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March 24, 2015

Is a Church a qualifying building for Business Premises Renovation Allowance?

Business Premises Renovation Allowance (BPRA) was introduced in April 2007 to incentivise businesses to renovate derelict or unused business premises in disadvantaged areas.

BPRA allows business investors to claim tax allowance for 100% of the amount invested when converting or renovating an empty business premises.

In order to qualify for the relief, the renovated building must be a ‘qualifying building’ which is defined as a building which was used, or available for letting for use, for:

a)      a trade, profession or vocation, or

b)      offices

In the case of Senex Investments Ltd v HMRC, the First-Tier Tribunal examined whether a derelict church is a ‘qualifying building’ for the purposes of claiming the relief.

The Case

Senex Invetments Ltd (Senex) owns a number of bars/restaurants, residential properties and offices. Senex purchased a former church and converted the premises into a restaurant. The Director claimed BPRA on the advice of his accountant for the expenditure incurred in renovating the property, which was denied by HMRC.

Senex put forward two arguments to the Tribunal:

a)      The church was used for a trade, profession or vocation, and

b)      The vestry within the church was used as an office

Use of the Church for a trade, profession or vocation

Senex argued that a minister’s role is to provide religious and pastoral services, and therefore the church was a qualifying building as it enabled the minister to carry on his profession.

Furthermore, the legislation does not state that the property in question had to be used to carry out a trade with a view to realising a profit, nor be conducted on a commercial basis. It was also noted that although a church is not a profit-making body, it had the aim to make an income that exceeded its expenditure, regardless of whether that surplus is then distributed to its members.

In response, HMRC claimed that the building was not used for a trade, profession or vocation, and was instead used for worship. They referred to the New Testament to support this claim by stating that one must “make not my Father’s house a house of merchandise”. It was stressed that “trade, profession or vocation” are well known in tax law and relate to business activities, therefore a church cannot qualify.

HMRC also argued that the claim for BPRA goes against the intention of Parliament when they implemented the relief. HMRC’s technical note in relation to the relief stated that “boarded-up rows of derelict shops and empty business properties can be a common sight in the most deprived areas of the UK”, and described the objective of BPRA to encourage private investment and foster the regeneration of deprived areas in the UK.

The Tribunal dismissed HMRC’s arguments in favour of Senex, and held that HMRC’s assessment of the intention of Parliament that the allowance related to unused shops only was too narrow. They noted that there are a number of exclusions from qualifying uses for BPRA purposes such as the coal and steel industry, and Parliament could have expressly excluded churches. They also agreed that the term “trade, profession or vocation” in this context did not require that it was commenced on a commercial basis, as this requirement is specified in other legislation when needed.

Use of the Vestry as an Office

In regards to the office, Senex argued that the vestry within the church had previously been used as an office and was therefore a qualifying building, while HMRC contested this and argued that the purpose of the vestry was for the minister to change clothes.

Senex provided evidence that the Vestry contained a book shelf, a table and a chair. HMRC argued that this evidence was insufficient, and the vestry is a room traditionally where a minister would change and carry out ancillary activities. They claimed that an office is more likely to be elsewhere in the building.

The Tribunal dismissed HMRC’s argument as no evidence was provided that suggested that the office was used to change clothes. Furthermore, the church only consisted of a hall, kitchen, WCs and the vestry, therefore administrative duties were likely to have been carried out in the vestry.

In light of the above, the Tribunal came to the conclusion that the church was a qualifying premises as it met both conditions as set out in the legislation. However, it should be noted that this is First-Tier Tribunal case and HMRC may choose to appeal the decision.

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