Landmark VAT Ruling: Good news for all fundraising charities

Why you should read this

The Upper Tribunal (“UT”) has confirmed that fundraising activities by the Yorkshire Agricultural Society (“The Society”) were not liable to VAT. This is very good news for all fundraising charities, as it confirms that in the right circumstances they can retain the entire proceeds earned from raising essential funds for their charitable objectives.

The headline

This is a landmark judgment on many levels. It provides significant reassurance to the charitable sector that HMRC cannot arbitrarily limit the VAT exemption for fundraising activities.

The details

The dispute concerns the VAT liability of income generated specifically from the 2016 Great Yorkshire Show (“The Show”). The Show is an annual event run by The Society.

Item 1, Group 12, Schedule 9, VAT Act 1994 lists three conditions for the fundraising exemption to apply:

“The supply of goods and services by a charity in connection with an event

• That is organised for charitable purposes by a charity or jointly by more than one charity,
• Whose primary purpose is the raising of money, and
• That is promoted as being primarily for the raising of money.”

HMRC did not dispute the first condition. The appeal to the UT concerned conditions b) and c). The first condition will always be satisfied if the event does not breach the main aims of the charity.

In relation to condition b), HMRC argued that The Society was required to rank all the purposes of the event in order and identify a sole primary purpose. The UT disagreed and held that there could be more than one primary purpose. In this case, all parties accepted that The Show had two interdependent primary purposes, fundraising and education.

The Society conceded that the 2016 Show was not promoted as an event primarily concerned with raising money. HMRC argued that condition c) imposed a strict evidential requirement on The Society. Since it failed condition c), the exemption could not apply and The Society was liable for VAT on all income earned from The Show. In the most significant part of the judgment, the UT disagreed with the structure of UK law and held that condition c) had no basis in EU law. As this dispute relates to supplies made pre Brexit, UK VAT law must be read in conformity with overriding EU VAT Directive.

The Society succeeded before the UT. Hopefully, this will be the end of this litigation, and charities can use the judgment to plan their activities on a sound footing going forward.

What you should do now

There is a risk that HMRC will revisit this issue and challenge a charity on the scope of the VAT exemption for income earned post Brexit. Whether that argument could succeed is beyond the scope of this article.

The UT judgment provides charities with a sound basis on which to plan going forward and the potential to recover overpaid VAT on past VAT returns.

For future events, VAT exemption will apply in the following circumstances, whether or not HMRC mount a separate challenge for post Brexit charity events.

• The fundraising event supports the main aims of the charity.
• Fundraising is one of the primary aims.
• Marketing literature makes it clear that the primary purpose is to raise funds.

For past events, charities can rely on the decision in this case to support the recovery of any overpaid VAT.

Please contact us for more information on your particular circumstances.