A charity has recently lost a VAT case at the Court of appeal, after incurring VAT on the construction of a commercial building, despite not being VAT registered.
The charity built a new training centre to provide water-based and other outdoor activities, as well as providing instruction and training in these activities. The charity is not VAT registered and whilst it does receive a fee for the instruction and training, this is below cost. The charity, therefore, feels this should be classed as non-business income. As such the construction of the building would then be zero-rated for VAT. Instead the VAT cost for the construction was £135,000.
HMRC stated that the charity was ‘in business’ even though the charges were below cost. Therefore the VAT on the construction should be charged at 20%.
The charity appealed the decision and won the first two tribunal hearings, but later lost at the Court of Appeal.What next?
This outcome may affect both charities and those in the construction industry. Some charities may have made the decision to go ahead with the construction of a building based on the earlier outcomes of the hearings. If you have any concerns on the VAT position of former or current construction projects, please speak to your usual Lovewell Blake contact or call Liz Hill
or Rob Geary
in the VAT team.