Charity fundraising events
Following a recent tax case at the Upper Tribunal, HMRC has issued ‘Revenue & Customs Brief 3: VAT treatment of income received from charity fundraising events’.
Background
Charities may be able to exempt supplies of goods and services that they make as part of an event held to raise funds for their charitable activities; however, not all fundraising events will qualify for exemption.
An ‘event’ for these purposes is something that is clearly organised and promoted primarily to raise money for the benefit of the charity. Events that are not organised to raise funds, but which incidentally make a profit, do not fall within the exemption. To qualify for exemption, people attending or participating in the event must be aware of its primary fundraising purpose.
Also, an event must be a planned occasion with an outcome or a result. Thus, activities of a semi-regular or continuous nature (for example, the regular operation of a shop) cannot be an event.
The recent tax case clarified which events will qualify for the exemption. The key points from the decision are as follows.
The primary purpose of the event
The primary purpose of the event must be that of fundraising. However, there can be more than one primary purpose. As such, the ‘fundraising’ primary purpose can be ‘a primary purpose’ rather than having to be ‘the primary purpose’.
This probably sounds very pedantic, but it widens the scope of the relief such that, in certain circumstances, where there are two primary purposes and they cannot be separated in importance, the exemption can still apply, provided one of those primary purposes is fundraising.
Promotion of the event
The law says that the event must be ‘promoted as being primarily for the raising of money’. However, the Tribunal found that the word ‘primarily’ 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’s position following the decision
HMRC’s 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. Charities must be able to provide objective documentary evidence that the event was organised as a fundraising event, not that there was simply an intention to obtain income from the event.
If a charity considers that an event has more than one primary purpose, they must be able to provide:
- evidence of this; and
- a clear explanation as to why they cannot be separated in terms of importance.
Events that are not organised to raise funds, but which incidentally make a profit, do not fall within the exemption.
There is no change to the limit of how many events of the same kind and in the same location can be held in any fiscal year; this remains at fifteen. If sixteen or more such events are held, all such events become taxable.
If you are involved in the running of a charity, it is very important to make sure that VAT is charged and accounted for properly, as any errors may incur interest and penalties. Please seek help if you have any questions on the fundraising rules or any other aspect of how VAT affects charities.
