Homeless charity hit with VAT bill is £2m out of pocket

The final cost of Caritas Anchor House’s dispute with the Government over a VAT bill could top £2 million, says director Keith Fernett.

The charity in London’s East End which helps homeless people make a fresh start, is battling with the tax authorities over their decision to charge it £1 million in VAT for building a block of flats.

Fernett says the 25 flats, which will be transitional homes for the charity’s clients as they prepare for independent living, will now have to be mothballed at an estimated cost of £1 million plus the bill for challenging the VAT charge at a tribunal could reach £500,000.

At a reception to mark World Homeless Day in the House of Lords the Catholic charity’s patrons including the former Cabinet Secretary, Lord (Gus) O’Donnell, ex-England footballer, Sol Campbell and local MP former Labour treasury minister, Stephen Timms, deplored the decision of HM Revenue and Customs to demand £1m..

The charity’s chairman of trustees, Mgr John Armitage said the tax bill was particularly unhelpful coming as it did from the Government with which the charity was supposed to be working in partnership.

He recalled David Cameron’s pledge at the Conservative Party Conference on Wednesday to mount “an all-out assault on poverty” and said Caritas Anchor House had the same objective.

“This has knocked us for six. I hope that good sense will prevail to see how this can be addressed,” said Mgr Armitage.

The extra VAT charge is being levied because Caritas Anchor House has changed its designation from a “homeless hostel” to a “residential and life skills centre”.  There has been no change in the services it supplies but the charity says it is being penalised for accurately describing its work. It says it was previously told the VAT due for the development would be just £250,000.

Mr Fernett said a number of other charities had also found themselves unexpectedly facing VAT bills but that Anchor House was in the exceptional position of finding itself in the middle of a major development project it was now unable to complete.

Guests at the reception pointed out that the Chancellor, George Osborne, had agreed to waive VAT on sales of a charity single in aid of Save the Children’s work with refugees in Syria and Europe. The song, Help is Coming by Crowded House has been re-released as part of a campaign by the journalist Caitlin Moran and her husband, writer Pete Paphides.

Of Anchor House’s VAT dilemma, Lord O’Donnell said: “I hope this can be resolved. It is a real shame that it is standing in the way of an important enhancement.”

Caritas Anchor House, based in Canning Town, launched its Home and Hope appeal to raise £15.3 million to build the flats in 2011. It was just £2.8 million short of the target when it learned it would be liable for the £1m VAT bill.

A former seaman’s hostel, the charity provides accommodation to more than 230 single homeless people a year. It also works with vulnerable groups, including those experiencing substance misuse, domestic abuse, mental health problems and offenders.