Charity Faces Unexpected £1M VAT Bill

Keith Fernett, CEO of Caritas Anchor House Homeless charity, has written an article for the ITV news site about a potential £1M VAT bill being levied on his charity by HMRC, as a result of a change of description about what the charity does:

"Caritas Anchor House, based in the London Borough of Newham, provides accommodation and support to more than 230 single homeless people a year, many of whom experience difficulties with mental health, drug and alcohol misuse, domestic abuse and offending.

In November 2014 we began building 25 "move on" flats, designed to help homeless residents achieve a sustainable transition into independent living. This building will also accommodate a suite of training facilities, including e-learning zones, workshop spaces and a training kitchen.

However, HM Revenue and Customs has since changed our VAT treatment after 42 years. 

An additional £1 million in VAT is now due for this vital development, after HMRC determined that our description as a "residential and life skills centre" rather than a "homeless hostel" left us subject to VAT despite no change in our services or client group. 

In essence, we are being penalised for positively and accurately describing our work, having received professional advice that the VAT liability for the development would be only £250,000.

This situation is a serious threat to Caritas Anchor House. The change to our VAT status and the consequent £1 million bill from HMRC is putting the charity, its homeless residents and service users at risk. This is in spite of the numerous benefits we offer to the most vulnerable, and society as a whole.

For every £1 invested in Caritas Anchor House, we deliver savings to society of nearly £4. 

This means that ultimately, HMRC’s demand will cost more than it would secure in taxes. At a time when Government is seeking savings, it needs the likes of Caritas Anchor House. Hopefully this is recognised and a decision is taken not to pursue a tax when it is in no-one’s best interest."

My initial thoughts are that Caritas should first of all take it up with their professional advisers who said that the liability should be around £250K, and focus on why they were advised to change their description and why (after 42 years) this has impacted their VAT bill.

Views and comments welcome.

Tax does have to be taxing.

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