HMRC NEWS
Revenue and Customs Brief 3 (2025): VAT treatment of income received from charity fundraising events
Following the Upper Tribunal’s (UT) decision in the Yorkshire Agriculture Society ([2205] UKUT 00004), HMRC has now released this newly published RCB3 to provide an update on the VAT treatment of supplies made by charities and other qualifying bodies in connection with fundraising events.
Charities and other qualifying bodies may treat certain supplies of goods and services as VAT exempt if they are made as part of an event held to raise funds for charitable activities. VAT legislation states that:
- The primary purpose of the event must be the raising of money
- The event must be ‘promoted as being primarily’ for the raising of money
The UT has now confirmed that there can be more than one primary purpose. As such, the ‘fundraising’ primary purpose can be ‘a primary purpose’ and not only ‘the primary purpose’. This widens the scope of the relief as HMRC accepts that there may be two primary purposes and if these cannot be separated in importance, the exemption can still apply provided one of those primary purposes is the raising of funds. In addition, the UT found that the word ‘primarily’ in ‘promoted as being primarily for the raising of money’ should be ignored. This means that the event must still be promoted as a fundraising one but does not need to emphasise this as a primary purpose.
HMRC has now confirmed its policy remains that the primary purpose of the event must be that of fundraising and that the event must be advertised as a fundraising event. If there is more than one primary purpose, charities and other qualifying bodies must be able to evidence this and provide a clear explanation as to why they cannot be separated in terms of importance.
Constable VAT Comment: Overall, the UT’s decision provides a more inclusive interpretation of the legislation that favours charities, although HMRC’s guidance suggests that the path to VAT exemption will still require careful navigation including clear documentation and justification where there is possibly more than one primary purpose of the event. In addition to the ‘primary purpose’ and ‘promoted primarily’ implications, there are other conditions to take into account before an event can be treated as VAT exempt fundraising including what is an ‘event’, how many events are held and many more. Before treating an event as VAT exempt, and in the case of any ambiguity we would recommend seeking professional advice and Constable VAT would be pleased to assist. For example, many charities that organise events may charge a fee to exhibitors and supplies such as these, exhibition charges and fees, are not specifically mentioned in HMRC guidance, the focus may only be on admission fees charged to the public to attend an event. In the case of Southport Flower Show (2012 decision) the charity reclaimed input VAT on the basis that it had opted to tax land on which exhibitors paid a fee to promote and advertise their goods and services at a VAT exempt charity fundraising event.
The charity treated its supplies of admission ticket sales to the show and a gala dinner as VAT exempt under the fund-raising exemption; however, because it had opted to tax the land that trade exhibitors occupied it charged and accounted for VAT on those supplies, and reclaimed input VAT on the costs it incurred on the hire of trade stands. The Tribunal rejected the charity’s argument and dismissed its appeal, the tribunal chairman noting that ‘the option to tax does not exclude exemption by virtue of Group 12’, Group 12, Schedule 9, VATA 1994 being the relevant law in relation to fund-raising events by charities and other qualifying bodies.
This decision supports HMRC’s policy that the option to tax may override the property exemption but it does not override the fundraising exemption and also serves to example the complexities that may arise.
Revenue and Customs Brief 4 (2025): VAT deduction on the management of pension funds
This newly published brief announces a further HMRC policy change to input VAT deduction on the management of pension funds, following the decision of the Court of Justice of the European Union (CJEU) in the ‘Fiscale Eenheid PPG Holdings BV cs te Hoogezand (C-26/12) (PPG)’ case.
HMRC’s historic policy was that where there was dual use of investment costs by an employer and trustees, a method of apportionment on a fair and reasonable basis to determine how much input tax could be deducted by each party was required. However, following the release of RCB4, HMRC will no longer view investment costs as being subject to dual use. Instead, all the associated input VAT incurred will be seen as the employer’s and deductible by the employer, subject to the normal rules.
The Brief is very much a headline comment and further guidance is expected from HMRC which will, it is hoped, qualify the extent of costs that HMRC may accept as deductible by an employer.
Check where an online marketplace seller is established
HMRC has recently released this new guidance aimed at online marketplace operators, advising on how to check if a seller is established outside the UK, and to work out who is liable for VAT on sales.
Investment gold coins (VAT Notice 701/21A)
The above guidance sets out a list of gold coins considered as investment gold coins for VAT exemption as detailed in Group 15 to Schedule 9 of the VAT Act 1994. The UK list of coins recognised as investment gold coins has been updated.
CASE REVIEW
Upper Tribunal
1. Single and multiple supplies
In JPMorgan Chase Bank N.A (CBNA) the Upper Tribunal (UT) dismissed CBNA’s appeal and upheld HMRC’s view that intra-group services supplied by CBNA to JP Morgan Securities plc (SPLC) constituted a single taxable supply for VAT purposes. Our summary of the FTT decision can be read here.
CBNA, a US-regulated bank within the global JPMorgan group, provided a wide range of operational and infrastructure services to SPLC, a UK-based trading entity. Both were part of the same UK VAT group registration meaning intra-group supplies are normally disregarded; however, CBNA incurred costs from overseas suppliers, bringing it within the scope of VAT.
At the heart of the appeal were three key issues. First, whether CBNA provided a single composite supply of support services or multiple distinct supplies tailored to different business areas. Second, depending on that determination, whether the supply was taxable or exempt. Third, if multiple supplies existed, whether any of them were exempt under the financial services VAT exemption rules.
CBNA claimed it made multiple supplies—either seven distinct services for different business areas, or two types: Business Delivery Services and Support Services. It argued that some services should be exempt under EU financial services provisions. HMRC contended, and the FTT agreed, that CBNA provided a single, integrated support function to SPLC to enable it to conduct its trading business compliantly across global markets.
The Tribunal found that the services were indivisible, economically integrated, and not separately available, forming a single composite supply. It rejected the idea that invoicing breakdowns or internal service labels altered the VAT analysis and applied tests from key cases, focusing on the “typical consumer” and economic reality. The contractual distinctions introduced in 2019, prompted in part by ongoing disputes with HMRC, did not reflect any real change in service delivery.
Having found there was a single taxable supply there was no need to consider the third issue; however, the UT commented that even if there had been multiple supplies, none qualified for exemption. The services were largely operational and infrastructure in nature, and, therefore, did not fall within the scope of VAT exempt financial services. The appeal was dismissed.
Constable VAT Comment: This is a complex decision which reinforces that the economic substance of a transaction overrides contractual form in VAT analysis. Intra-group service arrangements, especially in large financial institutions, will be judged on their economic integration—not internal labels or invoice breakdowns. It will be interesting to see whether CBNA decides to appeal the Upper Tribunal’s decision, taking matters to the Court of Appeal.
First Tier Tribunal
2. VAT Exemption for financial intermediaries
In the case of Performance Leads Limited (PLL), HMRC denied an error correction notice (ECN) submitted by PLL in the sum of £247,407 for overpaid VAT. PLL operates two websites that connects individuals seeking financial advice with FCA authorised independent financial advisors (IFAs). The IFAs paid PLL a fee per lead. Historically, PLL treated its services as standard rated declaring output VAT; however, PLL latterly formed the view that its supplies were VAT-exempt as financial intermediaries under Schedule 9, Group, 5 Item 5, of the VAT Act 1994.
PLL submitted the ECN on that basis; however, HMRC rejected PLL’s claim on two grounds arguing that PLL had not demonstrated the leads resulted in exempt financial services; and second, that its activities did not amount to “work preparatory to the conclusion of contracts”. HMRC characterized PLL’s work as advertising, which is explicitly excluded from VAT exemption.
The Tribunal had no difficulty in rejecting HMRC’s arguments. The FTT found that PLL’s services went far beyond advertising as it carried out meaningful filtering of user enquiries, ensuring that only relevant and monetisable leads were passed to IFAs. The Tribunal found that PLL’s role in bringing together individuals and IFAs meant it was acting in an intermediary capacity, even though it did not participate in the actual negotiation of financial contracts; however, as most of the relevant financial services provided by the IFAs fell under Item 6 of the VAT exemption, there was no requirement for PLL to perform “work preparatory to the conclusion of contracts”, which only applies to other financial categories. On that basis, the appeal was allowed.
Constable VAT Comment: This was an interesting case considering where to draw the line between supplies of standard rated advertising services and VAT exempt lead generation falling within ‘financial intermediary services’. Another point worth noting in this case was the Tribunal’s concerns over HMRC’s handling of the case. The dispute initially went through an Alternative Dispute Resolution (ADR) meeting. During the process, the parties agreed the sole legal issue to consider at the FTT; however, HMRC later attempted to introduce further arguments. The Tribunal criticised this as ‘undesirable’ and contrary to good procedural practice; nevertheless all arguments were heard and HMRC’s decision was overturned. It remains to be seen whether HMRC appeals this decision to the Upper Tribunal.
It was perhaps surprising that the FTT allowed exemption for all leads as potential customers may be seeking financial advice only, or a discretionary/managed portfolio service that would be taxable. If the underlying product was not VAT exempt, VAT exemption for an intermediary services is not usually possible.
3. VAT assessment issued by HMRC out of time?
In the case of Conservatory Insulations Northwest Limited (CIN), the dispute arose following the submission of an error correction notice (ECN) by CIN on 15 July 2022, relating to several VAT accounting periods. The VAT sums involved totalled £54,468. HMRC automatically acknowledged receipt of the ECN by HMRC on the same day. The ECN was subsequently lost or misfiled by HMRC. A replacement was sent on 22 May 2023 after CIN’s agent followed the matter up with HMRC.
An HMRC officer completed form V642 on 27 June 2023, but the form included a penalty inhibit requiring a countersignature by a more senior officer. This was an ‘unprompted’ error, CIN had identified VAT accounting errors and notified HMRC meaning that even a penalty for a ‘careless’ error could be mitigated to 0% of the potential lost revenue (PLR), in this case £54,468.
The countersignature was completed on 18 July 2023, and the VAT assessment was notified to CIN on 22 July 2023, showing tax due of £54,468 and interest of £5,044.83.
The only issue between the parties was whether the VAT assessment was raised within the statutory time limits, i.e. within one year of HMRC having “evidence of facts sufficient” to justify the making of the VAT assessment. CIN appealed to the Tribunal on the grounds that the assessment was made on either 18 July 2023, when the counter-signature was complete, or 22 July 2023, when the assessment was issued. Both of these dates are outside of the one year time limit. HMRC argued that the assessment was made on 27 June 2023 when an officer completed V642, within the one-year period.
Relying on extensive case law, the Tribunal confirmed that where HMRC’s own internal processes require senior approval, the time limit clock stops only once that process is complete, i.e. the assessment was made on 18 July 2023. Given that the initial ECN was submitted on 15 July 2022, the assessment was out of time and the appeal was allowed.
Constable VAT comment: This case is a significant reminder that HMRC must strictly comply with statutory time limits and its own internal procedures when issuing VAT assessments. For taxpayers and advisors alike, it reinforces the importance of understanding both legal deadlines and HMRC’s administrative processes when considering appeals, reviews or challenging assessments. We are surprised that HMRC took this case and argued such a technically weak point. Perhaps HMRC hoped that CIN would back down and not pursue an appeal to the FTT. It is also important to note that HMRC applied for CIN’s appeal to be struck out on the basis that either the FTT did not have the jurisdiction to hear the appeal or there was no reasonable prospect of CIN’s appeal succeeding. Thankfully, the FTT refused this application. It is not clear why HMRC should adopt this approach, and it could have withdrawn from the appeal process if it did not want this matter to be in the public domain. If we consider the position here, we wonder what HMRC has achieved. CIN has incurred the time, cost and effort of behaving as HMRC expects of reasonable taxpayers yet HMRC’s actions accomplished nothing. The UK exchequer has lost just over £59.5k in funding (VAT and interest) that was notified as being due by a taxpayer, but because of inefficiencies and failings on HMRC’s part those sums are lost. In addition, CIN has probably had to fund the resource of a hearing, and HMRC’s strike out application and its preparation for a hearing all come at a cost to it. Whilst misunderstandings do happen, whether that be in business, advisors or HMRC, it is a shame that, on this occasion, HMRC did not feel able to admit a mistake and let the matter rest rather than put all taxpayers to an unnecessary cost.
4. Late payment penalty
In the case of ESC Studios Ltd (ESC) the First-tier Tribunal (FTT) overturned a £9,025.59 penalty issued for a late VAT payment, finding that ESC had a reasonable excuse for that late VAT payment, due to HMRC’s own delay in processing a large VAT repayment owing to ESC and failing that, the penalty would have been cancelled under ‘special circumstances’.
ESC, a film production company, submitted its March 2024 VAT return showing a £478,893.36 VAT repayment claim, a high amount driven by multiple productions being in progress. HMRC, not unreasonably, launched a routine pre-VAT repayment credibility check prior to authorising the VAT refund generated. This delayed the refund of VAT repayment owing for over six months, despite ESC providing all information requested by HMRC to the officer dealing with the enquiry promptly.
When ESC’s June 2024 VAT liability of £225,639.93 became due on 7 August 2024, it lacked the funds to pay VAT owing, not unreasonably expecting the earlier VAT repayment to be processed and refunded by then. The VAT owing was not paid until November 2024, once HMRC had finally completed its investigation and made the VAT repayment in respect of the March 2024 VAT return. The VAT refund originally reclaimed on the VAT return was not adjusted at all by HMRC. HMRC issued a late payment penalty on ESC in respect of its 06/24 VAT return. ESC agrees the VAT owing to HMRC was paid late; however, it appealed to the Tribunal on the grounds that it had a reasonable excuse for late payment, or penalty should be reduced due to ‘special circumstances’.
The FTT highlighted that ESC acted responsibly and diligently, cooperating promptly at all times. The late payment in respect of its 06/24 VAT return was due to HMRC’s delay, not negligence by the company and ESC’s belief that the March 2024 VAT repayment owing to it would arrive in time was reasonable and sincere. It was not realistic or fair to expect a small, growing business to borrow or absorb a shortfall of that significant size. Whilst ‘insufficient funds’ is generally not a reasonable excuse; it can become one when the insufficiency of funds are attributable to events outside the person’s control. The FTT had no difficulty in finding that ESC had a reasonable excuse in this case. The FTT also noted that, even without a reasonable excuse, it would have cancelled the penalty under the “special circumstances” rule, citing HMRC’s failure to consider the full context. The appeal was allowed.
Constable VAT Comment: This is an important case for taxpayers highlighting the benefits of acting proactively and diligently in dealings with HMRC, as a ‘reasonable taxpayer’ would be expected. One point worth flagging is that if ESC had doubts it will be able to cover its upcoming VAT liability, it had the option of contacting HMRC to agree a time to pay (TTP) arrangement. The FTT also flagged this quoting that “We do recognise that the Appellant could have sought a formal deferral of the due date of 7 August 2024 which, if agreed by HMRC, would have then allowed this penalty to be avoided. On future occasions, that might prove to be a sensible precaution for the Appellant to take”. Whilst ESC managed to successfully argue ‘reasonable excuse’, we would recommend TTP to be considered as a precautionary measure in all cases. Those points aside, it is also worth noting how HMRC behaved in this case which illustrate the double standards HMRC seemingly increasingly operates which, unfortunately, damages its reputation with businesses. In this case it was 132 working days after the 03/24 VAT return was submitted, and 101 working days after HMRC first met ESC that the VAT repayment originally reclaimed was paid by HMRC, without adjustment.
5. VAT exemption for private tuition
In the case of Rushby Dance and Fitness Centre and Others (the appellants) the scope of VAT exemption for private tuition was examined in the context of dance and fitness classes. The case involved four appellants each of whom challenged HMRC’s decision to deny VAT exemption and therefore register those businesses for VAT.
At the heart of the case was the application of the VAT exemption for “private tuition in a subject ordinarily taught in a school or university.” In order to fall within the exemption, there are two conditions that must apply:
- The supply must be one of private tuition by an individual teacher acting independently of an employer; and
- The tuition must be in a subject ordinarily taught in a school or university
Three of the appeals concerned bullet point 2, the Tribunal had to determine whether the classes constituted private tuition in a subject ordinarily taught in schools. The appellants offered various dance and fitness classes ranging from ballroom to Latin dance to branded fitness classes such as ‘Kettlercise’. The FTT drew a clear distinction between general dance education (which is indeed part of the national curriculum) and specific and unique dance styles or branded fitness programmes. The law does not require that private tuition mirror school teaching; however, tuition must still relate to subjects commonly taught in educational settings. There was insufficient evidence to show that the various dance and fitness classes supplied by the appellants were commonly taught in schools. These appeals were dismissed.
However, one of the four appellants, Dance Consultants International LLP (DCI) appeal was distinct in that the Tribunal had to determine whether the appellants, as members of an LLP, were acting on their own account and at their own risk, and hence independently of an employer. HMRC took the view that non-designated members of the LLP were responsible to the LLP as a whole so that the effect was as if the LLP was an employer and therefore VAT exemption cannot apply. The Tribunal disagreed, accepting that members provided tuition on their own account and at their own risk, satisfying the legal definition of “private tuition.” As such, DCI’s appeal against VAT registration was successful, although further clarification between DCI and HMRC will be needed to determine which specific classes qualify for exemption.
Constable VAT Comment: This decision reinforces a strict interpretation of VAT exemption for education while acknowledging that a broad subject like “dance” can encompass many sub-genres, not all of which automatically qualify. It also raises the question whether the intention of Parliament, at the time of implementing this legislation, was that such a detailed analysis is necessary at all times or is it simply that the range of subjects now taught in schools and universities has expanded far beyond what it once was, and the legislation is now ‘out-dated’ to take this into account. This is a complex area, as demonstrated by these cases, and advice should be taken in situations where the VAT liability of supplies may be open to interpretation.
6. VAT zero rating on supply of drugs
Clatterbridge Pharmacy Limited (CPL), a wholly owned subsidiary of the Clatterbridge Cancer Centre NHS Foundation Trust (the Trust), dispenses cancer medication to outpatients including intravenous and injectable drugs, which are often administered by nurses in patients’ homes. Drugs dispensed for ‘personal use’ are zero-rated unless supplied in hospital. The dispute in this case was whether cancer medications administered at home by healthcare professionals fall within ‘personal use’ and therefore qualify for zero-rating, or whether they should instead be standard rated as HMRC argued.
HMRC took the view that because the drugs were not self-administered, they were not for ‘personal use’ and thus did not qualify for zero-rating. The Tribunal disagreed, ruling that ‘personal use’ should be interpreted as use by a named individual, regardless of who physically administers the medicine. The drugs in question were dispensed under prescription for specific patients, labelled accordingly, and subject to strict regulatory controls that prevent those drugs from being used by anyone else. The Tribunal found that the definition of ‘personal use’ should not be limited to self-administration or private settings, as HMRC had argued.
The Tribunal also highlighted an apparent significant flaw in HMRC’s interpretation that drugs must be self-administered in order to qualify for zero rating. In certain cases, a nurse must issue a sign off confirming that a patient is able to receive and administer the drugs themselves. This means zero-rating would-be dependant on the nurse’s signing off procedure and could vary between standard rated and zero-rated supplies over time depending on the circumstances of the patient. The Tribunal called this a ‘potential absurdity’ and rejected HMRC’s argument. The appeal was allowed and the dispense fee was zero rated.
Constable VAT Comment: For pharmacies, NHS trusts, and healthcare providers engaged in outpatient or home-based treatment models, this decision provides welcome clarity as it reinforces that zero-rating can apply even when a drug is administered by a professional, so long as it is dispensed to a named patient outside a hospital setting. Whilst this case is unlikely to have an impact on most taxpayers, it does highlight the importance of a statutory interpretation which is especially important when dealing with zero rated supplies. We would recommend seeking professional advice whenever zero-rated supplies are involved and if there is any uncertainty regarding their VAT treatment. It remains to be seen if HMRC seeks leave to appeal the decision to the Upper Tribunal.
Please note that this newsletter is intended to provide a general overview of the subject. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this blog post. Specialist VAT advice should always be sought in relation to your particular circumstance.