The environmental charity Friends of the Earth (FoE) has lost a bid to reclaim £1m in VAT related to street fundraising costs, after a First Tier Tribunal (FTT) ruled that money given by supporters as a result of this activity amounted to a donation, rather than a payment for the supply of benefits which included a glossy magazine
The charity’s appeal related to the issue of whether certain payments made by supporters are donations (which are outside the scope of VAT) or consideration for a supply of the magazine, called Earthmatters, and other benefits such as discounts on items purchased via its website. [Friends of the Earth Trust Ltd and Her Majesty’s Commissioners for Revenue and Customs, [2016] UKFTT 0411 TC05165].
FoE was seeking to claim input tax on the training of ‘street fund-raisers’, who were employed to sign up passers-by on the street to regular direct debit payments to the charity. As part of their training, they were instructed to encourage supporters to sign up for payment of more than £3 monthly, on the basis that they would then be sent the magazine for free. Those whose subscriptions were below this level did not receive it.
The VAT periods covered were 05/09 to 05/14 and the amount of tax at stake was £1,083,952. The charity argued the supply is wholly or overwhelmingly a zero-rated supply of magazine and that there is a direct and immediate link between the various fundraiser costs and the benefits such that the input tax incurred on the fundraiser costs may be claimed.
FoE said Earthmatters was a more substantial publication than its other products which were sent to subscribers regardless of the level of their support. These included a shortened version of the magazine, plus a monthly newsletter. Unlike Earthmatters, these were not usually referenced in the conversations fundraisers had with potential subscribers.
The case centred on whether supporters of the charity entered into the £3 minimum payment in exchange for the magazine and other benefits, or whether those benefits were a gift outside the scope of VAT.
While acknowledging the high quality of the magazine and its content, which the judge said was likely to be of interest to a wide range of people, the tribunal nevertheless said it was clear that the £3 minimum monthly payment was not for the magazine and benefits.
The FTT said: ‘The payments were donations to the appellant. They were not consideration for the supply of the magazine and other benefits.
‘It is not therefore necessary to deal with the parties’ arguments as to the attribution of the supply and whether it was zero- 5 rated. The appellant’s appeal against HMRC’s decision to disallow VAT incurred on the cost of recruiting supporters to its supporter scheme is dismissed.’
Craig Bennett, chief executive of FoE, said: ‘This is a disappointing and confusing decision. We acted in line with previous guidance from HMRC and it was also consistent with the rest of the charity sector.’
Bennett indicated that FoE is considering whether to appeal.
