The construction of, or grant of a major interest (freehold sale or grant of a lease over 21 years) in, a building intended for use solely for a relevant charitable purpose or a relevant residential purpose is zero rated. For further information refer to Chapter 3 of HMRC VAT Notice 708: Buildings and Construction.

Buildings to be used for a relevant residential purpose include buildings such as children’s homes, care homes and accommodation for schoolchildren. HMRC clarified, in Revenue & Customs Brief 47/11 the position relating to the VAT liability of the construction and first sale of dwellings that are linked to a separate provision of care (extra care accommodation). This accepts, regardless of the Use Class, that extra care accommodation is ‘designed as a dwelling’, and therefore its construction and first sale or long lease will be zero rated, if it meets all of the standard conditions, which are as follows:

• The dwelling consists of self-contained living accommodation
• There is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling
• The separate use of the dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision
• The separate disposal of the dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision
• Statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent

Buildings to be used for a relevant charitable purpose are restricted to those that are to be used by a charity solely for a non-business purpose or as a village hall or similar in providing social or recreational facilities for a local community. They do not include a charity headquarters used for both business and non-business purposes. HMRC interprets “solely” as at least 95 per cent use for charitable purposes.

These reliefs are particularly valuable for charities in the care or education sectors, such as hospices or charitable schools, research, and for charities using a building for a non-business purpose or providing local community facilities.

The zero rating does not extend to the supply of architectural, surveying, consultancy and supervisory services – which is always standard-rated. However, it is possible to use a design and build company where the charity engages a contractor to carry out both the design and construction elements of the project. Where it is clear in the contract that any services of architects, surveyors or others acting as a consultant or in a supervisory capacity are no more than cost components of the contractors supply and are not specifically supplied on to the customer, then the whole supply can be treated as being eligible for the zero rate.

It should be noted that in Jeanfield Swifts Football Club v Revenue & Customs [2008] UKVAT V20689 (22 May 2008) a VAT Tribunal was prepared to regard the activities of a community amateur sports club as charitable for the purposes of zero rating the construction of its new pavilion even though the club was not registered under the Charities and Trustee Investment (Scotland) Act 2005: “It is a regulatory Act dealing with the supervision of charities in Scotland and has nothing to do with charitable status for the purposes of this question…”.