VAT exception from registration - charity self supply charge

[annieb21]

I am Treasurer for a small scout group. We are currently constructing a new building which is intended to be used for a relevant charitable purpose (as a scout hut) and as similar to a village hall.

We have been issuing certificates to this effect and obtaining zero-rating on construction services.

We have been approached by a business about renting the building at a time when it would not be in use by us. If we entered into this arrangement it would take us over the de minimis limit for business use and a self supply charge would become due on the building.

The self supply would take us over the VAT registration threshold but we would immediately fall back way below the deregistration threshold with no forseeable likelihood of exceeding again.

What are our chances of obtaining exception from registration under these circumstances given that our registration would result in revenue for HMRC? The plan is to ask for some sort of indication in advance as it will materially affect our decision as to whether to take the business as a tenant. Is there any wording we should use that would improve our case? And would the HMRC response in advance be binding on them if the circumstances arose exactly as we had told them?

Any help you are able to give would be much appreciated.

[les35]

I fear that, to approach HMRC with the scenario you describe will leave you vulnerable to obligatory registration, and a huge self supply charge, which is only partially recoverable. Exception from registration as you describe is almost irrelevant compared to the net VAT cost.
I would lean towards non allowing the business to rent the building, and outline that a serious VAT issue would arise.

[davebrownvat]

I tend to disagree.

Zero rating is available for:

Non business use by a charity; or
Use as a village hall or similar.

There is no 'no business use' restriction on a village hall. I've successfully obtained a ruling from HMRC for a scout hut that has all manner of community use, including renting to a children's nursery. 'All cards on table' request to HMRC Charities Unit.

Regards
Dave

[les35]

Helpful comment from Dave Brown.
I am not convinced, as rental to a business tenant still falls outside of Village Hall use. (I hope I am wrong.)
Do follow DB's train of thought, though, and hopefully find a way to avoid the self-supply charge.

[davebrownvat]

Hi Les

Thanks for the vote of confidence (and no-confidence)!

The relevant legislation suggests that (at best) only one of the two scenarios must be fulfilled, either (a) or (b).

(6) Use for a relevant charitable purpose means use by a charity in either or both the following ways, namely–

(a) otherwise than in the course or furtherance of a business;

(b) as a village hall or similarly in providing social or recreational facilities for a local community.

As you can see it is only (a) that has the 'no business' qualification. If (b) applies, you don't need to worry about any business use. (Unless I'm wrong, of course)

Regards
Dave

[les35]

Dave
I think that commercial hire falls outside of the scope of 'social and recreational facilities for the local community,' and hence the risk of the self-supply charge. A fine technical point, I agree.
(But this is precisely why we vatties love what we do!)

[annieb21]

Les & Dave, thank you so much for your input. Could I ask some further questions please?

Les why do you say exception from registration is irrelevant? Presumably you don't think we'd get it in these circumstances, but if we did wouldn't the VAT problem go away? And you say 'partially recoverable'. How would we recover any of it? Not sure we could opt to tax at this late stage but I don't think we'd want to given that the option lasts 21 years. Is there another way to recover some?

I've been turning this over so long in my mind that I can't see the wood for the trees! The potential rental is significant in relation to the VAT liability hence why we haven't yet dismissed the whole idea.

Thanks again

Anne

[les35]

1. my comment about exception from registration was to do with the cost of remaining registered compared with the one-off VAT charge on teh self-supply.
2. ordinarily, the best solution to a self-supply charge is to opt to tax. But of course, where other users are charities, then some supplies may revert to exempt, leaving you unable to recover the whole amount of VAT on the self supply charge.

in conclusion, this is a complex issue. My advice is to engage someone who will be able to consider these specific questions in light of the entire activities of the organisation, as well as being aware of the sums involved.