Zero rating of Charitable Use Buildings – Complexity of VAT rules catch a Charity out
In the Bletchingley Church House Charity First Tier Tribunal decision we find another small charity caught out by the intricacies of the VAT legislation. Unfortunately, just being a charity does not remove you from the rigours of needing to apply the VAT legislation in its fullest extent. In this instance the charity had recovered VAT on the refurbishment costs of a hall which it then let to its subsidiary to operate and let out – gathering rental income as a result. The lessee was not however, a charity in its own right and nor was it found to be using the hall for strictly charitable non-business purposes. The lessor had relied on the zero rating that can apply to the first grant of a major interest in a building they constructed for relevant charitable use. The financial cost to the charity was lost VAT of £87,000 which was deemed to have been recovered in error, but also there was a deal of stress, no doubt, in having to argue the case in a VAT tribunal.
A salutary read for volunteers and trustees of charities of any size. VAT is a complex tax and taking expert advice before a project progresses will incur a charge but just might save stress and unplanned costs in the longer term.
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