Finance News: Children's Society wins VAT trial

Charities could be £5m a year better off if a VAT tribunal appeal by the Children's Society succeeds.

The challenge to Customs & Excise over irrecoverable VAT on the cost of recruiting regular direct-debit donors was heard last week, but the result is not expected for at least six weeks.

Ten other charities including Amnesty International have also appealed to the tribunal, but the Children's Society was selected as a test case.

The society is trying to secure a rebate of nearly £1m for the VAT it has paid over four years.

The case concerns the 'input' tax paid on the cost of employing face-to-face fundraisers to recruit regular direct-debit donors, who receive a special magazine when they sign up to give more than £5 a month for at least three months.

The Children's Society argues that they are, in essence, taking out a subscription to a "committed givers" club with the magazine as a benefit of membership. Therefore, the VAT paid on the expense of recruiting them and producing the magazine should be recoverable, as it is zero-rated.

But Customs insists that givers are merely making a donation. Because donations are outside the scope of VAT, the tax on the cost of recruiting donors cannot be reclaimed.

Children's Society's head of finance Paul Gilbey said: "We were one of the first charities to get into this particular market and we'd like to maximise the returns we get out of it."

The society believes that if it wins the case, the charities will save an estimated £5m a year.

Melvin Coleman, UK finance director with Amnesty International, said the charity had already lost a six-figure sum, because Customs & Excise had changed its mind on the organisation's right to reclaim VAT on the recruitment of direct-debit donors.

Amnesty International has up to nine months' worth of reclaimed VAT still held by Customs.

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