HMRC challenges friends, patrons and membership schemes

Many charities operate friends, patrons and membership schemes that offer benefits in return for a minimum payment. The benefits often include invitations to performances or private viewings, priority bookings for events, advance notice to purchase tickets and printed brochures or books. While the names of the schemes and the benefits available may differ, the same VAT rules apply to them all. A recent VAT tribunal decision could now impact on the VAT treatment of friends, patrons and membership schemes. 

To date these schemes have been treated as mixed supplies for VAT purposes and as a result of an Extra Statutory VAT Concession, charities were allowed to account for VAT according to the different components in each scheme. For example, invitations to performances and viewings were liable to standard rate VAT but publications were zero-rated. Where the benefits are no more than an acknowledgement or where additional donations are made, this income is outside the scope of VAT. However, as a result of the decision reached in the Serpentine Trust VAT case, these principles may be questioned or challenged by HMRC.

The Serpentine case confirmed that where benefits are offered for a set price, they should be regarded as consideration or payment for supply of goods or services. For donations or additional payments to be outside the scope of VAT, they must not be linked to any benefits or supplies. Consequently if charities want to ensure that donations or additional payments are not liable to VAT, their schemes must clearly state that the benefits are obtained for a specific price. Ideally they would then invite people to make donations or additional payments.

In the Serpentine case, the differing VAT liability of the benefits was not commented on and VAT had to be accounted for on the full value of the payments made – even though an element of the benefits were zero-rated. It has been suggested that this marks a change in HMRC’s position on the Extra Statutory VAT Concession and that HMRC may now challenge 'membership arrangements' where VAT is not accounted for on all of the payments received. At this stage there is no suggestion that the concession will be removed and the suggested limitations that HMRC will apply are not included in any current guidance. Until changes are officially announced we must assume that the rulings given in the Serpentine case are limited to that situation and that charities can still apply the concession.

That said we believe that charities with friends, patrons and membership schemes should review how they account for VAT and what they declare VAT on. In some cases, it may be prudent to obtain a written agreement from HMRC on the apportionment of income between benefits. If written approval has already been obtained, it would be worth confirming the scheme benefits and conditions have not changed.

Please contact Moore Stephens Charities and Not-for-Profit team for more information.


Ann Mathias

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