The First-tier Tribunal (FTT) has released its decision in Yorkshire Agricultural Society [TC06263] concerning whether certain events provided free of charge by a charity are part of its overall economic activities.

The Yorkshire Agricultural Society (the Society) is a charitable company limited by guarantee. Its charitable objects are broadly to support and promote agriculture, rural and allied industries and to champion the role of farmers. In the pursuit of this, it undertakes the Great Yorkshire Show and also carries out a range of other activities including other events and provides venues for third party events, conferences and exhibitions. These activities generate in excess of £9m gross income for the Society annually.

This appeal is concerned with two events run by the Society, ‘Countryside Days’ and ‘Careers in Focus’ (the Events) which are put on pursuant to the Society’s charitable objects and which are both free to attend. The Events give rise to a small gross income measured in hundreds of pounds rather than thousands. The Society contracts with third parties to provide catering and ice-cream concessions at a number of events, including the Events. The Society receives 20% of the catering turnover raising an income of approximately £250,000 per year.

HMRC considered the Events to be non-business activities of the Society and disallowed VAT recovery on associated costs. The sum in dispute on this appeal is £23,385. The direct operational costs of the Events relate mainly to those of providing workshops, hiring partitions and providing stewards. The indirect costs are a small percentage of the Society’s overheads, such as maintenance and utilities.

The FTT answered two issues; the first was whether the Events amounted to economic activities in their own right. The second raised the issue of whether the Events should properly be viewed as forming part of the Society’s economic activities as a whole; i.e. does the VAT incurred in connection with the Events have a direct and immediate link to the taxable income of the Society generated by its economic activities?

In dismissing the appeal, the FTT found that the holding and the supply of admission to the Events is not itself an economic activity and that there is no direct link between those services and the Society’s share of the catering income. In the FTT’s view, the Events were gratuitous in nature as opposed to a supply of services for a consideration and that the link is not direct, it is merely indirect and arises from the Society’s contract with the caterer. Even if there was a direct link, the FTT considered that the income received as a result of the Events falls within the de-minimis principle. As for the second issue, the FTT found that there was not a sufficiently direct and immediate link between the costs of the Events and the taxable income generated by the Society and those costs could not be said to be a cost component of the Great Yorkshire Show or the Society’s other economic activities.

Dermot Rafferty is an Indirect Tax Senior Manager at EY