):I beg to move,
That the Committee has considered the Value Added Tax (Buildings and Land) Order 2002 (S.I. 2002, No. 1102).
It is a pleasure to serve under your chairmanship, Mr. Pike. I hope neither to try your patience nor to detain you for long.
This a modest but nevertheless important measure designed to ensure that the rules that sometimes prevent charities from using their buildings in the most flexible and effective way are ameliorated to enable them to make best use of their resources without unfair penalties. The order is part of a wide package that we have announced, which has been warmly welcomed by charities.
The current rules let a charity purchase a building VAT-free if it is to be used solely for non-business activities. If the charity were an ordinary business, it would normally have to pay VAT on a building to avoid any distortion of competition. As the rules currently stand, if a charity puts a VAT-free building to a business use within 10 years of its acquisition, it is required to account for VAT on the original value of the building. That is sound enough in principle, but in practice it can have an arbitrary and unfair consequence. It does not, for instance, take into account to what extent, or for how long, a building has been used for non-business activities. VAT is due on the whole of the original value regardless of whether a building has been used for non-business purposes for one month or for eight years. That cannot be fair.
To make the rules fairer, the order will reduce the amount of VAT payable in line with the number of complete years for which a building has been used by a charity for non-business activities. If, for example, a charity had used a building for non-business activities for eight complete years, it would have to pay VAT on only 20 per cent. of the original value of the building, rather than on the full value. We have used a simple sliding scale, at the request of charities themselves.
The change will also have the beneficial effect of assisting owners of communal residential buildings such as care homes. Such buildings are subject to the same VAT rules, and their owners will also benefit
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from the new sliding scale if, for example, they decide to change a building from residential to non-residential use. The new rules, which will come into effect on 1 June 2002, will reduce charities' VAT bills and give them the freedom to use their buildings in more flexible and innovative ways.
The change has already been welcomed in publications such as The Tax Journal, which is essential reading for us all. Indeed, I can see Opposition Members indicating with their usual vigour that they have scoured the pages of that journal to glean what help they can. The hon. Member for Mid-Worcestershire (Mr. Luff) will not glean much comfort therebut I must not provoke him. The Tax Journalis an interesting and informative journal from which we all benefit, and it welcomes the order.
It is especially important that the order will be widely welcomed in the charity sector. I know that both Government and Opposition Members understand the significance of VAT and the issues that arise from it in relation to the charity sector, and that they will welcome this modest but important improvement.