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VAT on additional structures: a challenge to HMRC’s approach

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Is your charity building new structures or extending its premises or has it done so in the past?  In some circumstances, where a charity is building an additional structure alongside an existing structure, this may be considered an “annexe” and so may be zero-rated for VAT purposes.  In order for a structure to qualify as such:

  • the annexe must be capable of functioning independently from the existing building;
  • the main access to the annexe must not be via the existing building; and
  • the main access to the existing building must not be via the annexe.

This is known as the “main access” test.

Over the past few years, on the basis of Tribunal decisions, HMRC has adopted interpretations of what constitutes an annexe and how to apply the “main access” test.  These interpretations have led to many charities failing to qualify for zero-rated VAT on their additional structures.

BLP is pursuing a case in the Upper Tribunal which could overturn HMRC’s interpretations. More specifically, we are challenging the distinction between an annexe and an enlargement or extension, arguing that the scope of “annexe” is wider than has been considered up until now.  We are also challenging the Tribunal’s approach to the “main access” test.

Our challenge has two key implications:

  • if our client succeeds, then it may be possible for charities which have been charged VAT on construction work to claim back that VAT, either from the builder or from HMRC; and
  • where charities have paid VAT under the existing HMRC approach, and believe they may be entitled to a refund of the VAT, they should consider making a protective claim to protect their rights.  Without a protective claim, charities may lose their rights in relation to construction work which took place four or more years ago.

If you have been charged VAT on the costs of construction work, would like to explore further the possibility of applying for a refund of VAT paid, or how to protect any rights you may have against time limits, please contact Alan Sinyor.


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