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Charities hit as Tax Man moves goalposts

Charities which acquire buildings face an unexpected blow following the announcement by HM Revenue and Customs (HMRC) that a concession relating to property used for charitable purposes is to be altered. The announcement came out of the blue, with no prior consultation having been held.

Currently, a charity pays no VAT on the acquisition or construction of a new building if it is 90 per cent used for charitable purposes. In practice, this means that charities can let part of their premises to defray costs and not suffer a VAT penalty.

However, from 1 January 2010, the proportion of the property which must be used for charitable purposes to qualify for the concessionary treatment will rise to 95 per cent.

HMRC claim that the change will affect few charities and will lead to no increase in the tax take, which rather begs the question as to why it was thought necessary in the first place.

HMRC are being subjected to heavy lobbying by representatives of charities, which are already struggling with the effect of the recession on donations. Do not be at all surprised if the Chancellor announces a U-turn in the autumn pre-budget statement. However, if this does not occur, charities considering building or acquiring properties should consider the implications of HMRC’s announcement.

For advice regarding charities, contact Alison Westbrook in Gullands’ Charity Law Centre: