Recent VAT cases
In Bath Festivals Trust Ltd the VAT & Duties Tribunal considered an appeal regarding funding provided by Bath and North-East Somerset Council to Bath Festivals Ltd (a registered charity). The point at dispute was whether the funding was a grant or a consideration for services supplied.
Income received in the form of grant funding is outside the scope of VAT, meaning that VAT incurred in expenditure relating to that income will be restricted or blocked. Conversely income received from a consideration of services is taxable, entitling the recovery of VAT incurred in relation to the supply made.
The Tribunal ruled that the funding was a consideration for services for the following reasons:
The festival was a matter of importance for the Council, and if it was not run by Bath Festivals Ltd, the Council would have to provide the service itself;
Whilst the charity had a large degree of autonomy in spending the funding, it also had to abide by provisions within a service level agreement between itself and the council;
Though it was not clear that there was a statutory obligation on the Council to provide the festival, the terms of payment and the direct benefit received must be considered. Business Brief 1/2005 confirms that where a local authority provides consideration for a service to be undertaken by another party, this is a supply of services.
It is surprising that HMRC allowed this matter to reach Tribunal considering it has lost several cases based on the same argument.
In Age Concern Leicestershire & Rutland the VAT & Duties Tribunal heard an appeal regarding the VAT liability of supplies by a charity.
The Charity believed that its supplies were standard rated rather than exempt welfare services. Even if some aspects could be classified as welfare, the Charity felt that services such as catering should be separately accounted for.
The Tribunal ruled that the services supplied should fall under the welfare exemption for the following reasons:
Although the Charity had set up a subsidiary company to carry out a number of service level agreements it held with the councils, there was no practical change in the nature of the services provided;
The service level agreements in place made it clear that the services were to be provided directly to the elderly, rather than to the councils or care trusts involved;
The tribunal also concluded that if the services provided under the agreements were comprised of a number of distinct elements which were indissociable, then it was deemed that one single supply had been made rather than a multiple supply.
The ruling that exempt supplies are made will reduce the Charity’s ability to recover the input tax that it incurs on related expenditure.