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HMRC internal manual

VAT Input Tax

Specific issues: apportionment of tax by cathedrals and churches

Any business activity which a cathedral or church carries on is incidental to its main purpose of providing free of charge entry to, or use of, a place of worship. Most places of worship have some business activities such as the sale of books and postcards. In these cases the normal apportionment rules apply.

But some cathedrals and churches are tourist attractions and receive substantial business income.

An informal arrangement on a banding system (see VIT45700) has been reached with The Churches Main Committee. This allows cathedrals and churches to claim part of the tax which is not directly attributable to a business or non-business activity. This includes tax incurred on repairs or upkeep to the cathedral or church itself.

It also includes tax incurred on all associated buildings, apart from domestic accommodation, within its curtilage. Cathedrals or churches that are tourist attractions and which make significant business supplies can use the banding system.

Whether tax can be recovered on domestic accommodation depends upon why the person who uses it is engaged. It also depends upon whether they work on business or non-business activities.

None of the tax is input tax if the person is engaged for religious purposes. An apportionment of tax will have to be agreed if the occupant is a lay person engaged on some business activities.

The first step in working out how much tax a cathedral or church may claim is to attribute all the tax incurred to one of the following headings:

  1. business activity;
  2. non-business activity;
  3. business and non-business activity.

Tax incurred on business activities is input tax. Tax incurred on non-business activities is not input tax. Tax incurred on both business and non-business activities has to be apportioned.

A cathedral or church may be partly exempt. It might use a stand alone partial exemption calculation. If it does it will need to carry forward the total amount of input tax to its partial exemption method. The total amount of input tax has two parts to it:

  • the total tax on business activities; and
  • the part of the tax incurred on business and non-business activities that has been attributed to business activities by the apportionment calculation.