The homelessness charity Caritas Anchor House has presented a petition to Downing Street calling for action after it received an unexpected VAT bill of £1m.
The charity is appealing to the Prime Minister, David Cameron, to take action after HM Revenue & Customs reviewed the tax status of the charity’s moving-on accommodation for up to 230 homeless people.
HMRC changed the designation of the building, in Newham, east London, to that of “residential and life skills centre” rather than “homeless hostel” after the charity updated the description on its website about the services it provides – even though the charity insists the use of the development has not altered.
The move left the charity with a VAT bill of £1m instead of the expected £250,000. Caritas Anchor House said this could put its work in jeopardy.
Charities receive a number of tax advantages, but some of the most important concern VAT. Charities are granted a number of VAT exemptions and zero ratings, recognising the principle that money given for public benefit shouldn’t be taxed.
One zero rating that helps a number of charities working in housing is on the construction of new buildings to be used for charitable purposes. Many charities that provide accommodation to vulnerable groups rely on this to make their projects economically viable.
But the rules are complicated and open to interpretation – as Caritas Anchor House found out.
Keith Fernett, chief executive of Caritas Anchor House, said: “We’ve presented this petition to Downing Street in the hope that it will alert the highest levels of government to the tragedy that is about to ensue.
“HMRC’s heavy-handed approach shows no understanding of what we do or of the consequences if they continue to demand the VAT they believe is due.
“No one will win if HMRC continues to pursue this matter. Vulnerable people will be put at needless risk. Local authority services will be put under even greater pressure. We urge the Prime Minister and the government to heed this petition and take action before it’s too late.”
Andrew O’Brien, head of policy and public affairs at Charity Finance Group, said: “With the country in the midst of a housing crisis and increasing demand for charity services, we need the tax system to support the work of charities not hamper it.”
At Nicklin, we have a specialist team of staff who are experienced and knowledgeable on issues affecting VAT in the charity sector, and so we can deal with your returns or give ad hoc advice.