Midlands charities can look forward to reaping the substantial benefits of a VAT case that Revenue and Customs has lost in the High Court.
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 it was completely nondeductible.
"Their win means that charities can now reclaim some VAT on fund-raising activities such as using onstreet collectors to recruit donors," said Steve Hodgetts, VAT expert at Baker Tilly's Birmingham office. "This could amount to significant savings."
The society recruits donors by using on-street collectors. Collectors stop and ask members of the public to sign up to a direct debit mandate to help fund the charity's activities, encouraging potential donors to contribute £5 or more by telling them that they would then become a member of the society's committed givers' club and so receive regular newsletters and other communications.
The point in dispute was whether the expenses incurred related to fundraising alone, or whether they were part of the wider activities of the charity and the provision of the newsletter.
Revenue and Customs argued that the expenses were incurred for fund-raising alone. As fund-raising is outside the scope of VAT, no VAT can be claimed on the expenses relating to it and no VAT need be charged on the income received. The society argued that a VATable supply was made in the provision of the newsletter.
This is a zero-rated supply and this means that no VAT is charged, but VAT can be reclaimed on the costs relating to this.
Revenue and Customs assessed the society more than £250,000 on the VAT it had reclaimed and although the origianl VAT Tribunal accepted their arguments, the decision has been overturned in the High Court which held that the society can reclaim a proportion of the VAT that it has incurred on this type of fund-raising.