Caron Bradshaw: HMRC is on a mission to claim more VAT from charities

Government has a confused view of the role charities play in society and the tax they pay, writes our columnist

Caron Bradshaw
Caron Bradshaw

Coverage of the Longridge VAT tribunal has reawakened my irritation at the disjointed approach to tax policy. The heart of the problem is that government has a confused view of what charity is, the role charities play in society and the tax they pay.

A few years ago I sat in a party conference session and seethed when a well-known politician said: "Charities don't pay tax." He was blissfully unaware of our tax burden or the fact that complying with tax law often ties us up in red tape, even where no payments are due. Hard-earned and generously donated resources can be used up filling in forms and returns that benefit no one.

The Longridge case concerns whether VAT should be paid on a new-build and the definition of "non-business". In 2013, the CFG tax conference heard from Bill Lewis, a lawyer then advising on the case, and Simon Evans, then interim finance director at Longridge. They said HM Revenue & Customs was in denial and refusing to accept a growing list of cases in which the courts disagreed with its interpretation of "non-business" use of charity property.

At the heart of this is HMRC's assertion that modern charities are run in a businesslike manner, that if you charge for what you do you are in business and that your intentions relating to any profit are irrelevant. This is where some of my irritation stems from. How can your intentions on profit be irrelevant? It's not as if money retained by the charity will line someone's pocket; it will be used for public benefit. That is what being a charity requires, after all.

Yes, HMRC is there to collect tax, not to make public policy. And, yes, it is criticised as much for unsuccessful attempts to pursue tax as for striking deals in cases it is unlikely to win. It's a thankless task. But I refuse to accept that morality and public policy should not play a part. Taxes are the life-blood of public service and the cornerstone of a well-functioning society in which wealth is redistributed.

In a recent column I complained that charities are falling victim to a harder line on closing the tax gap. The Longridge case is further evidence. HMRC is again appealing to a higher court, having already lost two tribunals, in order to claim £135,000 and open a route to go after other charities.

Yet on Budget day, the government does VAT favours to causes it believes are popular with voters. These piecemeal gestures do not make up for the significant costs incurred by charities: irrecoverable VAT, compliance with a plethora of inappropriate rules and lack of clarity from government, which amount to giving with one hand and taking away with the other.

So let's have a root-and-branch review and explore how we can create the optimal tax system, building on the work of the 2011 Mirrlees Review and taking into account the unique tax position of charities. Surely everyone would benefit from a simpler system. It's time to join up thinking and reconnect the purpose of tax with supporting a healthy society.

Caron Bradshaw is chief executive of the Charity Finance Group

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Charity property: could you be entitled to a huge VAT saving?

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