Member Article

UNW bridge gap in Durham Cathedral VAT dispute

A landmark VAT court ruling has led to Durham Cathedral, with assistance from UNW, being reimbursed to the tune of several thousand pounds.

The focal point of the city alongside the castle, Durham Cathedral attracts around three-quarters of a million visitors per year, and has shared a long successful working history with UNW. This collaboration took on extra precedence in October 2015 when UNW became aware of an interesting new EU tax ruling.

The case centred around the VAT regulations of the Cathedral itself, which are a rather complicated affair. While procedures such as acquiring accounting services, or restorations to the building itself, were deemed partially VAT recoverable, ‘non-business’ activities are excluded from any such deduction.

This arrangement was part of a long-standing agreement with HMRC, and had until recently remained largely uncontested.

However, this all changed when UNW reacted quickly to a relevant VAT case that had emerged from the European Court of Justice (ECJ). SVEDA, a commercial Lithuanian company, had commissioned the construction of a path, for which they provided free access. The path led past one of SVEDA’s shops, where visitors could purchase gifts, souvenirs and food and drink.

After deducting the input VAT on the costs it incurred from the creation of the path, SVEDA were challenged by Lithuanian VAT inspectors, who claimed that since the path had free access, and visitors had no direct obligation to purchase goods from the shop, the path was a part of SVEDA’s non-business activities.

SVEDA took the case to court, where a judge subsequently decided the creation of the path was undertaken with the intention of attracting visitors, and potential customers, to the site. The VAT was deemed all recoverable.

This gave the tax team at UNW an idea. In 2011, Durham Cathedral carried out restoration to the neighbouring Prebends’ Bridge, which was considered a non-business activity by HMRC, despite the startling similarities to the woodland path in the SVEDA case. The Cathedral recovered no VAT from the building costs.

Durham Cathedral, supported by UNW, took the example to HMRC, who rebuffed the claim, stating the restorations were all a part and parcel of their ‘non-business’ activities.

Mark Hetherington, partner at UNW, outlined UNW’s role in the process: “We always keep our fingers on the pulse when it comes to tax cases that may be of interest to our clients, and we quickly highlighted how similar the case of SVEDA was to the Cathedral’s predicament. We felt the decision to label restorations to the bridge as ‘non-business’ activities unjust.

“It was a huge shock when HMRC rejected the Cathedral’s claim for input tax.

“Believing it to be an extremely strong case, we advised the Cathedral to take it to a first-tier tax tribunal, in which we would support them at every step.

Tax judge Richard Thomas decided in favour of the appeal, stating that the bridge had as much to do with Durham Cathedral’s business as it did its religious activities. UNW’s Mark Hetherington represented Durham Cathedral in court.

Jacqui Brown, Head of Finance at Durham Cathedral, said: “While we have always felt slightly disappointed by the earlier VAT ruling that surrounded Prebends’ Bridge, it’s something we had accepted.

“However, this all changed when UNW told us about SVEDA, and they really went beyond their call of duty in helping us win this landmark case. Without them, we would never have been aware of the opportunity to reclaim expenditure, or been in the position to successfully appeal HMRC’s decision.

“While the amount we won was nominal (£7,000), the bridge will soon require a far larger restoration project. The ruling not only saves us money now, but will yield considerable financial benefits well into the future.”

UNW is a leading independent firm of chartered accountants that delivers a wide range of accountancy and business advisory services to its clients. www.unw.co.uk

This was posted in Bdaily's Members' News section by Richard Turnbull .