£1m VAT demand threatens survival of Caritas Anchor House for homeless

Caritas Anchor House, an East London charity working with homeless people, says it will be put at risk after it was presented with an unexpected bill from HMRC for an additional £1m in VAT on building work to develop new facilities

The charity says it has been told by HMRC that this relates to its planned construction of ‘move on’ flats, a pivotal feature of its £15m ‘Home and Hope Appeal’, designed to help homeless residents achieve a sustainable transition back into independent living.

Caritas Anchor House says it had previously been given advice that its VAT liability for the development would be £250,000 and says the hike in the amount was incurred after HMRC reviewed its description of services on the charity’s website and determined that its definition as a ‘residential and life skills centre’ rather than a ‘homeless hostel’ meant it was subject to VAT.

Keith Fernett, chief executive of Caritas Anchor House, said: ‘HMRC’s application of VAT in this case is devastating to our work and to the vulnerable people we support. We believe we’re being unreasonably penalised for accurately describing our operations despite not changing what we do.

‘We hope HMRC will reverse its decision, and allow us to continue making a huge difference to people’s lives. Otherwise our work is at risk, and local authority services will be put under greater pressure.’

Fernett said the charity was currently appealing HMRC’s decision, but that this process was likely to take 12 months, during which time the building work would be mothballed.

He said this would result in an additional £500,000 of costs to cover the disruption and delay, plus the need to hire legal and other advisers to challenge the ruling.

The charity says its Home and Hope Appeal aims to transform Caritas Anchor House into a 21st century facility and fit-for-purpose complex.

The new development will include refurbished accommodation, training facilities, and transitional accommodation in the form of 25 new ‘move-on’ studio flats adjacent to the main Caritas Anchor House building to help residents achieve a sustainable transition back into independent living. So far £6m has been spent on the project.

A spokeswoman for HMRC said it could not comment in individual tax claims, due to confidentiality laws, but urged the charity to ask for help.

She said: ‘VAT status is a matter of law, determined by the nature and activities of the individual organisation. Although the tax payable in law has to be paid, we will always provide practical support and advice when approached.

‘Time to pay arrangements are available for those with payment problems and anyone in this position should talk to us as soon as they can so we can do everything possible to help.’

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Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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