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Wellcome trust building

VAT: A Wellcome result for charities

1st Nov 2018
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Thanks to the Wellcome Trust Ltd (TC06761), the first tier tribunal (FTT) has decided an important VAT issue in favour of the charitable sector. However, HMRC may launch a further appeal as there is £13m of VAT at stake. 

The facts

The Wellcome trust incurred costs in relation to its investment activities. These investments are largely overseas. It receives advice from investment managers within and outside the EU. These have been accepted as non-economic business activities.

From January 2010 the trust treated the ‘place of supply’ of these services as being in the UK, which is the location of the recipient of the services. This is called the “general rule” and it applies widely to professional and other services. Where the recipient, like the trust, is not fully taxable, this generates irrecoverable VAT – in this case, £13m over a four-year period.

The tribunal commented that UK VAT legislation is “clearly not compliant” with European legislation on this point. This raises the further question of how such supplies will be treated post-Brexit. That is for a later article!

The rules

Although the trust is a corporate body, its activities have long been held not to be economic. This was the ruling of the ECJ back in 1999 (case ref; C-155/94).

The FTT sought to determine whether the trust should be treated as ‘a taxable person acting as such’ in relation to those investment activities in the EU Directive 2006/112 (PVD), art 44. If so, then the place of supply is the UK, and the input tax is established.

However, the FTT reviewed art 44 in light of the implementing regulations (EU 282/2011) art 19, which provide that a taxable person receiving services for private purposes shall be deemed to be a non-taxable person. The FTT held that non-economic business activities should be treated in the same way. Thus, the place of supply was where the supplier is located, and more significantly, no input tax loss arises.

HMRC guidance

HMRC guidance states that, where charities receive services from outside the EU, the place of supply rules mean that the value of the services is added to their taxable supplies (VAT Notice 700/12, para 4.6). This potentially triggers a liability to register for VAT.  

Where the charity is VAT registered, the charity may suffer the loss of irrecoverable input tax, in line with the charity’s “business: non-business” method of allocating expenses.


Charities should contact their regular VAT advisers promptly in order to submit claims for such input tax.

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