A VAT tribunal has ruled that Whitechapel Art Gallery was eligible to use a VAT saving scheme on its renovation costs of over £10 million when it aquired the former Whitechapel library above Aldgate East Tube station in London.
The VAT saving scheme means that the charity does not bear the VAT cost upfront but can spread it over ten years. In the past, HM Revenue and Customs (HMRC) has stated that although this scheme is available to charities buying a building or constructing a new building, it did not apply if they were renovating an existing building.
The tribunal ruled in the Gallery’s favour saying it was in contravention of EU law not to include substantial renovations in the VAT saving scheme. The tribunal thought that HMRC’s view was particularly hard on the charity as they were renovating a listed building which they could not demolish and reconstruct, even if it was the cheaper option.
Debbie Jennings, VAT Director at accountants and business advisers PKF, commented: “This is very encouraging news for charities because the cost of building and renovation work is often their largest outlay. Having to pay all of the VAT upfront can push the overall costs into the realm of un-affordable.
“This ruling gives charities hope that any substantial renovation work they do in future will now be eligible for the VAT saving scheme. However, we have to sound a note of caution as the EU is proposing to remove this VAT saving scheme from land and buildings entirely. If and when this happens it will be a major blow to charity finances.”