Charities that rent property mainly for charitable purposes could lose the right to prevent a landlord charging VAT on their rent payments, a charity lawyer has warned.
Building space rented by charities is considered to be charitable for VAT purposes if the amount of non-charitable use does not exceed 10 per cent. But HM Revenue & Customs announced earlier this year that the proportion would be reduced to 5 per cent from July 2010 due to the removal of an existing concession.
Kate Slattery, of solicitors Russell Cooke, said: "At present, landlords can normally choose whether or not to charge VAT on rent.
"But charities have at their disposal the option to have a VAT charge disapplied if the building is used for a charitable purpose.
"It will now be harder for charities to make an application to have that VAT disapplied."
She said that the effect on rental agreements had not come to light when the change to the extra-statutory concession had originally been announced, because the main effect of the rules was to prevent charities claiming back VAT paid on the construction of new buildings.