Zero-rated 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 applies to buildings that will be otherwise then in the course or furtherance of business but 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 our free helpline to ensure you are in the most advantageous VAT position possible.

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