Construction services – VAT relief for charities

For charities, a hugely important VAT relief relates to construction services, which are vital for buildings, annexes, accessibility features, and more. It is important to know which construction services are zero rated, and which are not. Fortunately, our VAT team is here to provide all the information you need.

New buildings

The construction of buildings intended to be used, by a charity, solely for non-business purposes or as a village hall or similar can be zero-rated subject to certain criteria being met. 

To qualify for zero rating a building for non-business use by a charity must:

• be built from scratch, and, before construction starts, any pre-existing building must be demolished completely to ground level, or
• retain no more than a single facade (or a double facade on a corner site) of a pre-existing building, and the facade is retained as a condition or requirement of statutory planning consent or similar permission, or
• be constructed against an existing building with a shared wall but no internal access between the new building and the existing building.

Charity Annexes

Additions to an existing building are usually subject to VAT at the standard rate. However, the addition to a building solely for relevant charitable purpose use can be zero-rated when all the following conditions are met:

• An ‘annexe’ is constructed, rather than an ‘extension’ or ‘enlargement’
• The annexe is intended for use solely for a ‘relevant charitable purpose’
• The annexe is capable of functioning independently from the existing building
• The annexe and the existing building each has its own independent main access

To qualify for zero rating, the annexe need not be an annexe to a building which is used solely for a relevant charitable purpose. It is the annexe itself which must be used solely for a relevant charitable purpose.

Ramps, doorways, and passages

The construction of a ramp or widening an existing doorway or passage can be zero rated when the work is supplied to a charity and the work is required to help a disabled person gain access to or move about within a building. The construction of a new doorway or passage does not qualify for relief from VAT.

Bathrooms, washrooms, and toilets

The services of providing, extending or adapting a bathroom, washroom or toilet can be zero rated when work is necessary to suit the condition of a disabled person, the supply is made to charity, and the building is either:

• residential accommodation, or
• a day centre where at least 20% of the individuals using the centre are disabled persons

Washrooms and toilets but not bathrooms

Services to a charity of providing, extending, or adapting a washroom or toilet, but not a bathroom, can be zero-rated providing:

• the work is necessary to facilitate the use of the washroom or toilet by a disabled person
• the work is carried out in a building, or part of a building used principally by the charity for charitable purposes.
• Installation, repair, and maintenance of lifts

The installation or repair and maintenance of a lift can be zero rated when the services are supplied to a charity providing one of the following applies:

the lift is installed in a day centre, or a building in which the charity provides either temporary or permanent residence for disabled people and is installed for the purpose of facilitating the movement of disabled persons between the floors of that building, or

the supply is of a chair lift, stair lift, or a lift designed solely for use by disabled persons, and the lift has been installed to meet the needs of specified disabled individuals.

Goods supplied in connection with construction services

Goods such as building materials supplied in connection with a supply of construction services which are eligible for zero rating are also zero rated.

When the relevant building materials or other goods are bought by the charity themselves for use by their professional building contractor, a builders’ merchant or similar can zero rate their supply of the goods. However, the seller must be satisfied that the actual building work will qualify for zero rating and be able to demonstrate this on a VAT inspection. The seller may ask the charity to obtain a written ‘statement of works’ from the builder for this purpose.

A charity carrying out the construction work themselves cannot get relief from VAT on the purchase of materials as there is no subsequent supply of zero-rated construction services to which these materials can be ‘connected.