Friends of the Earth VAT Tribunal
There has been an interesting charity VAT appeal to the VAT Tribunal in the Friends of the Earth case.
It concerned VAT recovery on the costs associated with street fund-raising. Supporters were signed up on the street to make monthly payments by standing order. Those that gave more than £3.00 received a magazine. The question was whether the amount given by the supporter was payment for a magazine. If it was then the Charity would be making a zero rated supply and be able to recover the VAT it incurred on related costs. If it was not then the money would be outside the scope of VAT, there would be no supply and there would be restriction in VAT recovery.
If the facts of the case sound familiar thats because they are. A very similar point went before the VAT tribunal in the case of the Childrens Society. The decision was similar too in that in both cases the Tribunal found that there was no supply because the money paid by the supporter was not consideration. The reasons given in the original Childrens Society case always struck me as being rather unclear so its as well that the Court in the Friends of the Elderly appeal has given a slightly more detailed reasoning. Both cases concerned the tests that must be applied to determine whether money was consideration. Was the money provided for the magazine was the key. It needed to be a quid pro quo as opposed to a quid cum quo for those of you whose latin is stronger than mine. This test is objective.
The Tribunal found that were was insufficient evidence that the supporter was made aware of the magazine when they agreed to pay their money. Neither did the direct debit form signed in the street mention the magazine. It was mentioned in the pack members received after they joined but even here it was described as complimentary. Overall the facts pointed away from the money being provided for the magazine – it was outside the scope.
It is unclear if the Charity will appeal the case, I suspect it may not be easy to do so with the facts as found.
But this case does not mean that it is impossible to arrange a direct debit so that a magazine is provided for money raised on the street. Had the marketing material, standard approach by canvassers and forms signed been clear that the supporter was subscribing to a magazine there could have been a zero rated supply.
There have been a number of cases recently where money has been found not to be consideration. These have been both domestic and European. If there is no consideration there is no supply and the activity is non business. If you do receive money for undertaking activities where the sum you get paid does not reflect what is provided or there is a doubt as to what extent a genuine bargain is being struck then it may be worth considering if you are in fact making a supply if a non business treatment will help you.
The judgment can be found here: http://www.financeandtaxtribunals.gov.uk/judgmentfiles/j9145/TC05165.pdf