HMRC defends changes to buildings tax

Charities 'will not be disadvantaged' by new rules

Changes in VAT rules on the construction of new buildings are not intended to penalise charities, HM Revenue & Customs has told charity tax campaigners.

HMRC recently removed a concession allowing charities to use up to 10 per cent of new buildings for business purposes and still be zero-rated for VAT purposes. It has replaced it with new rules that reduce the figure to 5 per cent.

However, HMRC has told the Charity Tax Group that it will accept any reasonable method of calculation of how much of a building is being used, whereas before it would accept only calculations based on floor space, staff time or staff numbers.

HMRC has also promised to examine how it can retain two subsidiary concessions relating to new buildings.

One covers buildings built by non-charities but let to charities, which previously had zero-rating but might not be zero-rated under the new rules.

The other covers buildings built partly for charitable use and partly for business use. Previously, use could be reassigned at a later date as long as the proportion of the building used for charitable purposes remained the same. But whether this remains the case is unclear.

"HMRC has said it does not intend the new rules to disadvantage charities in any way," said Helen Donoghue, director of the CTG. "This change has happened because the law on extra-statutory concessions has changed."

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