Most readers will know that, in certain circumstances, charities may obtain zero-rating relief for the construction of new buildings.
The perennial problem with this relief is defining what is meant by the term ‘relevant charitable purpose’ (RCP).
There are two possibilities:
-the building is used ‘solely’ for non-business purposes by a charity, or,
-the building is used ‘as a village hall or similarly’.
The first test can be extremely difficult to meet. Whilst HMRC do disregard certain minimal ‘business’ use of such buildings, the rules and the interpretation of them have been the subject of considerable debate over the years.
The second test also poses challenges of interpretation – most recently examined in an extremely useful First Tier Tribunal decision (Caithness Rugby Football Club).
The club constructed a new clubhouse and claimed zero-rating relief on the basis that it would be used ‘as a village hall or similarly’.
HMRC disagreed with this analysis and sought to deny zero-rating. The key aspect of HMRC’s argument was that, because the building was operated by a club for the purpose of providing facilities to play a particular sport. In HMRC’s view, this meant that the facilities did not provide equal access for participation by the whole community. As such, the clubhouse could not be said to be used as ‘a village hall or similarly’.
The Tribunal, in what was a very cogently argued decision, disagreed.
We recommend that any similar organisations who are facing an assessment from HMRC on similar grounds or who are uncertain as to the correct VAT liability of a planned construction project should seek specialist advice at the earliest opportunity.