Category Archives: Charity Property

Charging Fees incidental to Charity so Construction Work VAT Zero Rated

Construction supplies will be zero rated if the new building is to be used solely for a charitable purpose otherwise than in the course or furtherance of a business.

The test to be applied as to whether the building is to be used ‘in the course or furtherance of a business’ is the same test as applies to determine whether an activity is an economic activity conducted by a person such as to make that person a taxable person for VAT purposes.

That test is in Article 9 of the Principal VAT Directive:

” 9(1) “Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.”

In the Upper Tribunal (Tax and Chancery Chamber case of HMRC – v – Longridge on the Thames [2014], the First Tier Tribunal had found that by far the greater part of Longridge’s activities were ‘directly to carry out its charitable objectives’ and a lesser part was to raise funds to subsidise the charitable activities.

There was a dividing line to be drawn between a situation where:

– the activities do amount to the furtherance of a business even though the activities are not aimed at making a profit; and

– a situation where the activity is not conducted as a business even though a payment is made by the recipient of the services for the services provided.

It had been for the First-tier Tribunal to decide, on the facts, which side of the line the case fell.

Many businesses depend on donations as well as income from charges for goods or services and many small businesses rely on the free provision of labour by family members to keep going.

The mere fact that volunteers were used or activities were funded from a mix of sources, did not mean there was no “economic activity”.

Conversely an activity whereby a supply is made for a price is not necessarily an economic activity.

It is necessary to ignore the activities’ purposes or results, and look at the totality of the activities’ ‘observable terms and features’ and the context in which they are carried out.

The First TierTribunal had done this in respect of Longridge’s activities at its new training centre for educating young people in waterborne activities, and decided that Longridge’s activities were not economic.

The First Tier Tribunal was well placed to make that sort of evaluation of the facts and the appellate tribunal or court, as here, should not interfere with it.

The Tribunal had correctly considered the scale of the payments made, how they were calculated and how Longridge’s finances were handled in terms of donations and the use of volunteers.

The First-tier Tribunal had applied the correct test. Longridge’s predominant concern was not to make taxable supplies to consumers for a consideration, but to carry out its activities in a way that furthered its charitable objectives.

The making of supplies for a consideration was merely incidental to its predominant concern of furthering its charitable objectives in that it was just one way (admittedly important) in which its predominant concern was achieved.

Longridge’s charges were determined by the trustees annually with the aim of providing those facilities, courses and activities at the lowest cost possible whilst maintaining financial prudence for the long-term viability of Longridge for future generations.

Key factors were:

1. charges were aimed at affordability for the young;

2. charges were set to cover those areas of operational expense not covered by donations and volunteer contributions;

3. discretion was available to reduce or waive charges where pursuit of the charitable objects was especially desirable;

4. after Longridge acquired the site (partly funded by loan), all further capital projects were financed by donations and grants. No part of the charges levied were directly or indirectly spent on the acquisition or funding of capital assets; and,

5. the many volunteers amounted to a significant subsidy to the cost of Longridge’s operations.

So the First Tier Tribunal had been entitled to conclude that Longridge did not carry on an economic activity at the site.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.