A second tribunal case against HM Revenue & Customs (HMRC) has been won by a water sports charity in Buckinghamshire.
HMRC had declared that Longridge on the Thames should have to pay VAT – to the tune of at least £135,000 – on the cost of constructing a training facility at its centre, based in Marlow. The charity has been based at the site since 2005, and the new training facility was built in 2010. Shortly after, HMRC issued a decision that the charity should pay VAT on the costs, as it charged for its activities and was therefore conducting a business activity liable to VAT. The charity argued that the activities conducted on the premises were purely charitable and didn’t constitute an economic activity, so no VAT would be due.
Although the charity requested an internal review with HMRC, the decision was upheld and the VAT declared to be due. An appeal at the First-tier Tribunal was lodged by Longridge on the Thames and the judge ruled that HMRC’s stance would be rejected. The tribunal stated that the fees charged by the charity only just covered the costs incurred and donations provided most of the income of the charity. HMRC applied to the Upper Tribunal to appeal the decision, but again lost the case as the tribunal concluded that an economic activity was not carried out.
The decision of the Upper Tribunal will act as a precedent for any future cases, helping other charities that find themselves in the same position. A spokesperson for HMRC said:
“HMRC is considering this decision and its implications carefully.”
What rate of VAT should be charged by suppliers to charities?
If you supply certain services or goods to a charitable organisation, you may be able to apply the zero rate of VAT or the reduced rate, which is five per cent. Before either of these rates are charged, the supplier must confirm that the charity is eligible for the rates. The necessary proof of eligibility is known as the eligibility certificate or declaration.
Among the goods and services that qualify for the zero rating of VAT are drugs and chemicals, some construction services, some vehicles, aids for disabled people and ambulances, although there are many others that are likewise eligible.
How to check for eligibility for VAT relief
If you want to check for eligibility, you have to ask the customer organisation for proof that it is a charity, and also a certificate or written declaration of eligibility confirming that the charity meets the conditions for relief.
VAT is a complex area and you may want advice on some aspects. For all the pointers you’ll need, contact the experts here at The Accountancy Partnership, or leave your question in the box below.