It will come as no surprise that the supplier of goods and services cannot simply misdescribe the payment as a donation and thereby escape VAT, where he ought to have called it a price, but what about the cases where the donation description is understandable, appropriate, and broadly correct? Does that mean the payment cannot also be a price (or "consideration" to use technical language)?

 

Well, it can indeed also be a price. The critical thing for VAT is whether the payment is in consideration of a supply to the payer. Even if there are characteristics in the situation that makes describing the payment as a donation a legitimate approach the overriding point is that it is still consideration.

 

Two recent First Tier Tax Tribunal cases have come together to make this very point, in relation to two different sets of circumstances.

 

Findel Plc relates to a goods retailer which operates through reps (door to door) and offers products through one of its catalogues on the basis that 30% of the price is a donation to charity. Sometimes the charity is chosen between the rep and the customer so as to make a local good cause the recipient of the generosity, thereby making a direct link between the intentions of the customer and the act of donation. On this basis Findel argued that the 30% was outside the scope of VAT and only the remaining 70% was price. The tribunal was unimpressed. The customer was not given a choice over the donation, and had to pay the full amount to obtain the goods. This ostensibly overlooked the fact that the goods tended to be more expensive than equivalent catalogue offerings where there was no donative element, and through which the customer could have chosen to purchase the equivalent product more cheaply. Nevertheless, the point was a critical one. It does not matter if an element of the price is to be used as a donation if it is also required, in that very bargain, to obtain the reciprocal benefit of the goods. That makes it all a price, even if part is a donation as well.

 

The same point is made in Three Counties Dog Rescue. This is a charity which re-homes stray dogs. It requires a payment to be made by the adopter before it will release the dog to him. It used, before 2010, to describe this as a "donation". And so it was, in the particular sense that the payment went towards the work of the charity, and that the giver had an altruistic intention at heart. The concept of a "price" might have conveyed the wrong impression of a profiteering purpose by the charity, and failed to reflect the fact that a key reason for the payment is to ensure that the adopter understands the financial commitment of owning the dog. Unlike in Findel, HMRC was now on the side of arguing that the payment was not a price for the dog, because the result of it being a price was that input tax claims would create a payment from HMRC to the charity.

 

The tribunal decided that it was a price, because the payment was "for" the dog. It did not matter that there were other purposes involved in the interaction between charity and adopter. The bottom line is that the dog was not given away but that the payment secured the dog.

 

So, even if a description such as "donation" seems to fit, you need to delve beneath the surface of all the circumstances before assuming that the description defines the VAT treatment.