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HMRC internal manual

VAT Construction

HM Revenue & Customs
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Relevant charitable purpose concession (pre-1 July 2010 only): headcount-based method

The method based on head count could only be operated with our permission. It was an alternative to both of the time-based and the floor space methods and wasn’t be used in conjunction with them. Under no circumstances was this method to be applied to parts of a building. Instead, the building had to be considered as a whole.

Step Action
## Step 1 Select a representative period.
Note: The representative period over which the use is measured isn’t prescribed and any reasonable representative period may be used.    
  ## Step 2 Determine the number of people who are intending to use the building solely for a relevant charitable purpose during that representative period.
  ## Step 3 Determine the number of people who are intending to use the building for all the purposes.
  ## Step 4 Divide the amount of time determined at by the amount of time determined at and multiply by 100.
  ## Step 5 If percentage calculated at is greater than 90 per cent, any non-qualifying use can be ignored.

Under the time-based method, a building, as a whole, wouldn’t be being used for a qualifying purpose where, during the entire time the building was available for use, qualifying and non-qualifying use took place at the same time. However, the non-qualifying use may only have involved a few individuals. The intention of this part of the concession was to cover situations where those individuals taint an otherwise qualifying building.


Identifying users of the building

For applications made under this part of the concession the charity had to be able to identify and measure the number of ‘users’ and to be able to ‘label’ those users as either ‘qualifying’ or ‘non-qualifying’ people. Individuals are classed as ‘non-qualifying’ if they were involved in any level of non-qualifying activity. Where it proved difficult to confirm an individual’s activities - such as in a large organisation where each person performed a different role - the application could be refused. For such organisations, the floor space part of the concession or the time based methods would often produce a fairer or more reasonable result.

You weren’t to accept calculations based on staff hours spent carrying out qualifying and non-qualifying activities, and you had also to refuse requests to allow weighting for part-time staff: both these methods involved mixing methods available under the concession. You had to also take care to establish the representative period over which the use was measured.

Where people benefiting from the charity’s activities as well as those carrying out the work used the building, it could be necessary to make a decision as to who to measure. In identifying and ‘labelling’ the users you could agree any method that produced a fair and reasonable result. Some of the problem areas were:

  • Visitors. Generally, you could ignore visitors to a building and only count the normal occupants as the ‘users’. However, visitors could be included where, for example, a building was constructed solely or mainly to serve the visitors (for example, a centre set up to provide advice and counselling to a target audience).
  • Volunteers and part-time staff. These could be normally included in the calculation.
  • Cleaners, security staff, and so on. These were normally excluded from the calculation as they made an incidental contribution to the charity’s activities. If they provided a service which directly contributed to the charity’s activities such as, in a research building, cleaning cages and laboratory equipment or providing dedicated, intensive security they could be included as ‘users’.

A common sense approach was to be applied to ‘label’ the ‘users’ of a particular building based on their particular involvement in the activities carried out in the building. Some worked examples are given below which could be adapted to suit individual circumstances.


Example 1

A university is constructing a new building that will be used mainly for non-business research and partly for offices for 25 lecturers. The lecturers have no involvement in research. To carry out the research the university will employ 200 research assistants and 100 laboratory technicians. It will also use the services of 20 postgraduate students and 5 research staff employed to supervise the postgraduates. University cleaners also enter the building daily as in all other buildings on campus.

The normal ‘users’ of the building would include the total number of staff working in the establishment (350). The lecturers (25) are ‘non-qualifying users’ of the building. Research assistants, laboratory technicians, postgraduates and their supervisors (325) are ‘qualifying users’.

The head count method gives the following result: 325 divided by 350 multiplied by 100 equalling 92.85 per cent qualifying users, so a certificate can be issued.

Note: Postgraduates and other fee-paying students are ‘labelled’ according to the category of research in which they are participating only when applying this concession.

Example 2

A charity intends to construct an office block containing 2,000 square feet of office space and 100 square feet mixed use access space (entrance lobby, staircases, corridors and landings). One specific area (200 square feet) will be used solely for business purposes whilst the remainder of the 2,000 square feet will be used solely for relevant charitable purposes.

The building will be unable to apply the concession under the floor space method. However, of the 100 people employed in the building, 8 are employed solely or partially in business activities whilst the remaining 92 are employed solely in relevant charitable activities.

The percentage qualifying use is 92 divided by 100 - that is, 92 per cent. The building will qualify under the concession using this method and a certificate can be issued.

Example 3

An office block is used by a charity. During their working hours the members of staff carry out non-business functions for the charity. However, the office block also contains a staff restaurant - a business activity - that is used by the majority of the staff. Where the restaurant, plus any other non-qualifying areas, occupies over 10 per cent of the floor space of the building relief for the entire building would not be available under the floor space method. However, a head count method may be a suitable method.

In the example given, the ‘users’ of the restaurant would include all the staff in the building. However, it is reasonable to determine the non-qualifying use of the building by only classifying those directly involved in providing the catering (that is, the chefs, catering managers, till operators, and so on) as ‘non-qualifying’, as the other members of staff aren’t employed to participate in the non-qualifying activities.

Note: Questions on business or non-business activities should be addressed to the VAT Advisory Team.