VAT and the Listed Places of Worship Grant Scheme
Nicola Griffin

The repair and maintenance of places of worship, especially in relation to older buildings, represents one of the largest areas of expenditure for churches. VAT at 17.5 percent on top of the basic price of the goods and services is often accepted as an unavoidable cost, but in some cases it need not be.

This article aims to provide an introduction to VAT on the conservation, repair and alteration of historic church buildings, highlighting the works of alteration on which contractors can (sic) 'charge' VAT at zero percent and those elements which qualify for a grant.

GENERAL POSITION

Places of worship by their very nature do not normally have a business purpose. This means that, unless they have some kind of trading activity, such as charging admission fees or selling souvenir items and books, as in the case of some larger cathedrals, then they cannot be registered for VAT and cannot recover VAT charged to them. Even if a church is VAT registered, then recovery of VAT that is not incurred in relation to its business activities will generally be blocked.

It is therefore important to ensure that VAT on costs coming in to the church is minimised.

SUPPLIES SUBJECT TO VAT AT ZERO PERCENT

VAT can be charged at zero percent by contractors carrying out 'approved' alterations to listed buildings used for a relevant charitable purpose (including places of worship). 'Approved' here refers to the need for the work to have been granted listed building consent, although in this context the term is rarely appropriate as work to the ecclesiastical buildings of the major Christian denominations is excluded from the consent requirements normally imposed on listed buildings under Ecclesiastical Exemption. However, the alterations must affect the basic structure of the building, such as walls, floors, roofs, doors and windows. For example, the building work and materials required for the construction of an extension would qualify, as would the purchase and installation of new stained glass windows, church organ, new light fittings and the extension of wiring and plumbing systems, as these form part of the building.

The provisions do not apply to works of repair or maintenance and incidental alteration carried out as a result of such repairs. Nor can the zero percent rate be applied to the fees charged by architects, consultants and other professional advisors engaged in connection with the works.

Contractors should be issued with a certificate by the church prior to the work taking place stating that the 'zero rating' provisions apply and that the building is used for a relevant charitable purpose. It may be possible for the certificate to be issued after the work has commenced, but this requires the agreement of the contractor, who must adjust his VAT account accordingly.

Further information on this issue can be obtained from HM Revenue & Customs website. VAT Notice 708 'Buildings and construction' can be found in the 'Forms and Publications' section in the 'Catalogue of Publications'.

THE LISTED PLACES OF WORSHIP GRANT SCHEME

The Listed Places of Worship Grant Scheme (LPWGS) provides relief for repairs and maintenance which are not covered under the approved alteration provisions. The scheme will refund in grant aid the difference between five percent and the VAT paid on eligible repairs and maintenance to listed places of worship.

The scheme was announced by Chancellor Gordon Brown in the 2001 Budget in advance of the European Commission's decision on the UK government's proposal that there should be a reduced VAT rate of five percent for repairs and maintenance to listed places of worship. However, this is a temporary measure only, and the grant scheme is due to end in April 2003. After this date, churches wishing to carry out repairs will have to wait for the Government's response to the outcome of an EC review of the 6th VAT Directive due to be held sometime in 2003.

Applications can only be made in arrears in respect of works carried out on or after 1st April 2001. Works straddling 1st April 2001 must be apportioned to reflect the work carried out after this date. The work must have been performed by a VAT registered contractor and the VAT on the work must have been paid.

The scheme again covers work to the fabric of the building and connected plumbing, electrical and drainage work, but does not cover work to fixtures and fittings. It does not cover the fees of architects, consultants and other professional advisors engaged in connection with the works.

The building must have been listed at the time the work was carried out.

MAKING A CLAIM: MARCH 2004 DEADLINE

The minimum (VAT exclusive) claim amount is £1,000 and may cover a number of small claims, but all claims must be in respect of eligible works. As the scheme is due to end on 31 March 2003 all applications for the grant must be submitted by 30 April. Late claims will not accepted.

Applications must be accompanied by the original VAT invoice and receipt as issued by the contractor, to show that the VAT has been paid.

Grants received from other statutory agencies in respect of the same work must take into account the LPW grant and, where appropriate, a proportion of the grant money received must be repaid so that the money is not received twice.

The application form and further details of the scheme can be obtained from the LPWGS or from their website (see below). In conclusion, VAT on the preservation of historic places of worship need not be an inevitable cost. However, especially in relation to the zero rate for approved alterations, it is necessary to consider minimising VAT on inputs before the work takes place.

Further Information

Listed Places of Worship Grant Scheme
PO Box 609, Newport NP10 8QD Tel 0845 601 5945
www.lpwscheme.org.uk