Donations or Consideration for a Supply

Friends of the Earth Trust Limited, a charitable organisation, appealed against HMRC’s decision to regard payments made by supporters of the charity as donations, as opposed to consideration for the zero-rated supply of the magazine ‘Earthmatters’ as well as other benefits including a membership card and a discount on purchases made through the charity’s online shop.


The issue arose when the Appellant attempted to recover input VAT incurred in relation to the training and recruitment of “street fund-raisers” - this recovery was blocked by HMRC as they ruled that the incurred input VAT related to donations, which are outside the scope of UK VAT.  The payments that formed the basis of this case were given by supporters and any payments equating to or exceeding £3 per month were eligible for the various benefits offered by the organisation. The purpose of this minimum payment was to cover the cost of both recruiting supporters and producing the benefits such as the magazine. The street fund-raisers, as part of their training, were directed to encourage supports to sign up for monthly payments exceeding £3 and those who donated less were not able to make use of the various benefits.


The tribunal determined that the payments made to the charity in exchange for benefits such as the Earthmatters magazine were donations for VAT purposes and therefore any input VAT incurred in relation to them was irrecoverable. This decision was reached due to fact that the fundraisers were encourage to prepare their own script in order to grab the supporters attention and the benefits applicable to those who signed up for regular payments exceeding £3 a month were not a part of training materials used by the fundraisers, meaning they did not form part of the pitch intended to encourage the public to donate money to the organisation.  The donation could not therefore be seen as being made in return for the supply of the magazine (and other benefits) and instead was freely given.


If you are part of a charity and wish to clarify the VAT liability of supplies made by your organisation or are unsure whether you are able to recover the VAT element of costs, please call our free VAT helpline.

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