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HMRC internal manual

VAT Land and Property

HM Revenue & Customs
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Option to tax: supplies not affected by an option: buildings to be used solely for relevant charitable purpose

Paragraph 3.5, Notice 742A explains that the option will disapply in relation to the supply of a building or part of a building intended for use solely for a relevant charitable purpose, other than as an ‘office’ (the relevant law is paragraph 7 of Schedule 10).

Under Extra Statutory Concession (ESC) 3.29 an option could be disapplied as long as the building (or part of building) was to be used at least 90% for a relevant charitable purpose. This concession was withdrawn from 1 July 2010 following a transitional period of one year. However, HMRC now accepts that you can ignore up to 5% non-qualifying use when determining whether a building is intended ‘solely’ for a relevant charitable purpose for the purpose of paragraph 7 of Schedule 10.Further information can be found in section 16.11 of Notice 708 Buildings and construction.

Meaning of ‘office’

‘Office’ is not defined in Schedule 10, but HMRC’s interpretation is that office used in this context means use for the administrative functions of the charity that are similar to those carried out in other organisations, such as personnel, payroll and general administration of the charity as a whole. For example, a building used as the administrative headquarters of a charity is considered an ‘office’, unlike a charity call centre set up solely for the purpose of collecting voluntary donations.

Requirement to provide certificate

Paragraph 33 of Schedule 10 indicates that, for option to tax purposes, the phrase ‘use for a relevant charitable purpose’ should be read in accordance with Notes (6) to (12) of Group 5, Schedule 8. Paragraph 7(2) of Schedule 10 also refers to Note (12) of that group, which provides that a building shall not be regarded as intended for relevant charitable use unless the recipient of the supply has given the grantor a certificate ‘… such form as may be specified in a notice published by the Commissioners’.

A charity might ask you whether HMRC has provided a certificate for them to complete in order to disapply the option. To date, we have not provided a certificate for this purpose. Our longstanding policy, which has been agreed with representatives of the charity and property sectors, is that it is sufficient for the charity to inform the vendor/landlord of the intended use, before the supply is made, in order to disapply the option (if the charity does not inform the vendor/landlord, the option to tax applies). However, we strongly recommend that the charity informs the vendor/landlord in writing and that the vendor/landlord retains this written confirmation. Some charities choose to use an adapted version of the certificate in section 17, Notice 708 Buildings and construction for this purpose.