 must issue the necessary certificate before that date (late certificates will not be permitted) 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
If the certificate is not issued in time or the charity does not meet the above conditions, the charity will not be eligible to use ESC 3.29 to secure zero-rating for its building. These rules are intended to provide transitional relief in the period immediately after withdrawal of the ESC.
A building intended to be used solely for a relevant charitable purpose (non-business use) can be still be zero-rated if the charity provides their developer with an appropriate certificate before the first supply is made.
If, however, the building is put to a business use within ten years of the building’s completion, VAT must be paid to HMRC (a change in use charge) to reflect that the building has ceased to be eligible to benefit from the zero-rate.
Under Extra Statutory Concession 3.29, HMRC permitted zero-rating where a building was used 90 per cent or more for a relevant charitable use. This concession is being removed from 1 July 2010.
However HMRC have now stated that they accept that the term ‘solely’, as used in the phrase 'solely for a relevant residential or relevant charitable purpose', can incorporate an appropriate de minimis margin. And in order to avoid unnecessary disputes in marginal cases, HMRC will accept that this statutory condition is satisfied if the relevant use of the building by the charity is 95 per cent or more.
So, for any charities not able to satisfy the 95% test but able to satisfy the old 90% test (as well as one of the two further conditions noted above to be satisfied by 1 January 2011), it is necessary to issue the appropriate certificate before 1 July 2010.
More information can be found on the HMRC website