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VAT

We suggest that charities review their business/non-business apportionments and/or partial exemption methods to ensure that they are not suffering an unfair burden of irrecoverable VAT.

Further, we recommend that charities ensure that they make maximum use of the VAT reliefs on expenditure to which they are entitled. 1 July 2010 sees some changes to the zero-rating for charitable buildings. Previously, charities could ignore up to 10% non-qualifying, e.g. business, use but the calculation of the 10% could only be done on a prescriptive basis. From 1 July, (subject to some transitional rules) the non-qualifying use must be less than 5% but any method can be used to measure qualifying use, provided that it is fair.

Two other items revisited in the Emergency Budget were “Lennartz” accounting (for assets used for mixed business and non-business purposes) and a promise to implement the cost-sharing exemption provided for in EU law.

Use of Lennartz accounting for new assets will be restricted severely from 1 January, but conversely bodies already using Lennartz may be obliged to continue using it. The stated intention is to prevent taxpayers who have claimed (full) deduction of VAT avoiding paying output tax by arguing that they should never have been permitted to use Lennartz. As ever, it will be important to consider the full detail of the measure as and when it is passed into law.

The UK has never implemented the cost sharing exemption into UK law, but the Government is now promising a formal consultation in the autumn. The exemption will remove the added VAT cost which can arise when resources are shared between a number of charities.

If you’d like to discuss any VAT matter in more detail, please contact Steve Chamberlain, Director of VAT Consultancy, on 01865 261100 or via schamberlain@critchleys.co.uk