A homeless charity has hit out after being handed an unexpected bill by HMRC. Caritas Anchor House, which operates in East London, said hundreds of its service users will be put at risk after it was charged an additional £1m in VAT for work to build new facilities.
The additional charge relates to the Catholic charity’s construction of ‘move on’ flats, designed to help homeless residents transition back to independent living.
The VAT was incurred after HMRC reviewed the charity’s description of services, determining that their definition as a ‘residential and life skills centre’ rather than a ‘homeless hostel’ left it subject to VAT.
Established in 1962, Caritas Anchor House provides accommodation for 230 homeless people a year. It also works with vulnerable groups, including those experiencing substance misuse, domestic abuse and mental health problems.
Responding to the decision Keith Fernett, the charity's chief executive, said: “HMRC’s application of VAT in this case is devastating to our work and to the vulnerable people we support. We believe we’re being unreasonably penalised for accurately describing our operations despite not changing what we do.
“We have worked incredibly hard to deliver a level of service with a reliance on donations and relatively little government funding. We hope HMRC will reverse its decision, and allow us to continue making a huge difference to people’s lives. Otherwise our work is at risk, and local authority services will be put under greater pressure”
The unexpected cost has forced the charity to postpone the development.
Though the additional bill currently stands at £1m, the full cost could rise to £1.5m, once costs to halt the development and challenge the decision are included.
A statement on the charity’s website said they had “previously been given advice that our VAT liability for the development would be £250,000.”
HMRC told AccountingWEB that they do not comment on individual case, but added they were willing to work with the charity to resolve payment issues: “VAT status is a matter of law, determined by the nature and activities of the individual organisation.
“Although the tax payable in law has to be paid, we will always provide practical support and advice when approached.
“Time to pay arrangements are available for those with payment problems and anyone in this position should talk to us as soon as they can so we can do everything possible to help.”
Caritas Anchor House are currently appealing to the government to reverse the decision.
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