The charity had been operating a significant number of care homes spread across different regions within the UK.
The stock of houses, however, had been in use for a number of years and therefore significant upgrading was required. In some cases, this would take the form of repairs, whilst in other cases a complete rebuild of the house was needed. Clearly this was a major operational challenge and the project had to be managed properly and according to a tight schedule.
We advised on the tax efficiency of the scheme. Inevitably, VAT was to play an important role. The charity itself, due to its main activity, could not recover the VAT that was to be incurred on the redevelopment, in any significant way. The size of the overall project, however, was such that the VAT input would be financially very significant to the charity.
We helped set up a subsidiary that would enter into all the contracts for the development and rebuild of various houses (under ‘design and build contracts’); it would recover VAT and then sell the development to the charity (no VAT effect as the supply is zero rated). Any profit made by the subsidiary, however, would not be taxable if it was gift aided to the charity.
If you would like any advice on VAT then please contact our Charity & Not for Profit Group who will be more than happy to help.