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Realistic approach to VAT

by
06 June 2012

by Maggie Durran

We are preparing a project to reorder our church, and have heard a great deal about the VAT change and its impact. What is going on, and what should we expect to encounter?

BECAUSE most churches will, in the lifetime of any congregation, under­take only one big reordering project, it will be a first-time experience. Many will have gleaned information from other churches, and even listened, with dropping jaws, to stories of churches that have raised phenomenally high sums.

But we are in a time of flux. Very little is as it was, even two years ago, with not just VAT changes but also the disappearance of regeneration and local development funds. There are far fewer funds to tap into.

So, first, you should get a realistic budget from a quantity surveyor, and have a discussion with him or her about contingencies and possible phasing of larger projects.

An early review of local funding sources (trusts and grant-makers) should tell you something about the sort of grants you might expect. The size of any phase of your project will be at least partially determined by what money you can raise from these sources. Unless you have a house or hall to sell, or have a benefactor, local fund-raising will be a minor rather than a major component.

Then, with a built-in contingency to allow for building costs to rise during the fund-raising phase, it is advisable to add to your budget the entire 20 per cent of the VAT. It is likely that changes to the Listed Places of Worship Grant Scheme will result in a refund of nearly all of this VAT, but do not leave this to chance.

To make a guess at the expected partial refund is unreliable, because the church has to send to large potential funders an accurate picture of what the project will cost: that is, the quantity surveyor’s budget. What is impossible is to change or to raise that target figure after the applica­tion, and especially after a grant has been offered by the grant-maker.

If the project costs less than the budgeted amount, you can more easily return, or not claim, the last piece of the grant. You may lose an entire grant if you come back and admit your first target figure was inaccurately low.

In addition, plan the cash-flow for the project — that is, when pay­ments are likely to be made — as you will be able to reclaim VAT only after it has been paid out. In other words, your bank account will have to in­clude enough funds to cover the VAT payments, even though you should get most of it back. Churches with enough funds in their general ac­counts may be able to cover the cash-flow issue, but do double-check.

So, fund-raise for the entire sum, including the VAT. I suspect that this strategy could be called “future-proofing”, but it is really a respons­ible form of risk-management.

For information on the one-day conference “The Village and its Church”, on 21 June, or to send your questions, email maggiedurran@virginmedia.com.

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