VAT traps for charities with commercial property

Published: Monday 6 June 2011

Have you recently bought or are you refurbishing your business premises? In common with our national desire to all become home owners, businesses will often buy commercial property rather than renting them. There is the potential to minimise property costs and maybe even make a capital gain in the process. However, there are also risks and sometimes serious VAT implications, particularly for charities.

A case in point is a local charity who recently purchased new offices. They are in need of considerable refurbishment, however, as the trustees explained, financing the refurbishment will not be a problem, as there is sufficient office space which could be let to generate extra cash.

The problem is, as things currently stand, no VAT can be charged by the charity on the rent. This means that the VAT on the refurbishment can't be claimed.

A possible solution would be to "opt to tax" their property, enabling all VAT on the refurbishment to be recovered. However, VAT would then have to be charged on the rent, which if the tenant could not claim this would increase the rent and put some tenants off the property.

A better solution may be to carry out a partial exemption calculation . If it could be demonstrated that the VAT on the refurbishment for the part of the property to be let is low enough compared to VAT as a whole it may be recoverable in full.

In this case, that is exactly what has been done and the refurbishment is well under way. The trustees are delighted to have saved money which is being ploughed back into good causes.

For further information, please contact Scott Lawrence on 01242 237661 or