VAT landscape proves unyielding terrain for Friends of the Earth

22 June 2016

David Wilson

Environmental and conservation campaigner Friends of the Earth has lost out on a VAT repayment worth over £1million in a dispute with HM Revenue & Customs. Friends of the Earth Trust Limited, a registered charity and company limited by guarantee, sought recovery of VAT it incurred in the recruitment and training of face-to-face street fund-raisers.

Appearing before the VAT tribunal, the charity argued that, as the supporters who signed up to make a minimum £3 regular direct debit payment received the Earthmover magazine, the costs incurred in training street fund-raisers directly related to a VAT zero-rated supply and should therefore be recoverable.

The tribunal however disagreed as, on the evidence before it, entitlement to the magazine was not prominent in either the street fundraisers ‘pitch’, or on subsequent communications by Friends of the Earth. In recognising that, while a supporter did not get the magazine and other benefits unless the minimum payment is made, the tribunal determined that the minimum contribution of £3 per month was not consideration ‘for’ any benefit, but a gift, outside the scope of VAT, to be used in Friends of the Earth’s charitable work. VAT on underlying ‘costs’ was therefore not recoverable.

Typically, as in Friends of the Earth, street fund-raisers are encouraged to develop a short sharp pitch adapted to the fundraiser’s own style, presenting someone with a single urgent environmental or conservation issue, homing in on one thing that a person engaged may respond to, and asking that person to get involved in that issue. Once someone has been engaged for the first time they are guided towards committing a certain minimum amount of money with certain regularity.

Whilst such face to face street fund-raising (chugging) provides an important and steady income source for many charities, it has, nevertheless, received its fair amount of bad publicity and public concern, with many local authorities - the latest being Newcastle City Council - introducing Public Space Protection Orders to either ban outright, or severely restrict the practice.

One can only wonder therefore whether the general public will empathise, or sympathise, with a charity’s inability to recover VAT costs, or whether knowing that part of their contributions are going direct to the Treasury might be a reason for not donating in the future.

If you would like any more information on this issue please contact David Wilson.