HMRC had claimed that Roselands Community Nursery and Playschool in Paignton and Hartley House Childcare Unit in Plymouth, Devon, were liable to pay VAT on the construction of their new premises.
But both believed they should be eligible for zero rating for VAT and enlisted the help of accountants Bishop Fleming.
Charities currently have zero rating on new building work. However, HMRC takes the view that most childcare settings are working as a business if they charge for looking after children and so VAT relief does not apply.
But in February the High Court ruled that St Paul's Community Development Trust, a childcare charity in Birmingham that has operated as a children's centre since March, should be exempt from VAT on its building work.
Subsequently HMRC decided not to pursue its cases against Roselands and Hartley House and the charities have reclaimed a total of 83,000.
Neil Robinson, treasurer of Roselands, said, 'This is tremendous news for us, and even more so for the parents. Not having to pay VAT on the building cost ensures that rates charged to parents can continue at their current level, at least in the short term.'
But Dave Brown, a senior VAT specialist at Bishop Fleming, warned that HMRC still regards most childcare charities as being 'in business'. This means they will not automatically qualify for VAT relief on building work.
Mr Brown said, 'Unfortunately, the VAT office takes a very narrow view of how a relief should be applied. Having lost one case at the High Court, they felt obliged to pursue another charity in almost identical circumstances and have now backed down. More worryingly, they have stated that they still regard most charities in this scenario as being 'in business' and so other charities will have their work cut out to benefit from the same relief.'
A spokesman for HMRC said they were unable to comment on individual cases but did clarify the position on the business status of charities supplying nursery and creche facilities. 'It remains Customs' long-standing policy that a business activity is possible even in the absence of a profit motive. Customs shall continue to apply the business test in order to determine whether the supplies concerned are being made by way of business.'
HMRC's national advice service can be contacted on 0845 010 9000.