It’s an oft quoted cliché in the VAT world that “HMRC giveth and HMRC taketh away”. This seems highly relevant to the area of VAT reliefs for Relevant Charitable Property (RCP) which HMRC loudly trumpeted when introduced, then seems to have spent every waking hour fighting when such claims are made.
Two recent cases highlight the issue.
The first relates to a village cricket club. The club welcomed members from all sections of the local community and ability and enthusiasm were seen as more important than ability to pay. The original club house burnt down. Funds were raised for a replacement. The club claimed that it was an RCP building as a “village hall or similar” as the club was available for use by the local community when matches were not being held. There was also a bar to serve drinks to members and spectators when there was a match on.
The club sought zero-rating for the building of the new club house. HMRC objected. The Tribunal examined the issue from an angle that further exacerbates the feeling that the not-for profit sector is doomed in seeking relief from imposition of irrecoverable VAT.
The Tribunal refuted HMRC’s assertions that the existence of other community facilities in the village (including a village hall) did not mean that the club house could not be a “village hall or similar”. Neither was the fact that match days took precedent in the use of the club house a factor to count against it being similar to a village hall. So far, so good. However, the Tribunal ruled that as the cricket club sought to have a bar to offer refreshments then it was not constituted solely for charitable purposes (the legal definition of a charity). As such the building of a property (even if it was a village hall or similar) could not be a RCP building as the club was not a charity.
The second builds on some of the positives of the first but is ambiguous in answering a point often contested in this area.
A charity had a hall built in the village for use by both the local primary school and the local community. The funding came mainly from the local diocese.
The intention (as shown in the approved building plans) was for the heating hardware to be located in a defined space. However, at the time of construction there were generous grants available for the installation of greener technology. Therefore, the Trustees of the charity approved the installation of source heat pumps. However, the hardware for this technology was too big for its allotted area and eventually took up most of the room designed to store the equipment for the many uses of the hall. This resulted in the hall having additional, but insufficient, storage drawers being incorporated where they could. The Trustees also took the view, during construction that they would have to build additional storage outside the footprint of the hall. To this end a steel joist incorporated into the east wall to enable the additional storage to be added. There then followed several years of trying to get funding and planning approval for this additional work. The Tribunal even goes as far as to note the lack of Christian spirit from the diocese. Eventually the storage room was build with an internal entrance below the steel hoist and another external entrance.
The charity sought zero-rating on one of two grounds; either the storage room was part of the original RCP build, or it was an annexe to an exiting RCP. The latter issue is one that has not often found favour with Tribunals. The Tribunal in this case examined the requirement for a building to be an annexe. The case notes show that the Tribunal appeared to view the building passing the annexe criteria. In fact the Tribunal said “The foregoing is sufficient to determine the outcome of this appeal”. But before it gave its view on that outcome it went on to consider if the storage room was part of the original build, albeit nearly five years after the hall started to be used. On this point the Tribunal did give its view. Yes, the storage room was part of the original build. The incorporation of the steel joist was seen as vital to the charity’s case. The fact that there was a significant time delay between the two jobs did not mean that they could not be seen as one for VAT purposes. However, the Tribunal did not specifically address the point that if the room was not part of the original build would it qualify as an annexe?
Add to these last year’s Longridge case, where any income (irrespective of the relevant cost) was seen as business activity so not charitable, and the availability for VAT reliefs seems to be more complex and restricted than ever.
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