Constable VAT & Charities Newsletter September 2014

Direct Mail Marketing Services

The Direct Marketing Association (UK) Ltd (DMA) has published on its website a letter from HMRC regarding the VAT liability of direct mailing packs. Please see the following link. This ruling may result in charities incurring even more irrecoverable VAT.

HMRC has advised the DMA that, for VAT purposes, the supply of direct mailing packs together with postage is not a zero-rated supply (a single supply of printed matter with the ancillary supply of postage) but a single standard rated supply of marketing services. It also appears HMRC do not consider the supply of the printed matter (usually zero-rated) and postage (standard rated) to be separate supplies where an apportionment could be made between the zero-rated and the standard rated element of the supply.

This ruling will impact particularly on organisations who purchase such services and are unable to recover VAT in full. We would suggest charities review the position regarding direct marketing services received, particularly if suppliers are seeking to charge VAT either retrospectively or moving forward. Constable VAT would be happy to this matter if this would be helpful.

Buildings and Construction – Relevant Charitable Purpose – Village hall or similar

VAT reliefs are available for the construction of, buildings used for a ‘relevant charitable purpose’(RCP).  Buildings used for a RCP includes ‘village halls or similar’. HMRC updated Public Notice 708 ‘Buildings and construction’ on 14 August 2014 defining the term ‘similar’.

HMRC view the term ‘similar’ as referring to buildings run by communities that are not villages but are organised in a similar way to a village hall committee. HMRC state that the charity would have trustees who are drawn from representatives of local groups who intend to use the facility. The facility should be for the benefit of the whole community rather than just for one particular group. The use of the hall should be arranged on a first come first served basis, and no single group should have priority over the others. Therefore, HMRC consider that a building designed for a particular sporting activity (e.g. a cricket pavilion or football clubhouse) is unlikely to be seen as being similar to a village hall and may not benefit from the VAT reliefs available.

This change in HMRC’s guidance may affect not for profit sports clubs who may be unable to obtain VAT reliefs on construction services and leases. The VAT incurred on these services is likely to be a cost to these organisations which they may be unable to recover. We witnessed a campaign in spring of this year by HMRC Charities Team contacting sporting organisations such as CASCs and questioning the entitlement to receive services VAT free, zero-rated.

Supply of electronic services

In the previous Constable VAT newsletter for charities and not for profit organisations (Summer 2014) we addressed the changes that come into force on 1 January 2015 to the place of supply of services rules involving business to consumer (B2C) supplies of broadcasting, telecommunications and e-services (BTE). Registration for the VAT Mini One Stop Shop (MOSS) will be available from October 2014.

To request a UK MOSS VAT registration under the new provisions a business must already be registered for VAT in the UK.

It must be bourne in mind that if the MOSS system is not used then, with effect from 1 January 2015, £1 of BTE services supplied to a consumer in another Member State could trigger a liability to VAT register in that country.  Therefore, a charity supplying BTE services that is not already registered for UK VAT may wish to consider registering on a voluntary basis.

A voluntary UK VAT registration might appear unattractive if this will result in increased charges to UK customers and an increased administrative burden on the charity.  However, if the alternative is a potential obligation to register for VAT in up to 27 other countries then a UK VAT registration may become more appealing. If a UK charity wishes to supply BTE services and continue to enjoy the benefit of the UK’s £81,000 VAT registration threshold it may be advised to ensure that it will not inadvertently expose itself to overseas VAT registration obligations as a result of a few small value transactions.

Constable VAT recommend that organisations supplying BTE services (such as services delivered over the Internet) to overseas individuals consider how the change in the VAT rules will affect it. It may be necessary to take VAT advice prior to 1 January 2015.

Recent VAT Tribunal cases

VAT exemption for cultural services

HMRC appealed against the FTT’s decision in the British Film Institute (the BFI) case that Article 13A(1)(n) of the Sixth Directive (EU law) had direct effect in the UK between 1 January 1990 and 31 May 1996. Article 13A(1)(n) exempted supplies of “certain cultural services and goods closely linked thereto by bodies governed by public law or other cultural bodies recognised by the Member State concerned.” During the claim period the UK law did not provide exemption for cultural services and BFI accounted for VAT at the standard rate on the sale of tickets for admission to the screenings of films.

It was not disputed that admission to a cinema or other venue screening films was a cultural service for the purposes of the exemption. Nor was it disputed that the BFI was a body governed by public law or other cultural body within the meaning of Article 13A(1)(N). The issue at appeal before the UT was whether the terms of Article 13A(1)(N) were sufficiently clear and precise for it to have direct effect in the UK and whether Article 13A(1)(N) permitted the Member States any discretion in its application.

The UT explored the meaning of “certain cultural services”. The UT stated the purpose of VAT exemptions in the EU legislation is to avoid discrepancies in the application of the VAT system between Member States. The UT argued, interpreting the cultural exemption as suggested by HMRC would lead to differences between the tax treatment of the supplies in different Member States. The UT were also of the view that Article 13A(1)(N) should be regarded in the same way as Article 13A(1)(M) (the VAT exemption for sport, which is worded in a similar fashion to the cultural exemption). The UT concluded that Article 13A(1)(N) was sufficiently precise and not in terms intended to allow scope to Member States in its application so that it had direct effect during the BFI’s claim period.

This is an interesting decision by the Upper Tribunal which could see HMRC appeal to the Court of Appeal. We would suggest that not for profit bodies affected by this decision should seek advice regarding the VAT liability of its supplies and whether a retrospective claim of VAT overpaid on supplies is advisable (such a claim may be offset against input tax reclaimed).

Constable VAT Consultancy LLP is a specialist independent VAT practice with offices in London and East Anglia. We work together with many charities and not-for-profit bodies ranging from national charities to regionally based organisations. Constable VAT has a nationwide client base.

We understand that charities wish to achieve their objectives whilst satisfying the legal requirements placed upon them. Charities may be liable to account for VAT on supplies made and VAT will be payable on certain expenditure. As irrecoverable VAT represents an absolute cost to most charities, regardless of their VAT registration status, there is a need to review the position regularly and carefully. We offer advice with planning initiatives, technical compliance issues, complex transactions, help with innovative ideas on VAT saving opportunities, and liaising with HMRC.

If you would like to discuss how VAT impacts on your organisation please contact Stewart Henry,  Laura Krickova or Sophie Cox on 020 7830 9669, 01206 321029 or via email on, and  Alternatively, please visit our website at where you can view some of the services we offer in more detail and subscribe to our free general and regular VAT alerts and updates.

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This newsletter is intended as a general guide to current VAT issues and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains or for any errors or omissions.