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VAT and Charities

By Gabelle LLP

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VAT: Judge states in the Upper Tier Tribunal-“It cannot be impossible to relieve Charities of an unintended tax burden…”

Wakefield College have been unsuccessful in their recent visit to the Upper Tribunal to persuade the Judge that zero rating should apply to the supply to it of construction services.

The Judge was scathing and expressed his disquiet that the appeal should be before him due to the charitable status of the appellant.

It was common ground that the college was a charity and that the bulk of its income was from public funds. Due to the public funds not meeting all their costs, they needed to seek other income sources. The Judge commented that if the income could be, by luck or by judgement, kept below an arbitrary amount it can escape the burden of VAT on the charity’s receipt of construction services, but if it could not, even by a trivial amount, the construction services became chargeable to irrecoverable VAT. The Judge considered it unlikely that Parliament meant such a capricious system and could not have conceived that charities would have, as in this case, been before the First-tier Tribunal twice and now at the Upper Tier.

The Honourable Mr Justice Barling and Judge Colin Bishopp stated that “Rather, we think the legislation should be reconsidered. It cannot be impossible to relieve charities of an unintended tax burden while at the same time protecting commercial organisations from unfair competition and preventing abuse.”

Paragraph 48 of the case decision states “there must come a point at which the disparity between the value of the payments and the cost of the supply becomes so great that the direct link between supply and consideration…is lost.”

Given the harsh words from the Judge, let’s see whether HMRC make representation to change what is an entirely inequitable position for charities that are only in existence due to their pubic funding.

Published February 2016