The Tax Tribunal decision in Furniture Finders of Winsford Ltd (FFOW) dealt with the definition of the term ‘charity’ and the matter of charitable status.
FFOW is a company limited by guarantee operating a social enterprise selling donated furniture. The majority of customers are persons in need and FFOW registered for VAT on the grounds that it was selling donated goods. The sale of donated goods by a charity is zero-rated for VAT purposes. This requires no VAT to be accounted for on sales of donated goods but an entitlement to recover VAT charged arises. FFOW believed that it qualified as a charity for VAT purposes having read HMRC’s public notice 701/1 (charities):
‘There is no distinction for VAT purposes between those charities that are registered with one of the charity regulators and those that are not. However, charities that are not registered with a regulator who want to claim VAT relief may need to demonstrate to Customs that they have ‘charitable status’ through recognition of that charitable status by the Inland Revenue.’
FFOW’s assumption was that because it was a company limited by guarantee its supplies of donated goods could be properly treated as zero-rated. Whilst it is clear from the Tribunal Chairman’s comments that there was sympathy with FFOW’s position, zero-rating was not applicable and the appeal was dismissed. HMRC commented at the Tribunal that it intends to revise the wording of its notice.
It is not clear from the Tribunal decision if FFOW requested HMRC exercise discretion and apply concessionary treatment. Extra Statutory Concession (ESC) 3.4 Misunderstanding allows HMRC to remit tax where an error has arisen as a result of a genuine misunderstanding. However, with effect from 1 January 2012 this concession is to be withdrawn. Where errors are made as a result of a true failure to understand VAT legislation correctly HMRC will not remit any VAT owing, even if the mistake arose prior to 1 January 2012 when concessionary treatment was available. If businesses discover that supplies have been treated as zero-rated or VAT exempt in error prior to 1 January 2012, as a result of a genuine misunderstanding, it is worth requesting HMRC apply concessionary treatment whilst this is still possible.
