COVID-19: Stewardship is operating as usual and we are aiming to provide as close to normal service as we can.
Please click here for regular updates

Churches: Building your VAT case

By Kevin Russell | 17 December 2019 | Comments (6)


There are a number of valuable VAT reliefs for construction of buildings that are to be used for a ‘relevant charitable purpose’. Churches are one of the most frequent benefactors of these reliefs and VAT can be a significant proportion of project costings. Churches therefore need to be aware of the reliefs that are available and the limitations of those reliefs.

If your church is contemplating or even already undertaking a building project, competent professional advice could save you many thousands, and possibly hundreds of thousands, of pounds.

VAT and property is a very complex business. And the VAT liability can turn on very nuanced facts in each case. One area that is particularly vexing (and one that has led to a considerable number of cases before the courts and tribunals) is that of the construction of an extension or of an annexe to a church. What is the difference between the two you may say? The short answer is 20%! An independent annexe, even if attached to the original building, does not attract VAT, whereas an enlargement of an existing building does. That is easy to say but notoriously difficult to apply in practice.

The underlying VAT law is short on detail. We therefore have to look to court decisions for guidance as to how to interpret it.

HMRC has set down its views in its own guidance. Some of the distinguishing features are:

  • Degree of affixation of the new building to the existing building;
  • Access to and from the existing and new building, and whether or not there is an independent entrance to the new building;
  • The activities undertaken by the charity in each of the existing and new buildings and a comparison before and after construction;
  • Whether or not utility supplies are separately metered;
  • Whether the new build has its own heating system or is dependent on, for example, a boiler in the existing building.

The difficulty that arises is that the courts do not always assent to HMRC’s approach. For example, HMRC states that (VAT Notice 708, para 3.2.7) an annexe should ‘provide extra space for activities which are distinct from but associated with the activities being carried out in the existing building’. Recent court and tribunal decisions have disapproved of this approach. Equally, the idea that an annexe cannot be served by a boiler situated in the old building has been put into question.

In conclusion, it is far from easy to determine when a construction qualifies as an annexe as distinct from an extension or enlargement. Competent professional VAT advice is needed and the earlier that this is sought, the better, as the tax professional is likely to need to liaise with architects and others involved in the project.

Stewardship will be very happy to point churches to an appropriate professional!


VAT for churches: A detailed guide

VAT: Churches renting property for their activities


Posted by Kevin Russell

Our Legal Eagle guru and Stewardship's Technical Director, Kevin constantly has his finger on the pulse of all things tax and charity law-related. His briefing papers for charities, churches and individuals are an invaluable resource on everything from VAT to Gift Aid. 


Matthew Lee

December 21, 2019 12:38 PM
VAT notice 708 says "An annexe is capable of functioning independently when the activities in the annexe can be carried on without reliance on the existing building. You can ignore the existence of building services (electricity and water supplies) that are shared with the existing building"

HMRC do not expect utilities to be separately metered.

Kevin Russell

January 7, 2020 5:01 PM
@Matthew Lee

Thank you for your comment. You are of course quite correct to state that Notice 708 states that shared building services can be ignored. However, you should note that in general (with a few exceptions) VAT Public Notices do not have force of law.

in practice, HMRC have been insisting on separate services being provided, in contradiction to the Public Notice. So best advice would suggest that an annexe does have separate services.

As ever, you should discuss this with your own professional VAT advisor.

Phill Firmin

January 2, 2020 2:59 PM
I have read the site comments regarding what constitutes an extension etc., but can you tell me if VAT is applicable to a necessary new building on an old site, albeit a slightly different foundation footprint and structure will arise?

Kevin Russell

January 8, 2020 3:39 PM
@Phil Fermin

This is really a matter for your own professional advisors to guide you on.

So far as annexes are concerned, two recent cases may be of interest:

Roman Catholic Diocese of Westminster (2018) (TC06692) for which a commentary by my colleague, Graham Elliot, appears here:


Yeshivas Lubavitch, Mancherster (2019) (TC07242), commentary here:

With regards to the construction of an entirely new building, VAT at the standard rate will normally apply subject to a few exceptions. One of these is the construction of a new building that is intended to be used solely for a 'relevant charitable purpose' in which case the construction can be zero rated. There are other conditions that attach to this relief and the law is complex. Terms used have specific legal definitions. It is therefore essential that you take competent professional VAT advice. If you would like us to refer you to a suitable advisor that is used to advising Churches and Christian Charities, please contact us for details.

So far as demolishing an existing building and constructing a new one on the footprint, Public Notice 708 states:

A 'Qualifying Building' [ie capable of zero rating subject to other conditions] is constructed where:

- it’s built from scratch, and, before construction starts, any pre-existing building is demolished completely to ground level (cellars, basements and the ‘slab’ at ground level may be retained).

I hope that this is of assistance in your planning and in taking the necessary advice.

In passing, Stewardship is very experienced in mortgage lending for Church and Charity building projects. More information can be found at: and links from that page.

Anne Hudson

January 9, 2020 11:43 AM
It's worth noting that, while discussion can be had with HMRC about the appropriateness of zero -rating for VAT before the project starts, HMRC do not seem to give written confirmation of their advice. Our Church started an extension after encouraging discussions with HMRC, then found that the builders added VAT to their first invoice as they had no certificate to allow them not to do so.On further perusal of the relevant VAT notice, we found a section which is a self-certification form and sent a completed copy to the builders, who accepted this as authority not to charge VAT. For churches like ours which would be reluctant to pay a VAT adviser, check the conditions carefully and self-certify if you fulfil them.

Kevin Russell

January 16, 2020 5:55 PM
@Anne Hudson

Thank you for your comment, Anne. You are right in that it is dangerous to rely on verbal assurances from HMRC. They will not be bound by their advice unless they consider that they have had the full facts and have confirmed in writing.

However, as a tax professional who is aware of the complexities of VAT and all of the exceptions to the rule, and indeed exceptions to the exceptions (!), I would always advise churches to engage a competent professional advisor where the sums at stake are high (as with most building projects). Better to be safe than sorry and in most cases, what has been done prior to realising a mistake, cannot be legally undone. In this case, professional fees are monies well spent! If you have a suitable expert in the church, so much the better!

leave a comment:

Your comment will have to be approved by a site administrator before it is shown on the site so please be patient.