The Garden Bridge could cost taxpayers £22 million more than anticipated because the charity behind it may be able to legally claw back VAT, a tax expert has claimed
The £185 million Heatherwick-designed scheme was backed in May last year by London mayor Sadiq Khan on the basis that the project would cost taxpayers twice as much to cancel as it would to complete it. This financial calculation was based on repayment of a £20 million loan to TfL over a 50-year period plus a £22 million VAT payment to the Treasury following completion of the bridge.
If the Garden Bridge Trust were able to claw back the VAT, that £22 million sum would not return to the public purse as anticipated.
Graham Elliott, technical adviser to the Charity Tax Group, which represents 500 member charities, said a recent legal case suggested that the Garden Bridge Trust, the registered charity developing the scheme, might be able to reclaim the VAT in full.
He suggested the trust might benefit from a tax tribunal’s recent decision to allow Durham Cathedral, a charity, to reclaim a proportion of the £6,720.25 it paid in VAT when it carried out works to Prebends Bridge over the River Wear, a decision left unchallenged by HMRC.
‘The Durham case might suggest that an organisation which built a free attraction like the Garden Bridge could reclaim VAT in full if the attraction also has a commercial taxable use,’ Elliott told the AJ.
‘If this stance were to survive any further legal challenge, the hire of the bridge by third parties and retail offer planned by the Garden Bridge Trust could be significant in this regard.’
The Durham Cathedral decision followed a 2015 European Court of Justice decision on VAT known as ‘Sveda’. Elliott said that if the trust did attempt to reclaim VAT, he would expect this to be challenged in the courts by HMRC.
‘We don’t know what the outcome of that would be, because the European Court of Justice’s Sveda case was not over a charity but a commercial organisation,’ he said.
In late 2013, supporters of the bridge including Thomas Heatherwick, TfL boss Peter Hendy and mayor Boris Johnson reportedly lobbied then chancellor George Osborne to exempt the then £150 million project from VAT.
Kate Hoey, the MP for Vauxhall, said the implications of the Durham Cathedral case were ‘hugely worrying’.
She added: ‘I and many other elected representatives in London are concerned that the financial projections for the Garden Bridge to all intents and purposes are “smoke and mirrors”.
‘On a number of occasions I, Bishops Ward councillors Jen Mosley and Kevin Craig and GLA representatives from across the political spectrum have flagged up to the mayor of London our concerns that he will not be able to meet his commitment to not provide further taxpayer funding to the Garden Bridge. Our concerns are exacerbated by this latest ruling.’
I have always been dubious of the argument put forward by the mayor that consideration must be given to the VAT
Lib Dem London Assembly member Caroline Pidgeon said: ‘I have always been dubious of the argument put forward by the mayor that consideration must be given to the VAT that will supposedly be paid by the Garden Bridge Trust.
‘Even if the VAT is paid, the money does not come to City Hall. The mayor should spend less time speculating over potential VAT payments and instead concentrate on what really matters.
‘If he is truly concerned to protect taxpayers, he should refuse to offer a permanent financial guarantee to the Garden Bridge Trust.’
At the time of Sadiq Khan’s announcement last May, he said £37.7 million of public money had been spent on the project. Since then, the cost is understood to have risen, with Labour London Assembly member Tom Copley suggesting in a written question to the mayor last week that the bill now stands at £50.5 million.
Responding to the news on VAT, Copley said: ‘Whatever advice the mayor has received up to this point, it’s time he put this failing project out of its misery.
‘With every passing month, new information emerges that leaves an ever-growing question mark hanging over the economic health of the Garden Bridge. No more public expenditure should go on a project that is so obviously on borrowed time.’
A spokesperson for the mayor of London declined to comment directly on the question of VAT.
‘The mayor’s position is widely on the record,’ the spokesperson said. ‘He is supportive of the project but is clear that no more of Londoners’ taxes for which he is responsible will go into the Garden Bridge.
‘The Garden Bridge Trust is responsible for raising the necessary funds and delivering the bridge.’
The trust and the Department for Transport both declined to comment.