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VAT Tribunal considers treatment of funds received by charity
The claims by the Hope in the Community charity to HRMC's Tax Tribunal that 'grant' monies paid to a charity should be exempt from VAT were unsuccessful
The following summary of this important VAT case has been helpfully provided by Constable VAT Consultancy LLP.
Hope in the Community (the charity) is a registered charity. The charity's aims and objectives are to provide support for faith and voluntary sector groups seeking to regenerate the communities in which they serve. This can involve providing consultancy services, which the charity accepted were subject to VAT and other grant funded work, which it believed was not linked to a supply of services.
The charity made several claims to HMRC in respect of VAT paid on income received. The charity believed this VAT was not due because the income did not relate to a taxable supply, being grant income. HMRC queried the claim made and looked in detail at the projects involved. The charity's view was that in these cases, although reports and feasibility studies may have been required to satisfy funders, the underlying project did not involve a taxable supply by the charity. HMRC took the view that in the cases presented there was a 'high degree of imposition as to how the appellant may utilise the funds paid into it, both in the objective to be achieved and the method of performance' and that as a result of the requirements stipulated in the agreements there was a direct link between the funding received and the charity's supplies.
The case is interesting as it considers the relevant case law and indicators for a taxable supply in detail and also highlights HMRC's thinking on this issue. The Tribunal judge considered 'whether the constituents of reciprocal performance were exchanged from which to determine a clear direct link between them' and concluded that there was a 'direct correlation between the services undertaken and the level of funding'. This appears, in the Tribunal's view, to go beyond the usual 'good housekeeping' conditions charities will be familiar with.
The full judgment can be accessed here