A Bible school set in a stately mansion near Carnforth has failed in a test case legal bid to claim exemption from tax.
The Capernwray Missionary Fellowship of Torchbearers believed they should not pay VAT on their new £2m conference hall because it would be used for a residential or charitable purpose.
But Judge Charles Hellier rejected their claims at a tax tribunal.
The Fellowship, based at Capernwray Hall, said the cost of building the hall, which comprises dormitories and a large lecture hall and was finished in 2013, should be in whole or part exempt from VAT.
But the taxman and the judge found that VAT applies in the normal way to the building costs.
Judge Hellier said: “Does the provision of worship and evangelism change what would therefore be an economic activity into one which is not?”
The judge said the organisation charges for the courses, but does not aim to make a profit and volunteers assist the organisation’s staff running of the site and the courses.
But he rejected the claim that Capernwray is not, in the eyes of tax law, engaged in “economic activity”.
“It provides living and sleeping accommodation, food, activities, surroundings, and, in particular, in its Bible School traditional teaching.
“The provision of these services for payment is in our view prima facie an economic activity.
“In our view in this case it does not.
“The other services provided are not so eclipsed by worship and evangelism as to make them part of something which is not an economic activity.”
Prior to the decision, the Capernwray Hall website encouraged its followers to “pray about the VAT tribunal” because “this would provide a potential refund of all the VAT on the building contract”.
The Capernwray Missionary Fellowship of Torchbearers was unavailable for comment as the Guardian went to press.