In the Trustees of the Institute for Orthodox Christian Studies v HMRC [2015] TC04622 the First Tier Tribunal (FTT) confirmed that HMRC was entitled to raise an assessment for output tax on the sale of a property to the appellant as it was not subsequently used solely for a relevant charitable purpose.

The Appellant is a registered charity whose aim is to further religious education and knowledge of the doctrines, history and culture of the Orthodox Church.

Background summary

Relevant Legislation

The legislation allowing the vendor not to charge VAT on the property is containe in the Value Added Tax Act (VATA) 1994, Schedule 10, paragraph 7:

(1) An option to tax has no effect in relation to any grant made to a person in relation to a building or part of a building intended by the person for use-

(a) solely for a relevant charitable purpose, but

(b) not as an office.

"relevant charitable purpose" is later defined as use by a charity "otherwise than in the course of furtherance of a business"

Appellant's argument

When the building was identified by the charity for possible purchase a number of rooms were occupied by business tenants.  The charity requested vacant possession, and a three-month notice was given to tenants.

The Charity later noted that it would not immediately have sufficient funds to begin converting the property for its intended use and after attempting to raise funds by bank overdrafts or mortgage facilities offered short term tenancies to the tenants to raise monies to offset overheads before conversion work could begin.

The Charity contacted HMRC to confirm that letting out temporarily unused space would not be regarded as a business supply.  HMRC advised that it would not, as long as all income was directed to furthering the purposes of the Charity.

The Charity argued that as the rooms were only let for a temporary period to cover overheads this could not reasonably be considered a business activity.  Further, the trustees were attempting to comply with their obligations to minimise costs and preserve the Charity's resources.

HMRC's argument

HMRC contended that as two thirds of the property was rented out it did not matter whether this was temporary or not; this constituted business use.

Tribunal decision

The FTT noted the following:

In particular reference to this case, they accepted that:

However, the FTT concluded that:

Comment:

This case is interesting for a number of reasons, not least because the Charity can be considered a little unlucky to be facing this unexpected liability which it has indicated could result in its collapse.

This reinforces how important it is when obtaining advice to make sure that all information is provided that could possibly be relevant.  If there is more than one intended use for the property, then each one should be considered.

It also reinforces how important it is for advisers to make sure they ask sufficient questions of their clients to be sure of giving correct advice.

 

Useful links:

Trustees of the Institute for Orthodox Christian Studies v HMRC [2015] UKFTT TC04622