Hospices – Change to HMRC policy on Relevant Residential building VAT Zero rate.
HMRC have agreed to change their policy towards when a new hospice building can be seen as a relevant residential purpose building and therefore eligible for the construction ‘relevant residential purpose’ zero rate. Their previous policy was that a new hospice building could only be regarded as a relevant residential building to the extent that it provided in patient facilities such as bed rooms.
The revised policy is that a hospice building will be a wholly relevant residential purpose building if it contains any residential accommodation for patients, regardless of how much. So a single inpatient room will allow a building to qualify. Hospices that provide purely out patient services and have no in house patient accommodation will not qualify as relevant residential buildings but can probably still obtain zero rating under the zero rate for a relevant charity purpose.
I understand that HMRC will be updating their guidance to reflect this policy change.
Although the 1 April introduction of the refund scheme for hospices may make this change seem rather academic, it is good news. Some hospices do undertake activities that are regarded as exempt business activities for VAT purposes and these could potentially mean they are neither eligible for the zero rate that applies to a new building used for a relevant charitable ( non business) purpose or a refund under the new refund scheme. The policy change help ensure such hospices can continue to obtain the zero rate on new buildings they construct.
You should note that the zero rate will still only apply to a new building – which means a new construction that is not an extension of an existing building – unless it can be seen as an annex.