Caritas Anchor House in Newham has warned that hundreds of homeless people in one of the country's most deprived boroughs will be put at risk after it was presented with an unexpected bill for an additional £1 million in VAT by HM Revenue and Customs.
In a statement the charity says: "We have been told by HMRC that this bill relates to our construction of 'move on' flats, a pivotal feature of our Home and Hope Appeal, designed to help homeless residents achieve a sustainable transition back into independent living.
"This unexpected cost to our finances will force us to mothball this development, will place substantial pressure on our services and funds, and will increase the demand on local authority services. Though the additional bill we are facing is for £1 million pounds, the full cost of HMRC's actions could rise to £1.5 million, once costs to halt the development and challenge the decision are included.
"The VAT was incurred after HMRC reviewed our description of services and determined our definition as a 'residential and life skills centre' rather than a 'homeless hostel' left us subject to VAT, despite no change to our services. We seem to have been penalised for positively and accurately describing our work, having previously been given advice that our VAT liability for the development would be £250,000.
"This situation is a serious threat to our services, which provide an enormous benefit to society. A report undertaken by Oxford Economics 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. We are a very effective charity, having been recognised with many national awards, including as a Finalist in Best Financial Management at the Third Sector Excellence Awards.
"We are currently appealing to the Government to reverse this 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."
"For every £1 invested in Caritas Anchor House, we deliver savings to society of nearly £4. This means that ultimately, HMRC's demand will cost more than it would secure in taxes. At a time when Government is seeking savings, it needs the likes of Caritas Anchor House. Hopefully this is recognised and a decision is taken not to pursue a tax when it is in no-one's best interest."
See also: ICN 9 October 2015 Catholic charity transforms despair into hope on World Homeless Day www.indcatholicnews.com/news.php?viewStory=28515