Charities which construct new buildings can obtain zero-rating on the costs of construction if the building is intended for use solely for non-business purposes. Relief is not available where any non-qualifying use takes place (i.e. when the building is used solely for business use or where business and non-business use take place at the same time.)
However, a small amount of non-qualifying use has been allowed in the past under an informal arrangement (often known as the 10 per cent concession) drawn up in 1989.
That arrangement, which measured the use of the building by comparing the amount of time the building was used solely for a non-business purpose to the total time the building was available for use, did not always meet the needs of charities. Customs has now formalised a concession that allows charities to use other methods of calculating the extent of qualifying non-business use.
New methods of calculation
Charities can now calculate the extent of qualifying non-business use by reference to time, floor space or the number of people using the building. The non-qualifying use of the building will be disregarded provided that:
– the building is used solely for non-business activity for 90 per cent or more of the time it is available for use;
– 90 per cent or more of the floor space of the building is used solely for non-business activity; or
– 90 per cent or more of the people using the building are engaged solely on non- business activity.
The above methods can only be applied to the building as a whole, apart from the time based method which can also be applied to parts of the building. In addition, permission must be sought from Customs to use any of the methods, except the time- based method when applied to the whole building.
The new concession will also apply when determining the use of a listed non-business charitable building when alteration work is carried out.
For further advice and information, charities and their advisers should contact their local VAT office, listed under Customs and Excise in the telephone directory.
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