HM Revenue and Customs Brief 39/09
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Issued 1 July 2009
VAT: Changes to the application of the zero-rate to new buildings used for a
relevant charitable or residential use
This Brief announces a change in HM Revenue & Customs (HMRC) interpretation
of the of the legal provisions that apply the zero rate to new buildings used
for a relevant charitable purpose, and the withdrawal of Extra Statutory
Concession (ESC) 3.29 and two related concessions. VAT Information Sheet 08/09
provides further detail.
A building intended to be used solely for a relevant charitable purpose
(non-business use) can 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
Under Extra Statutory Concession 3.29, HMRC has permitted zero-rating where a
building was used 90 per cent or more for a relevant charitable use. No change
of use charge arises in a case where a building ceases to be eligible if it was
zero rated only as a result of the application of this concession.
The two related concessions, the ‘switching areas’ concession (where the
overall use of the building was unchanged) and the ‘look through’ concession,
(where the occupiers’ use of the building was for a relevant charitable purpose)
enabled some business use of a building to be disregarded.
Outcome of review
Having fully considered the application of the provision and considered
appropriate decisions of the higher courts, HMRC now recognise 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.
In the light of this change of view, the ESC is no longer considered to be
necessary or appropriate. It will therefore be withdrawn, subject to a 12 month
transitional period, as described below.
A person can now rely on this revised interpretation of ‘solely’ that is, 95
per cent or more, to determine whether a building will be eligible for the zero
rate or not.
For this purpose, use for a relevant charitable purpose does not have to be
calculated using one of the three methods described in ESC 3.29. Any method may
be used to calculate the qualifying use of the building, so long as it is fair
and reasonable. Prior approval from HMRC for any method of calculation is not
If a building is zero rated as a result of applying this new interpretation,
there will be a change of use charge if it ceases to be eligible within ten
years of the buildings completion.
ESC 3.29 and the two connected concessions will now be withdrawn, subject to
a 12 month transitional period starting on 1 July 2009. During this transitional
period, charities will be able to continue to apply ESC 3.29, or choose to apply
the revised interpretation of the statutory provision described above.
Further details are in VAT Information Sheet 08/09.
The meaning of the term 'solely' will depend on the legal context in which it
occurs and on the nature of the underlying transactions to which any particular
piece of legislation is directed. The revised interpretation described above
applies only to the construction of the phrase 'solely for a relevant
residential or relevant charitable purpose' as used in the context of Groups 5
and 6 of Schedule 8, Group 1 of Schedule 9 and Part 2 of Schedule 10 to the VAT
If you have any enquiries about this Brief, please contact the National
Advice Service on Tel. 0845 010 9000 or, if a charity, the
Charity Helpline on 0845 302 0203.
About the Author
© Crown Copyright 2009.
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Article Published/Sorted/Amended on Scopulus 2009-07-03 11:02:05 in Tax Articles