The community building management committee will charge for hire of rooms and other services such as cleaning. Providing the majority of the hirings are to voluntary and community organisations, then all the activity will be within the objects of the charity and exempt from income and corporation tax.

Similarly, hiring out a room or other space - for example for meetings, activities and training sessions including the use of kitchen, lighting, furniture and so on - is an exempt supply for the purposes of VAT. If you make simple refreshments such as tea, coffee and biscuits available, the room and the incidental catering will be treated as a single exempt supply. However, if the community building has a community café and substantial refreshments such as a meal or buffet are supplied, this should be treated as a separate supply and standard-rated for VAT. You only have to register for VAT and charge VAT if you exceed the registration threshold, set at £64,000 in 2007-08.

Key points for village hall and community centre type use

• should be a charity running and occupying the premises
• commercial lettings should be incidental (less than 10%)
• charges for use of rooms exempt from VAT
• lettings to community groups and individuals

Community building management committees may wish to increase their income as well as offer a wider range of services. Letting office space for longer-term occupation to businesses will be allowed within a charity if this is simply letting out space that is surplus to the charity’s requirements. Space should be let under a licence and not a lease in order to preserve security of tenure. This will then be incidental and permitted within the charity’s objects and exempt from corporation tax. However, if the charity intends to run this activity as a business arrangement on a permanent basis, then this is trading. If the level of trading is greater than the small trades exemption (25% of gross income or £25,000, whichever is the lower) then this will need to be channelled through a trading subsidiary.

Other activities that may have to be treated in a similar way include cafés, bars, large-scale catering operations and community shops. So if your community building becomes really successful at letting the premises for weddings and parties, you may need to think whether this is beyond community use and is really a business.

If the scale of commercial activity is large then the building will no longer be occupied predominantly by a charity and you may no longer be eligible for full rates relief. If the trading subsidiary is primarily in occupation, then it should pay normal business rates on the area it occupies. You can apply for discretionary rate relief from the local authority.

You will also have to consider registration for VAT as some of these activities may be ones where you have to charge VAT if you exceed the threshold – for example, running a café, catering for weddings.

Key points for selling other services

• you can hire rooms out on a more commercial basis, but you may need to set up a trading subsidiary to handle this income
• a café or bar is likely to be outside the charity’s objects
• you may have to register and charge VAT if the income goes over the VAT threshold
• you may lose rate relief if you undertake regular trading