HMRC has announced today the withdrawal of two important concessions which have allowed charities to obtain zero-rating of new buildings where the business use of those buildings is not planned to exceed 10%.

In their place, HMRC has introduced a new interpretation of when a charitable building can qualify under the "sole" use provisions. This will now be taken to mean that a charity's use of the building must exceed 95% for "non-business" charitable purposes to qualify for zero-rating.

Furthermore, if the property is then used for less than 95% non-business use within ten years, there will be a payback of VAT based on a self supply charge.

This unhelpfully, in our opinion, re-introduces a legal provision which was previously seen as holding many charities back from making efficient use of their buildings (e.g community use of school buildings) which was why a concession regarding the self supply was introduced in 2007.

There are transitional arrangements which last until 1st July 2010 that will at least allow some degree of planning for existing construction projects.

If you wish to discuss how these important changes may affect you please contact Steve McIntyre or Allison Broadey.