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Durham tax ruling could save charities millions

10 March 2017

iStock

Connection: Prebend’s Bridge, which links the southern end of Durham Cathedral’s precinct with Durham city on the other side of the river Wear

Connection: Prebend’s Bridge, which links the southern end of Durham Cathedral’s precinct with Durham city on the other side of the river ...

A RECENT tax ruling in favour of Durham Cathedral could mean sav­ings of million of pounds paid in VAT by charities and eccles­iastical bodies, a financial expert has said.

It is estimated that the UK volun­tary sector pays more than £1 billion a year in irrecoverable VAT.

The ruling last November by a First Tier Tribunal overturned a refusal by Her Majesty’s Revenue and Customs (HMRC) to allow a refund of part of a £6700 VAT bill on repairs to Prebend’s Bridge, which links the southern end of the cathedral precincts with Durham city on the other side of the river Wear (News, 6 January).

The cathedral claimed that people used the bridge to walk to its gift shop and café and to reach paid-for events — the income from which is eligible for VAT relief. It relied on a European Court of Justice ruling in 2015 that a company in Lithuania could reclaim VAT on the cost of building a path through woodlands, even though it was recreational and 90 per cent of the cost was met by a government grant, because some people used the path to get to its shop and café.

Graham Elliott, technical adviser to the Charity Tax Group, which repre­sents about 500 charities, says that the decision does not set a legal precedent, but is significant because the HMRC did not challenge the basis of the cathedral’s argument that a charity could take advantage of a case relating to a commercial company.

The HMRC’s case was that Pre­bend’s Bridge was too far from the cathedral for there to be a “direct and immediate link” with its taxable goods and services, but the tribunal found that it was “unlikely” that many people would cross the bridge and ignore the cathedral. The bridge was “an important part of visitors’ experience of the cathed­ral, its precincts, and facilities”.

Mr Elliott said: “We welcome the tribunal’s decision, which we think has wider application to charities and to others.” He said that the HMRC was not appealing against the tri­bunal decision, adding: “We suggest that the matter should rest there.”

A separate — and perhaps reveal­ing — fact to come out of the tribunal is that, under an HMRC banding scheme that governs which income is eligible for VAT, only 35 per cent of the cathedral’s general use is regarded as being non-busi­ness, while 65 per cent is business.

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