Risk of Supporters becoming responsible for VAT
It is quite common in charity circles for helpful supporting individuals to become involved in assisting the charity in various ways. In some cases a fundraising event, such as a golf day, might be organised, year on year, by the same individual, all the proceeds of which go to that charity. Or a group of supporters, such as the PTA of a school, may sell things ‘for’ the school. Or an individual may run a catering or gift shop operation on the charity’s site, and provide the proceeds to the charity.
In such cases the documentation is not always sufficient (if it exists at all) to identify the role of the supporter, and whether, in law, the supporter runs the operation and gifts the proceeds, or is merely an agent of the charity. Where documentation does exist, and is clear enough, the importance of this point often passes both the charity and the individual by. The outcome is that the charity does not take responsibility for it (as being out of their hands on a practical level) but the individual assumes that he can have no responsibility for something he clearly does solely out of love for the charity.
This kind of issue is neatly (but sadly) illustrated by the tribunal decision in Marites Salabit (TC07450). This lady was a congregation member of a church. The church wanted to run a bar (though it could just as easily have been a café or small restaurant) on the premises. In the past, the clerics had made losses, so they were looking for a congregation member to take it on. To avoid losses, the church set a minimum value that the enterprise had to generate for it (though this was too ambitious and was later reduced). The quid pro quo was that any excesses over that could be kept by the volunteer. She was paid no salary, and she was responsible for almost all the costs of the operation, which she needed to cover from the sales.
It turned out that the lady made no surpluses apart from the minimum required value, which she duly passed to the church.
The bar traded above the VAT thresholds. She argued that she was merely an agent for the church. The tribunal disagreed. Despite the plain point that her sole wish was to provide this service for the other congregation members, and thus effectively for the church, the written agreement had the effect of renting the bar facilities to her and allowing her to trade from them. The fact that all parties knew that only superhuman efforts could allow her any profit (which she said, but could not prove, would have been given to the church had it arisen) was not in point. She was, nonetheless, the trader.
This is probably a single example of a widespread problem. Charities will want to consider the reputational impact were this to happen to any of their supporters.
Graham Elliott is Technical Adviser to the Charity Tax Group
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