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Public Interest bodies

8th Sep 2014
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There is an important VAT exemption for so-called ‘public interest bodies.’ However, over the past few years, HMRC have won a number of Tribunal cases, successfully arguing that their activities fall outside the exemption. Since there is often little input tax to recover in such cases, the result is a substantial VAT burden.

The exemption covers five categories:

  • Trade Unions, where their main object is the negotiation of terms and conditions of the employment of its members;
  • Professional Associations, whose membership is restricted to those who have, or who are seeking a professional qualification;
  • Learned Societies, established for the advancement of knowledge, or the fostering of professional expertise, connected with the present or past employment of members;
  • Representational associations, whose primary purpose is to make representations to the Government on legislation and other matters which affect the business or professional interests of its members; and
  • Public interest bodies, which are political, religious, patriotic, philosophical, philanthropic, or civic in nature.

The legislation is in VAT Act 1994, Sch 9, Group 9. HMRC have their Notice 701/5 (current edition is June 2013), and online guidance is found at VTUPB0000.

Interestingly, HMRC allow an apportionment for subscriptions which might otherwise be entirely exempt. Para 13.2 of the HMRC Notice refers to this.    Following the Card Protection Plan decision, it was feared that eligible organisations might suffer the loss of the apportionment option.

This concession was especially helpful where the subscription included a hard-copy periodic, which would be treated as zero rated. With more such organisations providing material entirely online, this benefit is much reduced.

The main problem with the exemption is that it has to be applied quite strictly. If there is any doubt, then HMRC will make subscriptions taxable. It seems that Directors simply assume that the exemption must apply, since the organisation is non-profit-making. This can leave them vulnerable to HMRC challenge.

A recent case provides a helpful illustration: The United Grand Lodge of England (ie: the Freemasons) was established nearly 300 years ago. Its three main principles were, and are, brotherly love, relief, and morality (or truth). Over the years the way these principles were expressed changed.  It seems that, from 1973 (when VAT was introduced) the Lodge treated its subscriptions as taxable. Upon reviewing that, it took the view that they should be exempt, and made a claim for overpaid VAT. HMRC refused, and the matter proceeded to Tribunal.

The Tribunal held that the Lodge had objects which included those of a philosophical, philanthropic, and civic nature. But, it also included other objects, which would not qualify for exemption, such as social and self-improvement aims. Looking at the organisation as a whole, therefore, it fell outside the exemption. There is a comment in the decision that, more recently, those aims have changed somewhat, possibly bringing it back within the exemption.

(http://www.bailii.org/uk/cases/UKFTT/TC/2014/TC03302.html)

One of the other issues that must be considered is that of annual conferences and/or exhibitions. The changes in the rules relating to supplies of land have also affected such events. The supply of exhibition space is no longer an exempt supply of land (except in certain quite specific situations). This can also leave the organisation vulnerable to HMRC challenge.

I have seen a number of situations where the annual conference/exhibition is operated through a separate trading subsidiary, so as to ring-fence the exempt subscription.  This arrangement may also help where there is substantial on-going taxable trading activity.

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