VAT changes could hit charities

HMRC increases 'charitable purpose' threshold for exemption on new buildings

Charities buying property could be hit with a sizeable VAT charge from next year, after HM Revenue & Customs said it was changing the way it calculates charitable use.

HMRC has previously said VAT did not have to be paid on the acquisition or construction of a new building if it was being used "at least 90 per cent" for charitable purposes, based on either floor space or staff time spent on charitable activities. But it has announced the minimum amount of charitable use will become 95 per cent, with effect from 1 July 2010.

George Bull, head of tax at accountancy firm Baker Tilly, said that the change would make some charity projects unviable.

"Without this concession, it is likely that many charities will not be able to acquire buildings free of VAT," he said.

"This 90 per cent concession is invaluable to further education colleges because the teaching of students aged over 19 is regarded as a business activity."

HMRC had also introduced a new requirement for charities to monitor their buildings' use for at least 10 years, he said, and pay tax if it carried out more business activities in the property than was initially anticipated.

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