A VAT-registered rugby club will be paid £15,000 each year from an insurance company in return for the right to purchase the club’s entitlement to tickets for international matches. Is this subject to VAT? Gail Trojan discusses below.
VAT is defined as a tax on the supply of goods or services made in the UK by a VAT-registered business or organisation. If there is no supply taking place, then there can be no VAT. In the example above, the rugby club is clearly not selling any goods, so the only challenge is to determine whether there are any supplies of services taking place in return for this annual payment. However, if a source of income is outside the scope of VAT because no supplies of goods or services are being made, the supplier cannot claim input tax on any costs that directly relate to that income or activity.
There is no VAT to pay on genuine donations. In other words, the donor makes a voluntary payment to a charity or organisation and does not expect to receive any worthwhile benefits in return.
HMRC’s guidance lists the following key questions which should be considered:
Does the donor receive anything in return for the payment?
Is there a contract and, if so, what are the terms and conditions?
There is no problem if your charity expresses thanks to a donor on either your website or in a publication such as an annual report. This acknowledgement is not considered by HMRC to be a supply of advertising, so the income is outside the scope of VAT.
The reality here is that if the insurance company did not have access to the international tickets, they would not pay £15,000 to the club. The insurance company is paying for “the right” to acquire the tickets. As far as VAT is concerned, the right to do something represents a supply of services. However, the amount in question seems high for just the right to buy some tickets, so there might be a compromise solution here.
It is not clear how the figure of £15,000 per year was agreed. Are there any other benefits being supplied to the insurance company other than the right to buy the tickets, such as perhaps having an advertising board at the ground?
HMRC recognises that some deals involving charities and not-for-profit organisations can sometimes consist of both a donation and a supply of services, usually advertising and so on. In such cases, the deal can be apportioned for output tax purposes between the two elements of the supply on a market value basis.
HMRC could challenge any basis of apportionment that seems to be unreasonable. The club should keep detailed records of how output tax has been calculated. An insurance company is partially exempt, so will not be able to claim some, possibly all, of the input tax it incurs on its expenses. The rugby club will almost certainly have to treat the annual payment as £15,000 including VAT rather than £15,000 plus VAT.
The rugby club is supplying a service to the insurance company because there are binding conditions attached to the deal. It might be possible to argue that part of the payment is not subject to VAT as a donation but HMRC could challenge any unfair apportionment made on this basis.