Although the decision of the First tier Tribunal in this case (Loughborough Students Union & Ors v HMRC [2018] UKFTT 357 (TC)) seems to relate to the specific world of students unions, and was decided very much on the facts pertaining to such an establishment, nevertheless some general points for the wider charitable world appear to emerge and can be used with caution.

*Update* The Upper Tribunal (UT) has dismissed an appeal by LSU deciding that sales of stationery, art materials and other items from student union shops were not exempt supplies closely related to education.

The issue was whether events in the ‘social calendar’ of a typical students union, could be deemed to be ‘fundraising events’ for the purposes of group 12, schedule 9, VATA.  The tribunal decided that they could not be, on the facts.  This is not surprising, and the immediate lesson to charities (barring any successful appeal) is that there needs to be something distinctive about an event that makes it a ‘fundraiser’ per se, rather than being ‘nominated’ to be a fundraiser simply to take advantage of the provisions on the basis that the events happen to turn a profit.

However, there is more to it than that, if one looks beyond the facts of this case.

Two aspects concerning the UK formulation of the legislation in group 12 were under scrutiny in regard to whether they were compliant with EU law.  One was whether the ‘primary purpose’ of the event must be to raise funds.  The other was whether it must be ‘promoted’ as being to raise funds.  The VAT Directive does not provide for these conditions, so the question is whether the conditions nonetheless sufficiently reflect the purposes of the Directive.

The tribunal held that the test of ‘primary purpose’ was inherently consistent with the Directive, whereas the test of ‘promoting’ the event was not.

Where does this leave charities? On the positive side, one often encounters cases where the said event is plainly and obviously a fundraiser, but such is the obviousness of that, that the promotional material does not mention it.  Whilst this should not be disregarded as a condition, this decision casts doubt on the requirement to do so. If it is plainly a fundraiser, that should be enough.

On the negative side, the concept of a primary purpose to raise funds is still applicable and this can cause problems.  Leaving aside the approach that the students unions took, which seemed to entail a degree of cherry picking of normal events to be treated as though they were fundraisers, and which was an optimistic interpretation, it is commonly the case that an event can have a duality of purpose, one of which is to raise funds.  For instance, an event commemorating the 20^th anniversary of the founding of a charity will be celebratory, for general profile raising, and to raise funds.  But such events are not ‘ordinary’ activities dressed up as fundraisers.  They are special, and intended to raise funds;  but is their ‘primary purpose’ to do so, and where does that leave the other purposes?

So, the decision leaves a doubt and a precedent that it would be useful to clear up.  Having said that, the decision is nuanced in this respect.  The conclusions were drawn in context of what is meant by organising an event for the purpose of fundraising.  The mere fact that the tribunal did not see the ‘primary purpose’ condition as in conflict with the Directive does not mean that HMRC should apply the condition without a qualitative analysis of the wider situation.  The risk is that HMRC officers may try to do so.

So, perhaps not the clear and emphatic judgement that we might have wanted, but the decision is unlikely to upset most mainstream arrangements or lead to any significant change in HMRC policy.  Regard has to be paid to it, but its message is primarily aimed at charities that push the interpretative boundaries.

Graham Elliott is Technical Adviser to the Charity Tax Group and Director of City and Cambridge Consultancy