What “benefits” does your charity offer to Supporters?

Preparing for my next VAT training event to deliver for WCVA I came across yet another example where a charity should have ensured it had properly thought through the VAT implications of its fund raising plans. This very recent case decision released last week dealt with the VAT treatment that HMRC believed should have been applied by The Serpentine Trust in London to monies received from supporters in exchange (as HMRC regarded anyway) for a mixed bag of benefits supplied in return for the “donations”.

This will be a situation familiar to many charitable arts, cultural, environmental bodies as they look to engage support from benefactors. Each “benefit” offering may in itself seem small:

• Free invitations to private viewings or performances
• Advance notice to purchase tickets for events or in this instance limited edition prints
• Priority bookings on events
• Acknowledgement of being a benefactor or supporter in publications or on line media

The difficulty from the VAT perspective is that if it can be seen that there is a specific and measurable consideration which has to be paid in order for the donor to receive these benefit packages, then we walk straight into the basic VAT rule of making a supply for a consideration. If that supply is deemed to be standard rated then VAT at 20% needs to be accounted for on that “donation”.

The Serpentine Gallery was assessed by HMRC for £171,067 of missed VAT on income from the various Supporter Schemes which it operated and whilst it appealed against this assessment, that appeal was unsuccessful in the VAT First Tier Tribunal.

The admission to the art gallery, run by the registered charity, is normally free but the income assessed for VAT came from the operation of various supporter, patron or benefactor schemes where the supporter must pay a stated amount and then becomes entitled to a specified list of benefits.

The Charity tried various arguments to support its position that it made no supply to any benefactor arguing that:

• The benefits provided to supporters were de minimis with the effect that the benefits were not actually provided for the payments made by the supporters or,
• If that argument was not successful – that only part of the payment made by the supporter was actually for the benefits element so only that small element had to have VAT accounted for on it.
• A third argument was also presented that if all the payment was regarded as consideration for the benefits provided then they should be able to separate the payment against those benefit elements that were zero rated for VAT purposes or even VAT exempt and only have to apply VAT to the standard rated values.

In all three aspects the charity was unsuccessful and left considerably out of pocket as a result.

VAT Law states: VATA 1994, S 5:

“(2) (a) supply in this Act includes all forms of supply, but not anything done otherwise than for a consideration.”

Simply calling an amount of money a “donation” is not sufficient to take it outside the scope of VAT if HMRC would perceive that the monies paid directly links to benefits (supplies) that the charity is making to the body paying them that money.

I’m sure our clients in the charity sector often think my constant desire to check their fundraising plans from the VAT perspective BEFORE they start them is an unnecessary management step – but every time I see such a case as this and its painful financial outcome it re enforces the need to be proactive on the VAT side – VAT certainly came back to bite The Serpentine Gallery.