HMRC wins £1m VAT battle against environmental charity

ENVIRONMENT charity Friends of the Earth has lost its £1m VAT appeal against HMRC after a first-tier tax tribunal ruled that payments made by its supporters counted as donations, rather than payment for services such as its magazine.

The tribunal concerned the charity’s appeal against a HMRC decision which ruled that the charity was not entitled to claim input tax on the training of “street fund-raisers” – persons engaged by Friends of the Earth to sign up passers-by on the street to regular direct debit payments to the appellant.

The charity also argued that money generated from sales of its ‘Earthmatters’ magazine should not be classed as donations, which are outside the scope of VAT. The VAT periods covered were from May 2009 to May 2015, with £1,083,952 of tax at stake.

Friends said that the supply is “wholly or overwhelmingly a zero-rated supply of magazine and that there is a direct and immediate link between the various fundraiser costs and the benefits such that the input tax incurred on the fundraiser costs may be claimed.”

Arguing on the case of its Earthmatters magazine, the charity argued that it was a more important publication than the rest of its products.

However, the judge did not side with the charity, stating: “The payments were donations to the appellant. They were not consideration for the supply of the magazine and other benefits.

“It is not therefore necessary to deal with the parties’ arguments as to the attribution of the supply and whether it was zero-rated. The appellant’s appeal against HMRC’s decision to disallow VAT incurred on the cost of recruiting supporters to its supporter scheme is dismissed.”

Craig Bennett, chief executive of FoE, said the decision was “disappointing and confusing”, adding that the charity “acted in line with previous guidance from HMRC and it was also consistent with the rest of the charity sector.” The charity is considering whether to appeal or not.