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Wood Green Animal Shelters v Revenue & Customs [2012] UKFTT 437 (TC) (01 June 2012)
VAT - INPUT TAX
Business purposes
[2012] UKFTT 437 (TC)
TC02118
Appeal number:
TC/2010/08319
VAT- input tax-charity
selling animals for fixed donations-following Gables Farm decision supplies
found to be zero-rated- whether charity entitled to recover input relating to
such supplies –yes – appeal allowed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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WOOD GREEN
ANIMAL SHELTERS
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE DAVID DEMACK
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MRS CAROLINE ALBUQUERQUE
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Sitting in public at London on 21 April 2012
Melanie Hall QC for the
Appellant
Gloria Orimoloye of counsel,
instructed by the General Counsel and Solicitor to HM Revenue and Customs, for
the Respondents
© CROWN COPYRIGHT
2012
DECISION
1.
This appeal by Wood Green Animal Shelters (“WGAS”) concerns a VAT input
tax repayment claim of a particular type, known as a Fleming claim, for the
period 1 October 1989 to 31 March 1997 in the sum of £176,635.27.
2.
The issue under appeal concerns monies received by WGAS from adopters
who took animals from WGAS’s premises so that they could be housed (“re-housing
income”). From sometime prior to 1997, WGAS classified its re-housing income
as non-business for the purposes of the apportionment and partial exemption
methods to which it was subject.
3.
The appeal was presented for WGAS by Melanie Hall QC, and for HMRC by
Gloria Orimoloye of counsel. They provided us with a bundle of copy
documents. We were also presented with the oral evidence of four witnesses,
three for WGAS, and the fourth, Mrs Jacqueline Shackleton, an officer of HMRC
who made the decision to refuse the input tax claim. It is from the whole of
that evidence that we make our findings of fact.
4.
WGAS is an animal welfare charity which was founded in 1924 with the aim
of helping to alleviate the problem of abandoned and injured animals on the
streets of London after the First World War. In 1933 the charity’s aims were
changed to finding new homes for abandoned and injured animals.
5.
The charitable objectives of WGAS include the relief of animals
suffering from injury, sickness ill-treatment or neglect and in particular the
establishment and maintenance of clinics or hospitals for the reception,
treatment and, if necessary, the painless destruction of sick and injured
animals; and the provision of accommodation for unwanted or homeless animals
until permanent homes can be found for them.
6.
WGAS is the representative member of a VAT Group comprising WGAS and its
subsidiary company Wood Green Enterprises Limited (“WGEL”) effective from 1
April 2008, prior to which both entities were separately registered.
7.
WGEL is responsible for carrying out the group’s trading activities such
as restaurant sales, sale of merchandise and the letting of property.
8.
The WGAS VAT Group has divers sources of income including membership
fees, rental income, payphone receipts fundraising events, legacies and
donations, the sale of donated goods. As the sources of income are a mixture
of business (both taxable and exempt) and non-business activities it operates a
business/non-business apportionment method as well as an income based standard
partial exemption method.
9.
On 6th July 1999 Mr P G Goulding, a customs officer, paid a
routine VAT control visit to WGAS. He found it to be treating re-housing
income as that from a non-business activity. He questioned that treatment, but
only to the extent of expressing in the visit report his being “slightly
concerned” about it. He did not take things further, with the result that
WGAS continued to treat such income as non-business receipts.
10.
WGAS advertised animals it had for re-housing as available to suitable
adopters at a specific price per animal, depending on the type of animal
concerned.
11.
Early in 2000 there was correspondence between HMRC and Messrs Price
Bailey, WGAS’s accountants, about its treatment of certain monies for VAT
purposes. In a letter of 20 April 2000 Price Bailey said this of re-housing
income:
“. . . [Staff] are from time
to time educated in how to deal with members of the public who enquire how much
an animal will cost. Staff are trained not to quote a specific price but at
the same time to encourage guardians to make a donation which is commensurate
with the type of animal they are adopting.”
12.
WGAS produced three witnesses to give oral evidence that the final
sentence of that quotation was incorrect. They were David Webb, its finance
director until he retired, Shelley Wooding, who until promotion held a
management position, and Tina Jeffery, who was involved in rehoming animals.
All were in post in 1999, and we have no hesitation in accepting the
correctness of their evidence. We find that the statement made by Price Bailey
was not only incorrect, but was made without any authority from or reference to
WGAS. Further, the letter was not copied to WGAS, so that it had no opportunity
of correcting it.
13.
WGAS continued to treat donations from the sale of animals as
non-business receipts until 2008.
14.
On 4 January 2008 the tribunal released the decision in V20519 Gables
Farm Dogs & Cats Home v Commissioners of Revenue and Customs. It
concerned the question whether the sale of cats and dogs by the home was
zero-rated for the purposes of VAT. The material provisions are to be found in
Item 1 group15 schedule 18 of the VAT Act 1994 which zero rates
“1. The sale, or letting on hire, by a charity
for any goods donated to it for –
(a) sale”
15.
The issue in Gables Farm was whether the zero-rating provisions
applied only to the sale of cats and dogs donated by their owners, as argued by
HMRC. The tribunal accepted the Appellant’s argument that ownership was not a
pre-requisite to donation, concluding that the Appellant’s sales of cats and
dogs given to it by wardens, police officers and members of the public
constituted sales of donated goods which met the requirements of zero-rating in
item 1. In the instant case, Mr Dennis Baker, WGAS’s chief executive officer,
gave evidence which satisfied us that it was the owner of all the animals it
placed with adopters.
16.
In view of the Gables Farm decision, WGAS reviewed the VAT
treatment of its re-housing income which it had historically treated as
non-business, taking the view that it was income for zero rated supplies. WGAS
submitted an error correction claim for input tax unrecovered in the period
2005 to 2008. The VAT in issue related to the costs of veterinary treatment,
food and care for the animals to be re-homed.
17.
Following correspondence and a number of VAT visits, HMRC approved the
2005 to 2008 claim by letter of 30 November 2009.
18.
WGAS subsequently submitted claims for input tax attributable to
supplies made before 1997. They were rejected by HMRC on 13 July 2010, and the
rejection was confirmed on review on 27 September 2010
19.
WGAS appealed the decision on review on 26 October 2010 giving its
reasons for appealing as:
“Prior to 1997 when Wood Green Animals Shelters (WGAS)
re-homed animals in exchange for a sum of money, it was making taxable supplies
in the course of carrying on a business. WGAS therefore incorrectly declared
those sums as donations in its pre-1997 VAT returns. The Commissioners are
accordingly obliged to meet its claim under Michael Fleming (t/a Bodycraft)
v Commissioners of HM Revenue & Customs.”
20.
Thus the key issue in the case is whether the income from WGAS’s
re-homing activities was incorrectly treated as non-business for the period of
the Fleming claim. That issue turns on the question whether the monies
given by the adopters consisted of consideration for the supply of the animal.
WGAS’s case in essence is that those monies were received in return for the
animal because there was a direct link between the handing over of the animals
and the receipt of the monies. By contrast HMRC argue that the monies are
freely and unconditionally given, and thus cannot be classified as
consideration for VAT purposes.
21.
As we mentioned earlier, HMRC’s decision to refuse WGAS’s Fleming claim
was made by Mrs Jacqueline Shackleton. In her evidence to us she explained
that, following release of the Gables Farm decision, HMRC issued a
Business Brief and provided internal guidance for use by officers dealing with
output tax overpayment claims similar to that of Gables Farm. She
explained the WGAS claim as being unique in that it concerned an application
for repayment of input tax, whereas every other Gables Farm claim was
made on the basis of an overpayment of output tax.
22.
On 13 July 2010 HMRC, in the form of Mrs Shackleton wrote to WGAS
rejecting its input tax claim in full on the basis that it received a donation
for each animal re-homed, and not a fixed fee, so that the Gables Farm
decision did not affect WGAS’s liability to tax
23.
WGAS the requested a review of Mrs Shackleton’s decision. Its
representative, Messrs Saffrey Champness, stating that HMRC appeared to be
ignoring the fact that WGAS’s earlier treatment of re-homing income was wrong,
and were also ignoring the contents of a statement by its Chief Executive
Officer of 4 June 2010 that payment of a recommended amount was sought from each
adopter.
24.
On 27 September 2010 HMRC issued a review decision upholding their
refusal of the input tax repayment claim.
25.
It was quite plain from the evidence of Mrs Shackleton that she
considered she had no alternative but to reject WGAS’s input tax repayment
claim since the Business Brief issued by HMRC following release of the Gables
Farm decision contained no reference to input tax claims such as that of
WGAS, nor did the internal advice with which she was provided deal with such
claims. We have no hesitation in saying that she wholly failed to consider the
claim against the background of the tribunal decision in Gables Farm.
Had she done so, in our judgment, she would have had no alternative but to
allow the claim.
26.
In those circumstances, we find it unnecessary to deal with the
submissions of each of the parties, but for the record would say that we accept
those of Mrs Hall in their entirety.
27.
For all practical purposes this appeal is on all fours with that of Gables
Farm. The so-called donations which WGAS receives are not in fact donations
at all, but fixed fees for animals. We allow the appeal.
28.
This document contains full findings of fact and reasons for the
decision. Any party dissatisfied with this decision has a right to apply for
permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure
(First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be
received by this Tribunal not later than 56 days after this decision is sent to
that party. The parties are referred to “Guidance to accompany a Decision from
the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this
decision notice.
DAVID
DEMACK
TRIBUNAL JUDGE
RELEASE DATE: 1 June 2012
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