A charity has won a battle at the VAT tribunal with HM Revenue & Customs over tax relief worth at least £135,000.
Longridge On The Thames, a Buckinghamshire charity that provides outdoor activities for people of all ages, had argued that construction of a new training centre should be zero-rated for VAT purposes, in line with rules for new buildings that are used wholly for "relevant charitable purposes".
But HMRC argued that because the charity charged fees for its activities it was carrying out business activities and was not entitled to relief.
Longridge took the case to the first-tier VAT tribunal and won a decision in its favour. The tribunal ruled that, even though it charged fees, these were heavily subsidised by donations and in most cases only covered the charity’s costs.
Bill Lewis, a tax adviser at the law firm Bates Wells & Braithwaite who advised Longridge on the case, said this was the latest in a series of cases in which HMRC had wrongly demanded that charities pay VAT on construction.
"My personal favourite is a Glaswegian children’s football team that charged £3 match fees and had a little place that sold tea to parents," he said. "HMRC attempted to argue that it was a business and got a right telling-off from the tribunal.
"I’m quite cheesed off with HMRC because it is in denial about the law. It looks mean-spirited and stupid, and it needs to change its approach. It has wasted a lot of charities’ money by refusing to change its mind; it costs a lot to go to tribunal."
A spokesman for HMRC said that the judgment could affect charities badly.
"As charities will no longer be treated as carrying out a business activity, they will not have to charge VAT and will lose their ability to recover VAT on their inputs, which could be more costly for them," he said. "HMRC is currently considering how to respond to the decision."