CVC VAT & Charities Newsletter – November 2016

  1. Purchasing zero-rated adapted vehicles
  2. VAT appeal updates
  3. Zero-rated construction services – ‘relevant charitable purpose’ and the meaning of ‘economic activity’
  4. VAT exemption for the supply of cultural services
  5. Cost Sharing VAT exemption
  1. Purchasing zero-rated adapted vehicles

HMRC has updated the following forms:

  • VAT1615: purchasing zero-rated adapted vehicles (guidance for customers)
  • VAT 1616: purchasing zero-rated adapted vehicles (guidance for suppliers)
  1. VAT Appeal Updates

This update lists cases that HMRC has lost and may have implications for other businesses and charities.

  1. Zero-rated construction services – ‘relevant charitable purpose’ and the meaning of ‘economic activity’

The Court of Appeal has allowed HMRC’s appeal in the case Longridge on the Thames (Longridge). This decision overturns the previous decisions by the First Tier Tribunal (FTT) and Upper Tribunal (UT). The case concerned the VAT liability of construction services supplied in the course of constructing a training centre. The FTT and UT previously found that construction services were zero-rated as the building was used solely for a ‘relevant charitable purpose’. HMRC asserted that Longridge carried on business activities and zero-rating could not apply.

Longridge is a charity. It provides educational and recreational outdoor and water based activities and instruction. The charity charges for its services according to a persons’ ability to pay. The payment made by the end user does not represent the full cost of the service. The charity’s activities are heavily subsidised by donations and delivery reliant on volunteers.

Both the FTT and the UT considered the wider context in order to determine whether Longridge carried on a business activity. HMRC’s case was that this approach is not consistent with EU law. The CJEU has clarified the test to determine whether an economic activity is carried on. The test is whether there is a direct link between the payment made and the supply received. The Court of Appeal agreed with HMRC that this is the correct test to apply. The FTT and UT misdirected themselves. Unless there is no direct link between the service and the payment received there will be an economic activity for VAT purposes. The Court of Appeal allowed HMRC’s appeal, Longridge’s activities amount to an economic activity for VAT purposes. The payment made by the end user directly relates to the services supplied by the charity. The fact that the charity does not seek to make a profit, is reliant on volunteers and prices its service according to the users’ ability to pay is irrelevant for the purposes of determining whether a charity is in business for VAT purposes.

The full Court of Appeal decision can be read here.

CVC comment: the decision comments that charities do not receive a blanket relief from VAT. There is no exception for activities provided for the public benefit. The fact that the provider does not seek to make a profit is also irrelevant. The Judge examined the domestic cases Morrisons’ Academy, Fisher, Yarburgh and St Paul’s and commented that effect must be given to CJEU law despite domestic practice to the contrary.

The correct test to apply in determining whether an activity is an economic activity for VAT purposes has been clarified. This is a narrow test and charities may need to consider offering services free of charge to obtain ‘relevant charitable’ status. However, third party consideration can also create a taxable business supply for VAT purposes.

  1. VAT exemption for the supply of cultural services

The Advocate General (AG) has given their opinion in the British Film Institute (BFI) case (C-592/15). The Court of Appeal of the United Kingdom referred questions to ascertain whether Member States have the discretion to choose which cultural services may be eligible for VAT exemption.

The European VAT legislation provides that ‘certain cultural services’ supplied by bodies governed by public law or by other cultural bodies recognised by the Member State concerned shall be VAT exempt. The AG considers that it is for the Member State to decide which cultural services are exempt from VAT. It follows, therefore, that the European provision may not be relied on directly by BFI before the national court.

The AG explained that the choice of the term ‘certain’ rather than ‘all’ shows that the European legislation did not intend to make a general VAT exemption for cultural services. The AG also expressed the view that Member States are best placed to identify the supplies of cultural services that are most appropriate to serve the public interest as cultural traditions and regional heritage are varied within the EU. The AG recommended that it is for the national court to decide whether BFI’s supplies fall within the VAT exemption in compliance with the principle of fiscal neutrality.

CVC comment: while the AG’s opinion usually provides an indication of the judgement of the CJEU it would not be unheard of for the CJEU to depart from the AG’s opinion. The UK currently restricts its cultural services VAT exemption to museums, galleries, art exhibitions, zoo; or theatrical, musical or choreographic performances of a cultural nature.

  1. Cost sharing exemption – European Commission against Luxembourg

European legislation provides that all Member States shall exempt supplies of services by independent groups of persons, who are carrying on an activity which is exempt from VAT, for the purposes of that exempt activity, where the supplier merely claims exact reimbursement of their share of the joint expenses. This allows exempt businesses (such as charities, universities, insurance companies etc.) to share costs.

The issue before the CJEU was whether Luxembourg has gone too far when implementing this exemption. Luxembourg VAT law allows the cost sharing exemption to be used by persons whose activities are exempt from or not subject to VAT (e.g. non-business supplies) and also carry out taxable activities provided the revenue generated from taxable activities does not exceed 30% of total turnover.

The CJEU ruled that Luxembourg has failed to fulfil its obligations under EU VAT law by allowing the cost sharing exemption in cases where services are not directly necessary for exempt or non-business activities.

CVC comment: HMRC considers a body to be eligible for membership of a cost sharing group (CSG) if in the previous 12 months at least 5% of its activities were exempt and/or non-business. Exemption only applies to services provided by the CSG to its members which are ‘directly necessary’ for the member’s exempt or non-business activities. A simplified basis for determining whether services are ‘directly necessary’ is allowed by HMRC. If 85% or more of the member’s activities are exempt and/or non-business all supplies received from the CSG will be regarded as ‘directly necessary’ and therefore exempt. Decisions of the CJEU are binding on all Member States. HMRC may have to reconsider its approach to ‘directly necessary’ supplies and the simplified basis currently allowed.


Constable VAT Consultancy LLP (CVC) 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, those working overseas, and regionally based local organisations. CVC 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 Beckett 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. Visit our website for current news updates. You can also follow CVC on Twitter.


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. CVC 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 newsletter. Specialist VAT advice should always be sought in relation to your particular circumstance.