The University can zero-rate the construction costs of new buildings which are to be used 95% or more for grant-funded non-commercial research. This is based on the intention to use these areas for a "relevant charitable purpose" or “RCP”.
It is also possible to zero-rate defined areas in a new building, providing the activities carried out there represent over 95% non-commercial research.
Teaching labs and tutorial rooms used by undergrads and academics would not qualify for zero-rating
Canteens/cafés, whether staff or student, would not qualify for zero-rating
Within the fit-out costs, it should be possible to zero-rate building materials which are “incorporated into” those parts of the building to be used for non-commercial research (e.g. laboratories or write-up areas). However, this would not extend to furniture, carpets or most electrical/gas appliances (sometimes referred to as “white goods”).
If zero-rating is obtained for a defined area/building, it should also be possible to zero-rate a proportion of the external and enabling works for the whole site. This could include:
- demolition of old buildings
- ground works/site clearance
- provision of water and power
- access to the building (e.g. roads, footpaths, parking areas)
- security (walls, fences and gates)
- soft landscaping
If a proportion of the construction costs can be zero-rated, it is also possible to zero-rate a similar proportion of the professional fees (architects, surveyors) by implementing a design and build contract. The University regularly uses its subsidiary OUFAL for this purpose.
The installation of disabled washrooms/lavatories and access ramps can be zero rated in their own right.
Within the fit-out costs, certain laboratory and other equipment to be used for medical research/training may also qualify for zero-rating.
Change of use
If RCP zero-rating is obtained on the construction of a new building, the VAT rules require us to track the use of zero-rated buildings for the first ten years.
Where the use of the building (or the defined part) changes the original zero-rated percentage used for non-commercial research, some of the original VAT saving must be repaid to HMRC. The amount repayable depends on how long the building has been open and the extent of the fall in the zero-rating percentage.
Please contact the Tax Team for further details
