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HMRC internal manual

VAT Input Tax

Specific issues: the banding system for cathedrals and churches

The banding system has four bands. Broad definitions have been given to each band to help HMRC staff, cathedrals and churches to decide how to allocate the most suitable band of input tax recovery. These are:

  • Band A (90%) - to apply where there are significant entry charges to all main areas;
  • Band B (65%) - to apply where there is no entry charge but there are high numbers of visitors. Also there is significant taxable income such as from entry charges to other areas such as a crypt, museum or tower, or lettings for concerts;
  • Band C (45%) - to apply where there is no entry charge and insignificant taxable income from entry charges for other areas. But there are a reasonable number of visitors generating income from other sources, for example the book/souvenir shop;
  • Band D (25%) - to apply where there are no entry charges or only a few small charges, small numbers of visitors and little taxable income.

It should be simple to identify cathedrals and churches falling within Bands A and D. The majority of queries will be over Bands B and C. Where HMRC thinks the business activities show the cathedral or church clearly falls above Band C we will normally apply Band B.

If HMRC cannot agree which banding should be used we will tell the cathedral or church it cannot use the banding system. The cathedral or church will be asked to work out a fair and reasonable apportionment using the normal rules.

No appeal can be made against refusal to use a band. An appeal can only be made on the substantive issue of what is a fair and reasonable apportionment.

HMRC will need to compare the proportion of tax being claimed with the banding system if the cathedral or church decides to keep its existing method for apportioning tax. If it seems too high HMRC will tell the cathedral or church that we do not think the method of recovery gives a fair and reasonable result.

We will then ask the cathedral or church to consider using an alternative method. If it is unwilling or cannot we will tell the cathedral or church that we think “X” per cent (based on the banding percentages) is a fair and reasonable apportionment.

HMRC staff should send a full report to Deductions and Financial Services Team if:

  • the cathedral or church appeals against a ruling; or
  • agreement on the proper banding cannot be reached.