VAT ruling good news for charities

Finance | Gareth Jones | 15 Jul 2008

Charities have had a helping hand on the tax front after the VAT tribunal ruled that VAT saving schemes may be used when renovating a building.

In the past HMRC has stated that such schemes, which apply to taxpayers with non-business activities, are only available to charities buying a building or constructing a new building.

Now however, the tribunal has ruled in favour of Whitechapel Art Gallery (pictured), which intends to use such a scheme on renovation costs of over £10m for the former Whitechapel library above Aldgate East Tube station in London.

Using a VAT saving scheme will enable the charity to spread the cost over ten years, like an interest-free loan, rather than bearing it up-front.

The tribunal found that HMRC’s stance on renovations was in contravention of EU law, adding that such a view was particularly harsh on the charity as it was renovating a listed building which could not be demolished or reconstructed, even if this was the cheaper option.

Largest outlay

Debbie Jennings, VAT director at accountants PKF, said the news was encouraging because building and renovations costs are often a charity’s largest outlay.

“Having to pay all of the VAT up-front can push the overall costs into the realm of unaffordable,” she said.

“This is particularly so in the current economic climate where charities are struggling to maintain a steady momentum of donations and generally have funding concerns.”

However, she warned that the EU is proposing to remove this VAT saving scheme from land and buildings entirely.

“If and when this happens it will be a major blow to charity finances.”

Who's Who: Gareth Jones

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