Whitechapel Art Gallery (WAG) is a charity. Its principal activity is the free display of art, which is not business for VAT purposes as WAG does not charge for admission. The Charity also makes taxable supplies including sales from a shop and the hire of parts of its premises, which it has opted to tax.
WAG arranged for the refurbishment of an extension to the gallery and claimed a repayment of some of the input tax incurred on the refurbishment. Customs accepted that some of the work qualified for zero-rating and that some of the tax was deductible since it related to an area which would be used for standard-rated supplies of catering. However they rejected the part of the claim relating to areas used for non-business purposes. WAG appealed, contending that the disputed tax was reclaimable by virtue of the decision in Lennartz.
The Tribunal accepted this contention and allowed the appeal specifically rejecting Customs' contention that the Lennartz principle only applied where a new asset was acquired, and held that the Lennartz principle also applied 'when a taxable person carries out substantial reconstruction work to an existing building but the work falls short of creating an entirely new building'. They also expressed the view that 'the reconstruction of the existing listed building in the present case may well cost more than if the existing building had been demolished and the planned building had been erected from scratch'. The judgment stated that 'it would be wholly unrealistic to treat the construction work otherwise than as the acquisition of capital goods', and that 'the exclusion of the construction work in the present case would conflict with the principle of fiscal neutrality which is inherent in the common system of VAT’.
For further information contact Dean Carey on 01473 220022, or email dean.carey@ensors.co.uk
