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Matthew Bailey
Matthew Bailey,
Category: UK Tax
Satisfied Customers: 11
Experience:  Principal at Bailey & Associates
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I have client who has a commercial property which is rented

Customer Question

Hello I have client who has a commercial property which is rented to a charity. The company is VAT registered, but I need to know if it should charge VAT to the charity?
Submitted: 1 year ago.
Category: UK Tax
Expert:  Matthew Bailey replied 1 year ago.

Hi, let me see if I can help with this.

First of all, VAT is only chargeable if the company has "opted to tax" the property itself. This is different to the company being VAT registered for its trading business.

Assuming the option has been taken, VAT still may not apply to the rent depending on what the property is being used for. If the charity is using the building entirely for "relevant charitable purposes" (e.g. to offer free advice to the charity's clients) then it's an exempt supply. If, on the other hand, the building is being used as a shop, this is considered a business activity and VAT will apply to the rent.

It's also possible that the building is being used for a mixture of business and non-business purposes, in which case VAT will apply to the business portion of the rent only.

In order to qualify as a relevant charitable purpose, the building must be used by a charity (i.e. a body registered with the Charities Commission, or where HMRC has accepted the body to be a charity) and must not be used in the furtherance of a business. Some other examples of businesses a charity may undertake are fee-based membership services and admission to a premises in return for a fee.

(If you need help in determining whether an activity is classified as a business activity you can call HMRC on 0300(###) ###-####)

The company has a responsibility to take reasonable steps to determine whether the building is being used for relevant charitable purposes. I would recommend that they obtains written details of the charity's status and activities in the building for its own VAT records.

I would be grateful if you can rate my answer to reflect the the time spent answering your qustion and the advice given.