Charity wins VAT relief case

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A UK charity has won the right to claim tax relief on the cost of building a training centre in a tax case that could have major financial implications for other charities. VAT relief on supplies to charities was £300m in 2012-13, according to HMRC.

Longridge On The Thames, a Buckinghamshire charity that provides outdoor activities, argued that construction of a new training centre should be zero-rated for VAT purposes, in line with rules for new buildings that are used wholly for "relevant charitable purposes".

But HMRC argued that because the charity charged fees for its activities it was carrying out business activities and was not entitled to relief.

Longridge appealed to the first-tier VAT tribunal (Longbridge on the Thames v HM Revenue and Customs, UKFTT 158). The tribunal ruled that, even though Longbridge charged fees, these were only to fulfil its charitable objectives and were heavily subsidised by donations.

Kevin Hall, a VAT consultant at Gabelle, said...

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Nick Huber
Freelance journalist
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By James26
22nd Apr 2013 12:23

Slight Typo - in court case link - 'b' not needed

x2 in that 4th para

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22nd Apr 2013 12:21

Caught both ways

There are many similar charities around the country, for whom the difference between an accounting profit and an accounting loss is the ability to reclaim input VAT.

They have a more commercial arm that due to VAT recovery can make a profit and this is used along with donations to fund non-commercial community based activities.

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By A bedi
26th Apr 2013 13:51

Just wondering

 Are "relevant charitable purposes" and "business" activities mutually exclusive as HMRC seem to be suggesting?? I don't see why they have to be... 

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26th Apr 2013 16:08

The answer is in the definition

A relevant charitable purpose is defined by VAT Act as use "otherwise than in the course or furtherance of a business" so the two by definition must be mutually exclusive, though there is a very minimal use exception.

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By A bedi
26th Apr 2013 18:03

Still wondering
I have no issue with the definition in that part of the legislation. My point is, does that then necessarily have to mean input tax recovery is going to be denied where currently allowed because activities are subsidised and form part of the charitable objectives of the organisation involved?

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29th Apr 2013 10:29

That is the fear

What you suggest can be inferred from some of the statements of the judge in the tribunal, that if it is subsidised and charitable then it is not business.

However this case did concern zero rating for a building constructed for a relevant charitable purpose which is not the same as input tax deduction. What HMRC are anxious about is the potential loss of output tax that would no longer be chargeable on non-business activities.

Longridge were providing exempt supplies hence their problem with the input VAT. If they had been providing standard rated supplies then I do not believe the issue would have arisen.

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