Durham cathedral tax ruling could be gamechanger for charity VAT relief
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Version 0 of 1. Charities are not holding their breath for any big concessions in the forthcoming budget. But an obscure ruling on tax liability on repairs to one of Britain’s most historic and picturesque bridges could turn out to be a gamechanger in the voluntary sector’s long-running campaign for greater VAT relief. Experts believe charities may benefit from a decision by a tax tribunal to allow Durham cathedral, an “ecclesiastical corporation” with the same tax status as a charity, to reclaim the bulk of the £6,720.25 it paid in VAT when it carried out minor works on Prebends Bridge, which spans the river Wear in Durham. Liability for VAT is a cause of resentment to charities. They do enjoy some reliefs, including those on certain advertising spending, goods and facilities for disabled people, and fuel and power used for “non-business” purposes, but are otherwise liable if they are above the tax threshold – currently set at an annual turnover of more than £83,000. It is estimated that UK charities pay more than £1bn a year in irrecoverable VAT. The issue will be a key focus of a new review of the charity tax system just announced by the National Council for Voluntary Organisations, and it will come to the fore after Brexit when the UK ceases to be subject to EU rules on VAT. In the meantime, however, the Durham ruling is attracting much interest in the world of charity finance and accountancy. The tribunal upheld the cathedral’s appeal against HMRC’s rejection of its claim for part-relief. Graham Elliott, technical adviser to the Charity Tax Group, which represents some 500 member charities, says the significance of the case is less the decision – it does not set a legal precedent – but more the fact that HMRC did not seek to challenge the basis of the cathedral’s argument. This rested on a European Court of Justice ruling in 2015 that a company in Lithuania could reclaim VAT on the cost of building a path through woodlands. Although the path was recreational and 90% of the cost was met by a government grant, the court held in favour of the company because some people used the path to get to a shop and cafe that it ran, where they then bought taxable goods. The cathedral deployed a similar argument that some people used the pedestrians-only Prebends Bridge to walk to its gift shop and cafe and to access events for which an entry fee was payable. Elliott says “the key thing was the failure of HMRC to argue against the fundamental point that a charity could take advantage of a case relating to a commercial company.” HMRC says it will not be appealing against the tribunal decision. Had it done so, and lost again at a higher level, a precedent would have been established. As it is, other charities may now seek to use the Lithuanian case and tribunals may take account of the Durham ruling. What HMRC did argue at the tribunal, unsuccessfully, was that Prebends Bridge was too far from the cathedral for there to be a “direct and immediate link” with its taxable goods and services. It is a good five-minute walk, steeply uphill, from one to the other. The tribunal said it was “unlikely” that many people would cross the bridge and bypass the cathedral, finding that the bridge was “an important part of visitors’ experience of the cathedral, its precincts and facilities”. The 18th century Prebends Bridge sits within Durham’s Unesco world heritage site. Although its precise ownership is uncertain, the cathedral has assumed responsibility for its maintenance. A more extensive restoration programme is planned. Talk to us on Twitter via @Gdnvoluntary and join our community for your free fortnightly Guardian Voluntary Sector newsletter, with analysis and opinion sent direct to you on the first and third Thursday of the month. |