An award winning charity has warned hundreds of vulnerable homeless people in one of the country's most deprived areas will be put at risk after it was presented with an unexpected bill for an additional £1 million in VAT.
Caritas Anchor House in east London, has been told by HM Revenue and Customs that it faces the bill for the development of 'move on' flats to support homeless people. The charity, based in the London Borough of Newham, 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.
Caritas Anchor House has warned the unexpected cost will force it to mothball the development project, will place substantial pressure on its services and funds, and will increase demand on local authority services.
The VAT was incurred after HMRC reviewed Caritas Anchor House's description of services, determining its definition as a 'residential and life skills centre' rather than a 'homeless hostel' left it subject to VAT despite no change in the organisation's services. The charity has claimed that it is being penalised for positively and accurately describing its work, having previously been given advice that its VAT liability for the development would be £250,000.
The full cost of HMRC's action could rise to £1.5 million once costs to halt development and challenge the decision are included.
The charity, which is supported by a number of high profile patrons, was a finalist for the Third Sector Excellence Awards for Financial Management in 2009. A report undertaken by Oxford Economics has also found Caritas Anchor House provides £3.98 in societal benefits for every pound invested in its operations. Research had also predicted the at-risk development could deliver savings to society of £500 million.
Caritas Anchor House has appealed to the Government to reverse the decision.
Keith Fernett, Chief Executive of Caritas Anchor House, said: "HMRC's application of VAT in this case is devastating to our work and to the vulnerable people we support. We believe we're being unreasonably penalised for accurately describing our operations despite not changing what we do.
"What makes this situation even worse is that we have worked incredibly hard to deliver a level of service with a reliance on donations and relatively little government funding. We hope HMRC will reverse its decision, and allow us to continue making a huge difference to people's lives. Otherwise our work is at risk, and local authority services will be put under greater pressure.
At the charity's reception to mark World Homeless Day in 2014, Rick Henderson, Chief Executive of Homeless Link (the umbrella body for homeless charities in the UK), said: "An end to homelessness is still possible and we have it within our means - Caritas Anchor House being a prime example. It's a fantastic organisation and, in 2014, 37% of its residents were supported into paid employment - that's a lot higher than the industry average of 10% and an excellent achievement."
Caritas Anchor House is a residential and life skills centre addressing the root causes of homelessness - including poor education, drug or alcohol misuse, mental health problems, domestic abuse or offending. Their driving mission is to ensure that those who walk through their doors grow in confidence and move towards leading independent, self-fulfilling lives by providing education, guidance and personal rehabilitation. Registered charity no: 1147794
Watch CEO Keith Fernett's blog on the issue here: http://caritasanchorhouse.org.uk/blog/2015/09/15/vat/?