Renting a charity owned building

chaliepud

Not sure if this is the best place to ask this, or even how to ask it, but will try anyhow -

I help run a charity pre-school that is at risk of losing it's venue, the ideal new location for us would be our local scout hut, but there is some problem over the fact that it is something to do with the charity commission, so they do not have to pay VAT and therefore cannot make money from leasing it out to other bodies. Does anyone know how this works and if there are any ways around it, legal of course, we are not trying to make money and will have to be ofsted registered etc.

Any advice appreciated..

Hayley

JasonLVC

From a VAT perspective :-

The construction of a building usually attracts VAT of 17.5% (standard rate). There are some concessions :-

If the building is a residential property (ie, a house) or if it is to be used for a 'relevant charitable purpose' it attracts VAT at 0%, in effect VAT free.

Relevant charitable purpose is defined as something which is non-business. Non-business means no money can exchange hands for the provision of a good or service. Charities may be 'not for profit' but if they charge a client for something then they are still 'in business'.

So a Scout Hut can be built VAT free on the basis that they will only use it for non-business purposes. To rent out a room to a third party (ie, you), then they will have to charge you a rental income which is business and they would have to pay to HMRC the VAT they initially managed to avoid.

This is the case for 10 years under what is known as the Capital Goods Scheme in VAT legislation.

From a Charity Commission perspective :-

Depending upon the objectives of the charitable trust/scout group it may need to set up a trading arm/seperate limited company to receive incomes which are outside the core focus of the charity. Many charities will have a trading arm to get around this requirement of the commission which prefers charities not to extend themselves into formal trading activities at the expense of their core charitable objectives.

For example, a college which are usually charities will have the education go through the charity as that is the core business and then have a trading arm which will take money for things like conference/room hire, catering at weddings, hair dressing, etc). The education will be exempt from VAT, the other services will be taxable.

Does that help clarify matters?. If you have any other thoughts then let me know. If you want ways to get around (legally) the situation I'd need to know more about the Scout Hut.

Are they VAT registered,
What other activities do they perform beyond 'scouting activities'