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Move to simplify change-in-use provisions

08 December 2010
Issue: 4286 / Categories: News , VAT
Legislation will no longer have two adjustment mechanisms

HMRC have announced a four-week consultation period to consider proposals to simplify the change-in-use provisions in VATA 1994, Sch 10 paras 35 to 37.

New buildings intended to be used solely for a relevant residential or charitable purpose qualify for VAT relief on their construction or acquisition, provided that they are used solely for that qualifying purpose for at least ten years following completion of the building.

If the building ceases to be used solely for the qualifying purpose within that period or if the use decreases, the ‘change in use’ provisions allow HMRC to claw back the original relief.

However, as the current provisions are complex, the rules are being simplified to produce fairer results.

From the date of implementation, the legislation will no longer have two adjustment mechanisms to apply to the two sets of circumstances where a ‘change in use’ occurs.

Instead, there will be a single adjustment mechanism to be applied in all circumstances based on the:

  • amount of VAT that would have been chargeable on the original supply had the building in question not been eligible for the zero rate;
  • proportion of the building that is affected by the change in use; and
  • number of complete years that the building has been used solely for a qualifying purpose prior to the change in use.

The new provisions will produce similar tax charges where use changes to a similar degree, regardless of the circumstances in which the change in use comes about. This change will affect only buildings that cease to be used for a qualifying purpose after the implementation date or where such use decreases.

Comments on the legislation and the proposed changes should be sent via the link in Revenue & Customs Brief 49/10 no later than 3 January 2011.

Issue: 4286 / Categories: News , VAT
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