Zero rate certificates for charity buildings – a new policy?

Two recent cases regarding the issue of zero rate certificates for charity buildings have highlighted the danger of assuming the zero rate will apply. 

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04 February 2019

The two cases in this article may also point to a hardening of policy on HMRC’s part with regard to penalties for incorrect certificates. The Upper Tribunal (UT) case of Greenisland Football Club (GFC) concerned a penalty issued by HMRC for the incorrect issue of a certificate, for £53,101.00 calculated at 20% of the cost of construction. This was on the basis that the Club wrongly issued the certificate to a contractor who supplied construction services to GFC in respect of a new clubhouse. GFC argued that the construction works were correctly zero-rated as the intended use of the building, was as a village hall or similarly in providing social or recreational facilities for a local community. The First Tier Tribunal (FTT) allowed the appeal and also held that if its decision was wrong, the Club would have a reasonable excuse for issuing the certificate and the penalty should be withdrawn. HMRC appealed.

The UT overturned the FTT’s decision on the liability of the works, holding that the FTT had applied the wrong tests. However it refused to uphold the penalty because it accepted the charity’s defence that the certificate was issued after careful and reasonable consideration by the trustees. The charity had contacted its advisers who had given oral advice that the building would be zero rated. 

The decision 

The outcome here contrasted with the result in the FTT decision in Marlow Rowing Club where a similar penalty was upheld against a charity and the issue of the certificate was deemed “careless”, despite the fact that the latter charity had obtained a detailed opinion from both a QC and its accountants, which had confirmed the possibility of zero rating, but subject to developments in case law. 

In GFC HMRC argued in court that all charity trustees must seek an HMRC determination before issuing a certificate, whereas in its published guidance HMRC say that the decision of trustees will be accepted where either they seek professional advice or a determination from HMRC is sought.

What does this mean?

It is not clear whether the argument in Court represents a new policy but the lesson here is that issuing a certificate needs very careful consideration and proceeding without written advice for any charitable construction project where zero rating may apply is unwise. 

We recommend charities consult a VAT specialist before issuing a certificate. Our charity VAT consultancy team have wide experience of charity construction projects. If you’re unsure on your position with zero rate certificate, our experts can help guide you in the right direction.

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