In appropriate circumstances, charities, care home operators and not for profit entities are entitled to receive supplies of building services at Zero Rate VAT. To qualify, the entity must first check that they are entitled to, and then issue a Zero Rating Certificate. By signing the certificate, the entity acknowledges that if there is a change to incorporate any business use of the building within the next 10 years, all of the VAT relieved on construction will be payable to HMRC.
A number of building have been repurposed
During the Coronavirus pandemic many buildings have been repurposed, whether that is to house food banks and testing facilities or to provide accommodation for key workers or the homeless. Any charity or other organisation letting out some or all of a Zero Rated Relevant Charitable Purpose or Relevant Residential Purpose building for temporary use is at risk of triggering a clawback of the VAT relieved on the construction of the building, if that took place within the last ten years.
The clawback is not proportional to the quantity of the building put to business use or the time over which it was let. All of the VAT which would have been charged on construction in the absence of a Zero Rating Certificate is payable to HMRC. It should be noted that letting all or part of a building to another charity for their use for charitable purposes would be classed as business use. There is a small concession which allows 5% business use of the building to be disregarded.
Cases will be look at individually
In correspondence with the Charity Tax Group, HMRC have stated that they will look at cases individually and indicated a willingness to help, although they have not stated the criteria which will need to be met or the extent to which they will help.
Charities and providers of residential accommodation who have issued certificates in order to benefit from VAT relief on construction of qualifying buildings must always be aware of the affects of a change of use within ten years of construction. In times when entities have needed to be agile and operate outside of their normal pattern, particular care must be taken to avoid the potential of a clawback of VAT.
Charities, educational institutions and accommodation providers who have concerns should consider whether any temporary change of use has put them at risk of a clawback and take advice accordingly.