Photos win VAT battle for MS centre

A Sussex charity has won a tug-of-war with the taxman over whether it has to pay VAT on its new building after sending HM Revenue & Customs photographs proving that the building has a distinct purpose.

Third Sector Online reported in August that the Sussex Multiple Sclerosis Treatment Centre faced a £13,000 VAT bill for its newly built gymnasium after HMRC claimed the £80,000 building counted as an extension rather than an annex because its purpose was the same as that of the charity’s existing premises. Extensions are liable to VAT, annexes are not.

Alan Taylor, manager of the centre, said HMRC had refused to believe its assertion that the building’s purposes were distinct, despite a supportive letter from the Charity Tax Group’s financial experts, Ernst & Young.

“We have half a dozen Portakabins bolted together, where we do one-to-one complementary therapy and have a social area,” Taylor said. “The new building will be used for group exercise. HMRC kept saying ‘as far as we can see from the plans, the function of the new building is not distinct’, so we sent photos of the inside of the existing building showing people having tea, and we sent one of the gym with people doing pilates. Then they changed their minds.”

Taylor added that, in his view, all charity buildings should be VAT-exempt regardless of whether they were classed as annexes or extensions.

“We get told all the time how valuable the voluntary sector is, but when we try to improve the care we provide they want to tax us on it,” he said.

“I don’t think charities could be completely exempted from VAT, but the rules need to be reviewed. If a building is used solely for charitable purposes then it should be VAT-exempt.”

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