Membership subscriptions are always an area of contention for charities. Some charities benefit from a VAT Extra Statutory Concession for non-profit membership bodies under which HMRC allow subscriptions to be apportioned to reflect the underlying VAT treatment of the specific benefits. This is useful where the benefits include printed material which is generically zero rated, and which allows for a reduction in VAT charged on the subscription. Alternatively where the benefits would otherwise be exempt, it increases VAT recovery on costs.
HMRC have recently argued that this concession only applies to formal membership bodies whose members are able to vote (e.g. at AGMs) and cannot apply to ‘friends’ and ‘patron’ schemes. In addition, HMRC have also tended in recent years to argue that ‘membership’ is a single supply which is essentially standard rated, unless the predominant benefit is printed matter. The 2015 Serpentine Gallery tribunal decision supported HMRC’s view; the tribunal asserting that supporters were not members, and that the ‘basket of supplies’ they received was a single (or ‘composite’) standard rated supply of ‘association’ with the Gallery.
But with the Harley Davidson tribunal case there is now some more encouraging news for charities who operate membership schemes without that level of member involvement, and whose use of the ESC might therefore have been challenged. Harley Davidson won on the basis that the package of benefits arising from payment of its membership fee could be treated as a multiple (or ‘mixed’) supply where every element is afforded its own VAT treatment. The case considered whether under VAT law, not concession, their membership subscription was apportionable to reflect different liabilities such as printed magazines. The tribunal found as a fact that it was apportionable.
This is an important case, and we await news of whether HMRC will appeal. It is possible that they will not, hoping that this will mean that they can argue Harley was decided on its facts. Many charities operating membership schemes may however be closer to the Harley fact pattern than to Serpentine. Unless HMRC appeals successfully, it may be easier for charities to argue that they need not rely on the ESC (and thus do not need voting members) as the supply can be apportioned as a matter of VAT law. We await further developments, but in the meantime please get in touch if you wish to discuss your circumstances.