Court win allows charities to reclaim VAT on more fundraising
Howard Lake | 7 August 2005 | News
Following a defeat for HM Revenue and Customs (HMRC) over a VAT case at the High Court, charities will be able to reclaim VAT on more fundraising activities, generating substantial savings for many charities. Specifically they can now partially reclaim VAT incurred in the recruitment of charitable donors.
The win by The Church of England Children’s Society could save fundraising charities millions of pounds a year.
Steve Hodgetts, VAT expert at accountants Baker Tilly, explained: “The Church of England Children’s Society’s case concerned whether the VAT incurred on certain fundraising activities could be reclaimed in part, or whether the VAT incurred was completely non-deductible.
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“Their win means that charities can now reclaim some VAT on fundraising activities such as using street collectors to recruit donors. This could amount to significant savings for a lot of charities.”
The point in dispute was whether the expenses incurred related to fundraising alone, or, given the inclusion of benefits such as a newsletter, whether they were part of the wider activities of the charity. HMRC argued that the expenses were incurred for fundraising alone. As fundraising is outside the scope of VAT, no VAT can be claimed on the expenses relating it, and no VAT need be charged on the income received.
The Society argued that a VAT-able supply was made (the provision of the newsletter). The provision of the newsletter is a ‘zero-rated’ supply and this means that no VAT is charged, but VAT can be reclaimed on the costs relating to this.
HMRC assessed the Society over £250,000 on the VAT it had reclaimed and although the VAT Tribunal accepted the HMRC’s arguments, this decision has been overturned in the High Court which has held that the Society can reclaim a proportion of the VAT that it has incurred on this type of fundraising.
Steve Hodgetts added: “any charity that undertakes similar fundraising activities needs to consider if it can reclaim some of the VAT incurred. Charities should act upon this quickly so that claims are submitted as soon as possible. VAT claims can only be made for the preceding three years, so the sooner a claim is made, the further back the claim can go.
“Although a higher court may overturn the decision, we would advise charities to submit a protective claim now to maximise the amount that can be claimed.”
About Howard Lake
Howard Lake is consultant editor of UK Fundraising. He founded the site in 1994 and successfully sold it in 2022. As director of Giving X Ltd he is exploring growing giving on a massive scale.
He is the founder of Fundraising Camp and co-founder of GoodJobs.