As disasters go this might not make the plot of Jurassic Park IV…. but a wildlife park has just lost its VAT appeal resulting in it receiving a VAT bill of £411,000 in respect of its new Dinosaur attraction.

The case heard at the First Tier Tribunal is definitely worth mentioning because it is not uncommon for charities to misunderstand at least one the issues central to this case.

The Case

The case related to the construction of both a lion enclosure and walk-through dinosaur exhibit. The works had been zero-rated based on the argument that brand new “buildings” had been constructed and that they were intended for use solely for a ‘Relevant Charitable Purpose’.

If the wild life park had been correct on these points the zero rating could have been justified.

Was it a Building? – I Dino – but HMRC didn’t think so.

Zero Rating is appropriate in respect for the construction of some buildings which can be said to have ‘Relevant Charitable Purpose’.

The case was lost on two grounds – firstly – that the dinosaur exhibit – could not be classified as a building in any case.

Clearly, this is pretty specific to this case and might not therefore apply to other charities – as in most cases it should be more clear cut whether a building has been constructed or not.

The Jurassic Error

Many Charities are aware that there are VAT reliefs available to them in respect of the construction of a brand-new building.

However, several charities have made the same error as the wildlife park in the past.

This is in respect of the meaning of the ‘Relevant Charitable Purpose’. Charities often feel that as long as the building is for the purposes of their charitable aims that the VAT relief should apply.

In this case the exhibit met the Charity’s educational aims and clearly the wildlife park thought they were home and dry but unfortunately HMRC knew better.

‘Relevant Charitable Purpose’ has a very specific VAT meaning. It does not include a building which is used to generate ‘Business’ income and this includes both rent and more importantly for this case – admission charges. Such charges were made in respect of entry to the park and therefore the dinosaur attraction.

The Conclusion

Anyone constructing a brand-new building is likely to need VAT advice not least to ensure that it qualifies as a building.

But Charities in particular should be alive to the reliefs that are available to them but also be aware that advice may be required as to whether they are using the buildings for ‘Relevant Charitable Purpose’ or not.

The concept of when a Charities activities are ‘Business’ activities for VAT can also be very important. If you require any advice on this or any other matters relating to VAT, please speak to our specialists.