Charities – are they now ‘in business’?
The question is asked as a consequence of the ruling handed down by the Court of Appeal in the case of Longridge on the Thames (Longridge). This case predominantly concerned whether Longridge, as a charity, was not making supplies by way of business and was therefore able to receive zero rated construction services.
In an unfortunate turn of events, the Court of Appeal has agreed with HMRC that the supplies made by Longridge were an “economic activity” (EU speak for a supply by way of business) and denied their entitlement to zero rating relief. In so doing the Court of Appeal has cast doubt on the validity of the long held “Fisher tests” for determining whether an activity is undertaken by way of business which may also encourage HMRC to view the line of cases going back to Yarborough and St Pauls as being superseded by this decision.
The consequences for charities could be far reaching. If something which is currently treated as non-business needs to be re-assessed with the potential that it now becomes a business activity, this will impact on the zero rating relief available to charities. This could be a double edged sword as such activities might be exempt from VAT, which would deny the ability to recover VAT, or standard rated which may require increases in price.
Longridge could appeal this decision to the Supreme Court, but it is unlikely, but not beyond the realms of possibility, that the Supreme Court would overturn this decision.
It is hoped that HMRC will issue some guidance as to how the intend to apply this decision, if only to provide some degree of certainty in what is now some very uncertain times.
If you would like any further information don’t hesitate to contact Carol Watters with your VAT queries on 01772 821021.