LawWorks Q&A – Construction of modular building by a charity
LawWorks is a charity working in England and Wales to connect volunteer lawyers with people in need of legal advice, who are not eligible for legal aid and cannot afford to pay and with the not-for-profit organisations that support them. From time to time, Ann provides tax advice through them on a pro bono basis. Below is one of the queries she has dealt with.
‘I’d like some advice as to whether if our Hospital Radio charity purchased and installed a modular building to house our studios and office, the cost would be exempt from VAT.
I’ve read HMRC Notice 701/1 ‘Charities’ and HMRC Notice 708 ‘Buildings and construction‘ to which it refers, but am none the wiser.
Is the purchase and installation of a modular building classed by HMRC in the same way as the construction of a traditional building from bricks and mortar?
Would our use of the building – for the production of a hospital radio service made available to patients at the hospital free of charge (and the hospital isn’t charged either) be classed as ‘non-business’?
The rules are complicated but I have summarised them below.
The supply of services and goods in the course of construction of a building which the customer intends to use solely for a relevant charitable purpose is VAT-free provided that the customer (the charity) has given the supplier a certificate in the form required by HMRC before the first supply takes place. The form of this certificate is set out in VAT Notice 708. There are provisions for claw-back of the relief if the building ceases to be used for relevant charitable purposes within ten years of the date on which the building was completed.
A special VAT refund scheme puts DIY builders in a broadly similar position, by refunding the VAT on some of their costs. Under the scheme, HMRC must refund any VAT chargeable on the supply, acquisition or importation of any goods used in connection with qualifying construction work however any VAT charged on the works is not refundable. In the case of a charity the construction of a building to be used solely for a relevant charitable purpose qualifies under these rules.
Relevant charitable purpose means use by a charity otherwise than in the course or furtherance of a business (or use for certain community purposes which are not relevant here). Activities that do not make a profit, or activities where any profit is only used to further the aims and objectives of the charity, can still be business activities. Unfortunately there is no definition of what constitutes a business but where no charge is made the activity is not, in my view, a business activity. It may be prudent to try and get HMRC’s agreement to this view before going ahead but this will take time!
I can’t see any reason why constructing a modular building is not constructing a building for this purpose.