HMRC has withdrawn proposals to charge VAT on design and build composite changes, a change which the Charity Tax Group claims would have cost some charities hundreds of thousands of pounds.

HMRC accepted the opinion CTG had sought from Andrew Hitchmough of Pump Court Tax Chambers that the recent Talacre case does not mean HMRC must change its stance on zero-rating VAT on design and build projects.

As a result, HMRC will continue to accept that professional services provided by a building contractor are zero-rated if provided alongside zero-rated building work.

It will also amend VAT Notice 708 to make clearer the conditions for an onward zero-rated supply which meets the test.

Peter Jenkins, CTG’s technical adviser, said: “This is excellent news for the whole charity sector, as the proposed change would have substantially increased the VAT cost of many charity construction projects.

“This is a good example of the generally positive and constructive relationship between HMRC and CTG on key issues facing the sector”.