VAT: Court of Appeal rules charitable activities are business activities

In the Court of Appeal case, Longridge on the Thames, a charity had claimed that the activities undertaken in a new building were non-business (relevant charitable) activities as the payments made by the participants were adjusted on the basis of ability to pay, and supplemented by charitable donation or income generated by other activities of the charity.

The Court ruled that, following recent guidance from the ECJ, if there was a direct link between the services provided and payment made – which it said there was in this case – the activity was a business activity even where the payment by the participant did not necessarily cover costs incurred.

The direct result of the Appeal was that zero-rating relief from VAT for the construction of charitable purpose buildings was not allowed.

This ruling is important for charities who are seeking to rely on their activities being charitable for the purposes of VAT reliefs, as new ECJ guidance appears to have narrowed the criteria.

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