Independent VAT Consultant
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VAT: No one can serve two masters

The operator of a church bar was liable to register for VAT, despite making no profit on the enterprise. Her contract with the church made it clear she was running a business.

3rd Jan 2020
Independent VAT Consultant
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I do feel sorry for the taxpayer in the case of Marites Salabit (TC07450). She was asked to operate the bar at her local church, St Pius X Roman Catholic Church, and ended up making very little profit, but she was also hit for £10,617 of VAT arrears. She should have been VAT registered between April 2014 and December 2015.

It is clear that Salabit genuinely did not believe she was running a business that could end up with a VAT assessment but it is fair to say: VAT gets everywhere!

Business owner or manager?

In reality, Salabit was destined to lose the case because her arrangement with the church was agreed in a formal contract dated 28 February 2013, and the terms clearly showed that she was operating the bar as a business owner, and was responsible for all of the following aspects.


Salabit paid rent of £625 per week to the church. This was a fixed cost and was payable irrespective of how much money the bar took. The rent was subsequently reduced to £500 per week because the bar was not profitable.

Staff and supplies

She was responsible for all staff costs and for paying suppliers. She also paid and arranged for TV licenses and Sky TV.


Salabit was responsible for rates and insurance overheads, although the church helped her out by paying some of these bills.


A key point was that she could retain any profits herself. The bar takings (cash and card) were banked into her personal bank account rather than any church account.

Taxpayer argument

The accountant who represented Salabit accepted that “someone had to register” and pay VAT but he argued that this should have been St Pius rather than Salabit and that she was just a “manager of the social club”.

But the February 2013 contract and the actual commercial arrangements meant this argument was destined to fail. For example, when does an employee bank the business takings into their personal account?

Contract amendment

In hindsight, it would probably have been better if the church had included a simple sentence in the initial contract agreed with Salabit, confirming that she would liable to register and pay VAT if sales exceeded the relevant registration threshold, which at the time was £81,000. This would have ensured she was aware of a potential VAT problem lurking in the background and that turnover had to be checked at the end of each month. She could have restricted the opening hours to try and keep below the VAT registration threshold.  

Two mysteries

There are two interesting questions that remain unanswered about this case:

Who confessed?

How did HMRC find out about the bar arrangement?

There is a comment that the social club “came to HMRC’s attention”.  I wonder whether a member of the church congregation works for HMRC and made a discrete 'tip-off' to the VAT registration section in Grimsby? 

Other taxes

Did Salabit pay the PAYE due on employees’ wages and declare her income for self assessment? Although the staff were probably only working a few hours a week, the mention of ‘staff costs’ must mean they were being paid for their time. Some of those staff would have been liable to tax on a BR tax code if it wasn’t their main job.

Perhaps she was registered for PAYE and self assessment, but forgot about VAT?

Think VAT

Even where there are no profits being made by a venture, VAT is still an issue.

Where a person’s motive for running an operation is philanthropic rather than profit-based, it is still important to remember that VAT is relevant if supplies of goods or services are being made by a person “in the course or furtherance of any business” (VATA 1994, s 4).   

Replies (6)

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By Roland195
03rd Jan 2020 15:44

One of these cases that in reality, there is no VAT as the cash does not exist to pay it - the "business" has been hopelessly insolvent since day 1, they just didn't know it but fortunately for HMRC/The Taxpayer in this case, the poor immigrant that looks to have been exploited from the outset can foot the bill. Truly, restores your faith in the system.

Thanks (2)
By memyself-eye
04th Jan 2020 17:53

Immigrant? Exploited?
No, the bar owners (and probably the church) did not understand (or ignored) the rules. Insolvency or otherwise is not in play here, only turnover matters.
Naïve, stupid, dumb, yes, exploited (by who?) no. Those are the rules.
Doubtless bankruptcy will follow for Salabit.

Thanks (0)
Replying to memyself-eye:
By Roland195
06th Jan 2020 10:25

From the case notes, Salabit was an immigrant working as a housekeeper (relevant only in that she does not appear to have any business knowledge or prior experience with taxation) who agreed to this arrangement after a request from her mother, also a member of the congregation of St Pius to "help out".

Not only does she not seem to have profited from this arrangement in any, it actually states she funded the losses from her own personal income, before any VAT liabilities.

Undoubtedly, the bar owner & church (if not the same party, it's not clear what the Social Club is) did not understand or ignored the rules after what looks like some pretty shoddy advice but it seems hugely unfair for Salbit to carry the can here.

Thanks (3)
By andre[email protected]
06th Jan 2020 17:47

This church is part of the Diocese of Westminster which has income running into millions and has probably employing many accounts staff allows this to happen to one of its "volunteers."
The diocese should ensure its parishoner is reimbursed in full.

Thanks (1)
Replying to [email protected]:
By Roland195
07th Jan 2020 08:54

I hope they do but the statement about having it's fingers burnt before and that necessitated the written management agreement (given out by the priest in this case...) makes me think Salbit will not be getting a bung from the collection plate.

Thanks (0)
By Malcolm McFarlin
20th Jan 2020 12:53

Reminds me of my VAT control days when the parish priest tried to claim that the income from the fruit machine was his personal income and not the clubs when it came to accounting for VAT.

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