Topic: VAT on Village Halls carrying out business

I am trustee of a village hall. We are currently constructing a new building which is intended to be used for a relevant charitable purpose as similar to a village hall. We have been issuing certificates to this effect and obtaining zero-rating on construction services.It is estimated that the work will cost about £100,000 and we hope to obtain grants from various bodies to help in paying for this.

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.

If we register and reclaim the input VAT, I would imagine that registration will seem a pointless exercise as we will fall below the registration threshold thereafter. And if we register, are we likely to incur claw-back when we de-register? What are our chances of obtaining exception from registration under these circumstances given that our registration would result in revenue for HMRC?

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

Re: VAT on Village Halls carrying out business

The recent Greenisland Football Club First Tier Tribunal case sheds more light on HMRC’s approach to zero rating for the construction of new ‘relevant charitable purpose’ (RCP) buildings.

The legislation provides for zero rating for such buildings, and defines RCP:

(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.

HMRC also argued that Greenisland was operating a business, since the building generated income. This is a simple failure to understand a Village Hall. A Village Hall usually does generate income for room hire, from regular User Groups and often private bookings. This ‘business activity’ does not breach the RCP test in Note 6(b) above (Rental income does breach the RCP test in Note 6(a).) ie you don't need to worry about any business use for a village hall.

if you need clearance, get a ruling from the HMRC Charities Unit.