Does the construction of your building meet the criteria for zero-rating?

A recent Court of Appeal decision in the Wakefield College case has clarified the criteria for zero-rating construction of relevant charitable buildings.

Wakefield College constructed a new building which was primarily to be used for teaching purposes.  The college argued that the construction of the building was eligible for zero-rating, on the grounds that it was used for teaching 14-19 year olds and the majority of which were grant-funded and paid no fees.

However, HMRC argued that the construction works should have been subject to VAT, as some courses were not eligible for government grant funding and some students had to pay top-up fees or paid fees personally.  

Not happy with this outcome, the college took the case to the Court of Appeal, but the court agreed with HMRC. The fact that the students paid a fixed, albeit subsidised fee, meant that the provision of education was a business activity and the ‘95% non-business test’ for zero-rating was not met.

This decision will impact any college which is constructing or has constructed buildings to be used for educational purposes. If you are in this position, we recommend you consider the VAT treatment of the construction and revisit any protective claims you have made on the back of the Wakefield College case.

Other charities who have constructed or are planning to construct buildings to be used for ‘relevant charitable purposes’ may also be impacted by this decision and should seek advice to either mitigate a VAT cost or maximise VAT recovery.

For further information or advice in relation to your specific situation, contact Terri Bruce, our charity VAT specialist.


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