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Scrutton Bland’s VAT expert, Paula Mason takes a look at some of the most recent tribunal cases leading to opportunities for businesses to both protect from and recover VAT charges.
Potential Recovery Opportunity for Charities Following Fundraising Exemption
If you’re a charity and you’ve arranged fundraising events that you’ve charged an admission fee for then you could be in a position to now make a claim for VAT charged.
A recent Upper Tribunal decision in the case between Yorkshire Agricultural Society (YAS) and HMRC, agreed that admission fees to a fundraising event were an exempt supply for VAT purposes.
This offers an important opportunity for all charities involved in fundraising events, to understand the VAT exemptions available as there may be grounds to claim back any VAT possibly charged in error going back up to 4 years.
Background to the YAS Case
YAS is a registered charity whose objectives are to support and promote agriculture and raise awareness of the countryside throughout the North of England.
As part of these objectives, they hold an agricultural show, the Great Yorkshire Show (GYS), at the Yorkshire Showground in July each year.
YAS originally treated the admission income for the GYS as standard rated for VAT purposes.
However, they felt that these supplies should have been treated as exempt under the fundraising exemption (see below), and therefore treated them as exempt for the 2017 show onwards.
In 2020, they contacted HMRC in relation to the 2016 GYS claiming a net repayment of VAT of just over £200,000.
This was made up of overdeclared VAT on their ticket sales, less overclaimed VAT suffered on purchases in connection with the ticket sales.
HMRC rejected this claim in May 2021 and shortly after, wrote to YAS asking them to calculate the VAT due in relation to the period April 2017 to March 2021 – essentially asking them to treat the admission income as standard rated for the 2017 – 2021 shows.
Then, in December 2021, HMRC issued YAS with an Assessment in relation to the 2017 show for just over £90,000.
Both the rejection of the claim and the assessment were appealed to the First Tier Tribunal (FTT) by YAS. The case covering both appeals was heard in January 2023 and it was decided by the FTT in April 2023 that both should be allowed.
HMRC then appealed the decision regarding the 2016 repayment to the Upper Tribunal (UT) but they did not appeal against the decision regarding the 2017 assessment.
The Fundraising Exemption
The exemption from VAT which was considered by both the FTT and UT in relation to the YAS case is covered under EU and UK legislation.
In EU legislation, Article 132 states:
“Member States shall exempt the following transactions:
The supply of services and goods, by organisations whose activities are exempt … in connection with fund-raising events organised exclusively for their own benefit, provided the exemption is not likely to cause distortion of competition.
In UK legislation, Item 1, Group 12 of Sch 9 VATA 1994 provides exemption for:
“The supply of goods and services by a charity in connection with an event –
- that is organised for charitable purposes by a charity or jointly by more than one charity.
- whose primary purpose is the raising of money, and
- that is promoted as being primarily for the raising of money.”
The note to Group 12 also states that this item does “not include any supply, the exemption of which would be likely to create distortions of competition such as to place a commercial enterprise carried on by a taxable person at a disadvantage”.
The FTT Decision
Therefore, in relation to the YAS appeal heard at the FTT, it was decided that the 2016 show was exempt from VAT under a), b) and c) Item 1 of Group 12:
Item 1a) was met – the GYS in 2016 and 2017 was organised for charitable purposes by a charity.
Item 1b) was met on two grounds:
- The fundraising, if not a discrete purpose but one of two inter-dependent purposes (fund raising and education) then -in the view of the FTT – was the main purpose of the show and qualified for exemption.
- Even if the fundraising was a discrete purpose, then it was the main purpose of the show and qualified for exemption.
Item 1c) was met – the GYS was promoted for fundraising purposes. The FTT felt that the word “primarily” in Item 1c) should be ignored as EU law did not require a fundraising event to be promoted “primarily” for the raising of money.
The UT Decision
HMRC argued that because the event was for a dual purpose, that of fundraising and education, it did not fulfil b) of Item 1 as, in their opinion, the event should have been held for a single primary purpose of fundraising. They also argued that the word “primarily” should not have been disapplied in relation to Item 1c).
The UT dismissed both appeals saying that in relation to Item 1b), the FTT had arrived at their conclusions correctly based on the facts found in the case. And that in relation to Item 1c), the FTT were correct to disapply the word “primarily” and that the GYS met the requirement of being promoted for the raising of money.
Do you have a VAT recovery opportunity in relation to the YAS case?
All charities should now look at how they have treated similar fundraising events to see if they can reclaim back any VAT. Remember, claims can be made going back a maximum of four years so anything from 2021 onwards.
By completing a full VAT analysis of the various income streams relating to the fundraising event, you can see whether the exemption may also apply to things like bar takings, catering, advertising space in the programme and sponsorship.
Once the VAT treatment has been confirmed for each income stream, further analysis should be completed in relation to the VAT costs suffered on purchases and the subsequent attribution of this VAT to the various income streams. This will help to establish how much of the VAT suffered is either recoverable (attributable to VATable income flows), irrecoverable (attributable to exempt income flows) or partially recoverable (if attributable to both VATable and exempt income flows).
If there’s a mixture of both VATable and exempt income flows, partial exemption methodology would also need to be considered.
Calculations can then be carried out to determine the net VAT amounts repayable to the charity.
We can help with all the analyses you need to do along with calculating repayments and notifying HMRC on your behalf.
Please get in contact with one of our tax team on 0330 058 6559 or email hello@scruttonbland.co.uk if you think you might be affected.
VAT Caselaw Update
If your company hires individuals from suppliers to complete work, this update is a useful reminder to check you have the procedures in place to avoid connections with fraudulent evaders of VAT.
Case Name: Cheema Constructions Services Ltd (“CCSL”)& Anor v HMRC [2025] TC09418
This was a First Tier Tribunal (FTT) case where both the taxpayer and its Director appealed HMRC’s refusal to repay input VAT incurred relating to the purchase of labour and the issuing of penalties by HMRC.
CCSL operated as a construction company mainly constructing roads and motorways. They did not have any employees of their own but instead hired them from other suppliers and then supplied to their own customers.
In relation to the labour CCSL received from Woodside Contracts Ltd (WCL), HMRC refused CCSL’s input tax claim as they believed the transactions resulted from fraudulent VAT evasion on the part of WCL under the Construction Industry Scheme (CIS).
They also believed that CCSL knew or should have known that the transactions resulted from fraudulent VAT evasion and therefore they issued penalties for transactions connected with fraud.
The FTT considered a test used in a Court of Justice of the European Union ruling, to consider the appeal. Under this test, the right to deduct input tax is lost where the taxpayer “knew or should have known” the transaction related to fraudulent evasion of VAT.
HMRC had to prove each of the following were satisfied to rely on this test:
- There was fraudulent evasion of VAT.
- The input tax on CCSL’s purchases were connected to the fraudulent evasion of VAT.
- CCSL knew or should have known that their purchases were connected to the fraudulent evasion of VAT.
The FTT considered the arguments put forward by both HMRC and CCSL in relation to both 2 and 3 above (1 being accepted by CCSL) and because they found that HMRC failed to satisfy the burden of proof in relation to 2, i.e. that the input tax on the purchases were connected to the fraudulent evasion of VAT, the appeal was allowed.
The FTT did not need to consider 3 but did so anyway and concluded that if HMRC had failed on 2, they had also failed on 3.
HMRC’s evidence was poor, and the result of the appeal could have been different if they had presented a stronger case.
This provides an important reminder for all businesses in a similar position to CCLS to have strong procedures in place to make sure they remain unconnected from fraudulent evaders of VAT.
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