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. The charity said this could put its work in jeopardy.
The petition, which calls on HMRC to change the building’s designation back, was signed by 93 of the organisation’s beneficiaries.
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."
HMRC has a policy of not commenting on identifiable taxpayers, but a spokesman said organisations in the same position as Caritas Anchor House could get some support.
"VAT status is a matter of law, determined by the nature and activities of the individual organisation," the spokesman said. "Although the tax payable in law has to be paid, we will always provide practical support and advice when approached.
"Time-to-pay arrangements may be available for those with payment problems, and anyone in this position should talk to us as soon as they can so we can do everything possible to help."