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Will Woodlands: input tax by a charity

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On 24 July 2017, the First-Tier Tribunal (FTT) released its decision in Will Woodlands (a charity) [2017] UKFTT 578 (TC). The case concerns the recovery of input tax by a charity, which has the stated aim of ‘conserving, restoring and establishing trees, plants and all forms of wildlife in the UK and securing and enhancing public enjoyment of the natural environment of the UK’. Its taxable supplies are generated through the development, maintenance and eventual exploitation of woodland sites across the UK.

The case deals with a number of significant issues, but one point in particular is very disappointing and seems all too common in disputes with HMRC. The case officer clearly did not take the time to understand the nature of the business conducted by the taxpayer: the judgment states (para 57), ‘[the officer] did not seek evidence of whether the silvicultural operations of the appellant were carried on in the same way as a commercial forestry operation, nor had he looked at the business operations at all.’

The case also highlights a continuing theme of HMRC trying to find a non-business activity and block input tax as a consequence. Other recent examples, on which I have advised, include:

  • A holding company which made substantial management charges to its subsidiaries, but also incurred costs of dealing with its listing on the London Stock Exchange. In addition to management fees, it also received occasional dividends and earned income from its treasury activities. It was only the intervention of the joined CJEU cases of Larentia + Minerva (C-108/14) and Marenave Schiffahrts AG (C-109/14) that lead HMRC to concede, as part of settling the deal fee ADR process, that they weren’t justified in claiming the existence of some other nebulous non-business activity.
  • A life and pensions business that incurred VAT on the costs of advertising its products to potential customers. The only supply made as a consequence of receiving premiums was the subsequent investment activity, which would hopefully generate a return for its policyholders. HMRC was insistent that a disallowance of VAT was appropriate in relation to the activity of receiving premiums, despite the fact that the Kretztechnik AG v Finanzamt Linz (C-465/03) decision maintained that these were not supplies.
  • A charity running a free to enter museum, which received a management fee from the local authority. HMRC unsuccessfully attempted to argue that the charity was engaged in two activities, only one of which carried an entitlement to recover VAT.

The Will Woodland decision provides welcome reinforcement of the earlier judgments reached in Longridge on the Thames [2016] EWCA Civ 930 and Sveda UAB (C-126/14). To paraphrase these judgments:

  • Economic activity is objective in nature. The fact that Will Woodlands wishes to further its charitable aims, does not convert what would otherwise be an economic activity into some other form of activity for VAT purposes;
  • Will Woodlands planted trees to generate income from the timber which would be harvested at some point in the future. On the facts of this case, any conservation activity could not be said to be the primary reason for planting trees for future exploitation.
  • The final aspect of this judgment dealt with VAT incurred on costs which related not just to the appellants forestry business, but also to other activities including farming, earning interest from investments and renting residential property on the estates. Residual VAT, in other words. I won’t replay the judgment here; it’s entertaining enough to read first hand. Phrases such as ‘hopelessly flawed’ and ‘comparing apples with warthogs, not pears’ will give you a flavour of the judge’s view of the partial exemption method imposed by HMRC.

The message here is stand your ground. You know your business better than HMRC and can more reasonably justify the basis for any apportionment, whether business/non-business, partial exemption or both.

Jonathan Main, mtaxco (

Categories: In brief