In 2005 HMRC lost an important VAT appeal concerning the Children’s Society. This was concerned with whether VAT incurred on street collector commissions was recoverable. Since the street collectors obtained donation income for the charity which was outside the scope of VAT, HMRC argued it was not. The High Court disagreed and found that the income supported both business and non business activities and the VAT incurred on obtaining it should be treated as residual or partly recoverable.

There is another important source of outside the scope income for charities which is investment income. Although HMRC didn’t publish guidance accepting recovery was now permitted following the Children’s Society case, they didn’t object as allowing recovery appeared to be consistent with the judgement. It was therefore rather surprising that they recently took a case attempting to restrict such recovery – The University of Cambridge.

HMRC lost in the VAT Tribunal, which allowed recovery, but are appealing to the Upper Tribunal. The concern is obviously that if they eventually win that this new precedent will overturn that of the Children’s Society decision and also call into question donation cost VAT recovery. The appeal is being heard in early 2015. So for now you can recover the relevant VAT, and if you haven’t then make a claim. But watch out for possible changes.

Nov 14