Strathdearn Community Developments Minutes of a meeting held in Strathdearn Hall, Tomatin, on 6 th August 2018 DIRECTORS PRESENT: IN ATTENDANCE: Dr R Cooling (RC) (Chair), Mrs A Gardner (AG), Mr J Duncan (JD), Mr S Cormack (SC). Mr C. Morgan () (Development Officer), Mr. E Cameron-Mackintosh (E), Mrs M MacSween (MM) (Admin Assistant), Mr G. Moore VAT (GM) Services Scotland Ltd. Item Ref Details 1. Introductions The Chair welcomed everyone and confirmed that the meeting was quorate. Marian Hendry, Maureen McDonald-Cooke, Duncan Bryden and Stan Falconer gave their apologies. Action 1. VAT Services Gary Moore 1. Supporting documents: 1. Final VAT Services Ltd report 2016 2. Emails: Updated advice following review of new plans 2016 3. Emails: Corrected advice 2018 4. Pros & Cons summary EC-M 5. VAT on local hall builds 6. Hub projections -donations 7. Hub projections trading 2. Q&A session and discussion GM said that the 2016 VAT report gave the opinion that SCD s optimum VAT position was to obtain full VAT zero-rating relief, provided that they meet the 95% solely test for relevant charitable use. (Paragraph 1.3). However, since the original report there has been a shift in case law and the interpretation of business and non-business has changed. HMRC could argue over SCD s definitions of business and non-business. This could go to a tribunal, causing time delays, and the tribunal decision can also be later overturned (GM presented examples of such cases such as Longridge on the Thames). He said there are currently a myriad of
cases, all with different circumstances, currently being investigated. A lot of legislation has been taken from E.U. law and may be changed once it is in place. All this means that there is a great deal of uncertainty. GM thought that SCD s objective is to get certainty. Once a decision is locked in from HMRC then the charity know that with a certain amount of money they can afford to construct the new build and the renovation. Without a definitive decision HMRC could come back at a later date and claim tax. Once the charity gets over the initial stage of raising capital and goes into the revenue element they must be able to subsidise an ongoing business without going into deficit. It can often be easier to get upfront capital than achieve balanced revenue. HMRC are not keen on giving a ruling and an organisation must give a reason why it is required. HMRC have supplied guidelines on the circumstances in which they would give a ruling. SCD cannot put in multiple intentions to HMRC. If a ruling is declined they can t try under another use as the intention must be clear. A ruling will be on the condition that the intention stays the same over the next 10 years. GM proposed SCD claim that they are building for the local community, subsidising the build through wind farm money and SCD have raised enough funds to cover the build and manage some deficits in the early years. SCD then explain that they are requesting a ruling as if SCD give a zero-rating certificate to the contractor and it is incorrect the charity cannot afford a penalty on top of paying back the 400,000 saving made on the VAT. RC explained that the principle aim of the new building was to be viable in the longer term and so needed to be more than just a village hall. The business model that had been devised was that the facility would also to cater to tourists and customers outside of Strathdearn in order to make the facility viable independently of wind farm monies which potentially could end in about 15 years. GM felt that funders do not want to be seen to be supporting a business. If the asset (i.e. the building) is ring fenced and the business fails then the building is recoverable. He said that a property over 250,000 is deemed as capital goods. He noted that if SCD do not charge for the hall over the next 10 years and use wind farm subsidies to sustain it, then under current HMRC practice, the slate is wiped clean and they can start charging use. He asked if the surplus funds from outside the community and from tourists was required in the first 10 years? GM asked if SCD gave up the 400,000 VAT saving and went with the business model, would the charity make 40,000 a year from renting out the facilities to compensate? Especially over the winter months? said that it would be an 8-9 month season with a 3-4 month downturn when SCD would be relying on local business. He summarised his initial proposal that SCD do not get charged VAT (zero rate) and only receive donations. He clarified that donations have to be entirely voluntary and that it would not be possible to set a suggested donation. RC then raised the concept raised previously at the Board whereby SCD is registered for VAT and is charged the full VAT of the build, but then rent both buildings to a trading subsidiary who operate the facilities and thereby the full VAT is recovered. The second option would have an additional cost for a VAT consultancy to set up this operation. GM asked if SCD go with this business model would there be a problem with OSCR? If all the trading, i.e. the café business, goes through the trading company and the hall was charging all the user groups for the new hall under the charity arm would the funders be happy? RC commented that he felt that the funders would be happier with their funds being used to build a viable facility than being used to fund the deficit of a nonviable business model, as was being proposed. 2
He said that if SCD registered for VAT, with the option to tax, and register an asset for taking an income stream, then SCD would need to charge the market rate to the Strathdearn Carers. Health groups cannot recover VAT and if SCD did not charge VAT to the carers it would become non-business, i.e. a change of intention. RC noted that the local NHS would normally expect to pay VAT on use of facilities. RC asked if SCD needed to set up a new company as a trading arm to manage the new hall. GM said SCD would need to transfer the funds to the new company for the build. The new company would be the one that needs to contract with the builders, own the asset and rent it plus VAT. He asked: Where the SCD staff would be based, with an office in the hub or would the hall be purely community use? Since the staff are taxable their time would need to be allocated accordingly. The Board considered that it was not vital that SCD had offices in the hub. Would the majority of the Company Secretary s time be taken up with the hub rather than on other projects? It was reiterated that the hub is only one of the many projects that SCD is progressing If the community are using the kitchen with no charge is it non-business? RC asked if SCD really required a new company under this model or whether the hall operation could sit under the existing WRT? GM said that if the charity is leasing out two premises at a market rate (and possibly franchising) it may appear like a property management company earning an income. However, it was pointed out that running the new hub was but one of the many activities SCD undertakes as a charity. AG noted that the charity runs several projects that do not make any income. (A) to determine from OSCR if SCD can rent the premises in order to clarify if the Board can proceed with this option. RC asked if SCD required a ruling before the contractor would start? GM said that they can start and charge the VAT in the absence of a zero-rating certificate. He noted that if SCD proceed with such a business model then the ruling request from HMRC is to confirm that SCD can claim back the VAT, therefore it will need to be paid in the first instance. This option would have an additional cost for a VAT consultancy to set up this operation. AG said that as the VAT will be paid in stages some of the money will be reclaimed before the full amount is paid. AG asked if the legislation may further change? GM said that HMRC legislation does change however, the capital goods scheme is the least likely to change. GM suggested that he reviews the paperwork to HMRC. He noted that the option to tax must be submitted before the work commences or SCD cannot reclaim the tax. He said that the reason the ruling was required should be that the charity needs to have a continual income in order not to go into deficit and whilst they have the capital funds they cannot cover the VAT. 3. Decision on submission to be made to HMRC Motion 3
RC proposed a vote on VAT services submitting a ruling request to HMRC for SCD to register for VAT and then lease the new facilities to WRT, thereby enabling the VAT on the new build to be fully reclaimed All were in favour of GM writing a ruling once hears from OSCR. (A) to provide GM with a Job Specification to obtain a quote for the additional work involved to (A) to update the funders. GM left at 21.50 2. For approval Minutes of meeting of 5 th July 2018 Part 1 The Board approved the minutes. 3. For discussion Finance 1. Accounts SCD to 31 st March 2018 The draft annual accounts were distributed to the directors prior to the board meeting. RC commented that he believed these fell in with his expectations and complimented AG and E on the very clear sets of accounts. E requested the directors pay particular attention to and be happy with the content of the Report of the Trustees given these are part of a published document. E noted that the Trustees Report discusses developments wider than the strict 12 months as it allows the Directors to set the context for Accounts. AG also noted that the creditors remain high at 159,000 partly because BT Openreach still have not invoiced for the Moy broadband upgrades completed earlier in the year. After a number of questions and clarifications, the directors were happy with the accounts but a date of Monday 13 th August was given for final comments before they would be sent for finalising. (A) Board to read over the SCD accounts and feed-back any comments by Monday the 13 th August. Board 2. Accounts WRT to 31 st March 2018 AG noted that this year s accounts is for 12 months but last year was only for 9 months so the comparison between the figures is not as straight forward as appearances would suggest. Page 10, the expanded Profit and Loss Account, shows a more detailed breakdown of the figures. The sales of 156,000 was a very strong figure, still markedly higher than the previous operator, but and AG were not surprised by the 33,800 Net Loss as the stock and staff are still too expensive but this is proving very challenging to address. 3. Project costs RC said that there will need to be a meeting in the Autumn to discuss the new costs involved for the paths and put it to the community as to whether SCD can proceed. 4. SCD Balance sheet 30 th June 2018 5. SCD Profit & Loss 30 th June 2018 JD requested it be noted that there is no fire alarm in the hall kitchen at the moment but this will be addressed. 6. WRT Balance sheet 30 th June 2018 4
7. WRT Profit & Loss 30 th June 2018 AG noted that the figures for April to June look much more optimistic than previous quarters. It would appear that the stubbornly low gross margin rose significantly in the quarter. The loss of 8,000 includes the rental cost of 6,000 which has now reduced significantly as well as 1,000 in solicitor fees for lease negotiations so it is hopeful this performance will continue to improve. Other: SCD cash flows with and without VAT Two scenarios were circulated which were discussed. E noted that there are a lot of potential plans, any of which could significantly affect the projections. The main ones being Section 8 paths (est 106,000), Moy meeting place (est 200,000) and cost of hub. RC acknowledged this and said these will be addressed in time. All included in the discussions regarding the Annual Accounts as recorded above. 4. New Community Hub urgent matters only 1. Electric vehicle charger points EST have offered to fully fund the installation of a fast charger and a rapid charger, in the region of 50K. RC said that SCD would be the commercial host with our own vehicles having first priority for access to the chargers; second in priority is our staff and the third is the general public. To get the 100% funding SCD cannot charge any users in the first year. RC asked what actions can be taken if members of the public block the bays? (A) MM to obtain a response from EST MM Motion RC proposed a vote to accept the grant offer. All were in in favour of proceeding. 5. Governance 1. Annual General Meeting RC asked the Board if they felt SCD were ready for a meeting on the 30 th August? It was agreed that it should be held later in September and be discussed further at the next Board meeting. The points below are deferred until the next meeting. 1. Election of Directors 2. Amendments to Articles 3. Format 4. Community Engagement Event 6. Any other business - None notified 7. Dates of future meetings Monday 13 th August AGM TBC Meeting closed at 11.10pm 5