Zer0-rate Construction – Community Buildings
Under Schedule 8, Group 5, the construction of a building that is to be used for a relevant charitable purpose can be zero-rated for VAT purposes. This can also extend to include village hall type buildings that provide social and recreational activities for a local community.
This relief was the basis for a recent case heard by the First Tier Tribunal where the Appellant sought funding to construct a new pavilion and improve existing facilities to be used for recreational services. The new facilities included changing rooms, a car park and a new all-weather pitch,with the total costs for this project exceeding £500,000. As the Appellant was a charitable association they intended acquire relevant construction services at the zero-rate.
The Upper-Tier Tribunal judged this case on the following four criteria;
1) Were the facilities provided for the local community?
2) Was the building owned, organised and administered by the local community?
3) Were social or recreational facilities provided or reasonable capable of being provided, and
4) Was the use similar to the use of a village hall?
After these criteria were assessed, the appeal was refused on the basis that in the main the new facilities being constructed could not be utilised for a variety of social or recreational activities and serviced a special interest group – the construction of these facilities were therefore charged at the standard rate.
Notwithstanding the above, many reliefs are available to charitable organisations, including the construction of certain new buildings. If you are a part of one such organisation, please call us to ensure you are in the most advantageous VAT position possible.
Private Usage & Input Vat
The First-Tier Tribunal heard the case of Ram Narroya vs HMRC where the Appellant disputed the decision that inaccuracies on his VAT return were as a result of deliberate behaviour. Ram Narroya dealt mainly in property but had recently purchased 3 cars to be put to use providing chauffer service. Input tax incurred on these three cars was fully recovered via a VAT return submitted to HMRC.
These three cars were used by the Appellant and his family for private use and were stored at his home. HMRC requested supporting documentation to show that steps had been taken to set up a business based around the provision of chauffer services but this could not be provided. There was also no documentary evidence that the correct insurance necessary for a chauffeur business had been obtained in relation to the three cars.
It was therefore concluded that when the Appellant recovered the VAT incurred on the cars in question he was aware that the cars were not being put to a business use and that the appropriate insurance had not been taken out to allow him to make the supplies as he intended. The Tribunals decision stated that this constituted deliberate behaviour without concealment, dismissing the appeal.
Penalties for errors on a VAT return that are deliberate but not concealed can carry a penalty of up to 70% of the VAT in question as well as the original amount due.
If a business asset has been used for a private purpose, a business/non-business apportionment may be necessary to calculate how much of the input VAT can be recovered in accordance with UK VAT legislation. To avoid the risk of penalties, or if you have already been assessed for unpaid tax and wish to see if the assessments/penalties can be reduced please call our helpline for free advice.