The VAT implications for organisations renting out property or space in buildings may cover a wide range of different services and situations many of which may not seem obvious in the first instance:

• Provision of office accommodation, such as a room or floor together with the rights to use shared areas such as reception, lifts, kitchens etc.
• Provision of a specified area of office space, such as a room
• Provision of a serviced office, such as inclusive rent for use of telephone
• Hiring out a hall or other space for meetings, parties etc. including use of kitchen, lighting, furniture and so on.
• Granting a catering concession, where the caterer has the right to use a specific area for a restaurant and kitchen (and even equipment)
• The space for a vending machine on your premises

Renting out land or property is normally treated as exempt from VAT. It is possible to exercise an option so that the rent is treated as standard-rated, known as the “option to tax”. If you do opt to tax, then you have to charge VAT on all transactions concerning that property, including a sale of the property itself. For example, if you opt to tax, you would need to charge VAT on the hiring out of the hall for an hour as well as the provision of offices – you cannot choose one activity in the building and not another. You can opt to tax one building but not another, providing there is a distinct boundary and the buildings can be used independently. Once you have exercised the option to tax it cannot be revoked for 20 years.

The main advantage of exercising the option to tax is that VAT on purchases relating to the property can be recovered, for example maintenance costs. However, this is a complex field and charities with a mix of activities need to obtain permission before they can opt to tax. It is also wise to seek professional advice.

Many goods or services supplied and charged for separately will be standard-rated, including catering, parking and so on. If charities aim to share services, therefore, they may have to charge and pay VAT on the recharge of services. More information about VAT from the Finance Hub.

Charities may not be able to reclaim any VAT on payments for services unless they are registered to do so. Further information about tax.

It is essential that all organisations clarify at the outset of the arrangement to share premises whether they are liable for any tax through sharing resources.

As well as the financial aspects of sharing a building, there are a number of non-financial, but still important, issues to consider, such as organising fire drills, nominating key holders and organising security. Sharing a building is a complex area and professional advice is imperative.