Wirral Independent Recycling Enterprise ("Wire") Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 17 April 2012 |
| Neutral Citation | [2012] UKFTT 267 (TC) |
| Date | 17 April 2012 |
| Court | First-tier Tribunal (Tax Chamber) |
[2012] UKFTT 267 (TC)
Judge J. Blewitt, A. Christian
The Appellants did not appear and were not represented
Mr Chapman, counsel, per instruction by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
VAT - Registration for VAT - Whether appellant had charitable status - No - Appeal dismissed
The First-tier Tribunal decided that lack of registration with the Charities Commission was not conclusive as to whether the taxpayer company had exclusively charitable purposes at the relevant time. The Tribunal also decided that the taxpayer's charitable status should be determined on the basis of its original memorandum and articles of its association. Lastly, the Tribunal decided that the taxpayer did not have a charitable status that would exempt it from VAT. Its memorandum and articles of association were not worded in a way so as to be exclusively for charitable purposes. Its objectives did not prevent those of unlimited means from availing themselves of the taxpayer's activities. Furthermore, upon its dissolution, it was possible for funds to be transferred to non-charitable organisations.
The taxpayer company appealed against HMRC's decision to register it in respect of taxable supplies it made, on the basis that it was not considered to be a charity at the relevant time.
The taxpayer was incorporated on 11 December 2004 and was registered as a limited company for value added tax ("VAT") with effect from 1 November 2006. It carried on a business of selling second hand furniture. By practice, it collected donated furniture and made it available to individuals in the community in social and economic difficulty. It also operated a shop selling furniture directly to the public, which helped fund its operations.
In November 2005, the taxpayer's company secretary ("Mr G") investigated with HMRC the possibility of the taxpayer being VAT exempt as a charity. Mr G stated that the taxpayer's business was a social enterprise, was limited by guarantee, and was a non-profit organisation. He added that the turnover for the shop had increased and would breach the VAT registration threshold. In response, HMRC stated that any business, including charities, making taxable sales in excess of the VAT registration threshold, should register for VAT. HMRC then advised the taxpayer that it should complete a VAT 1 form and that, if necessary, it could apply exemption from registration. The taxpayer submitted its VAT 1 application form in July 2007.
In August 2007, HMRC informed the taxpayer that they should be satisfied that it was a registered charity or accepted as a charity by their charities team. In September 2007, the taxpayer provided its memorandum and articles of association to HMRC by letter. It explained that it was a social enterprise with charitable aims and that its application for exemption from VAT was on the basis that it was a charity, albeit not registered with the Charity Commission ("the Commission").
In November 2007, HMRC wrote to the taxpayer to explain that its turnover had exceeded £5,000 per year and that if it was a charity, it had to register with the Commission before HMRC could consider a claim to the charity tax exemptions. When HMRC found that the taxpayer was not on the Commission's register, they requested the taxpayer to provide registration details or copies of correspondence which could confirm that it was unable to register. The taxpayer did not respond and the application for exemption remained unprocessed.
On 25 August 2009, HMRC officers visited the taxpayer and confirmed that it was not VAT registered and did not have charitable status. Upon review, HMRC confirmed the findings of their officers; hence, the taxpayer should remain VAT registered. The taxpayer then amended and, by a special resolution dated 26 June 2010, adopted its new memorandum. It was eventually registered as a charity following its adoption on the said date.
On appeal to HMRC, the taxpayer submitted that it was wrong for HMRC not to recognise its charitable status as a social enterprise. It reiterated that HMRC erred in concluding that just because its income exceeded £5,000, there was an obligation to register with the Commission.
HMRC contended that as early as 2007, they already informed the taxpayer that there was a legal requirement to register with the Commission if its income exceeded £5,000 per year. They argued that it was not a charity because its objectives were not worded in a way that was wholly and exclusively charitable at law. They said that there was no clear separation between its objectives and powers as required by law, and that on dissolution, it could pass any assets to a non-charitable company. On review, HMRC upheld their decision and added that the taxpayer was not registered with the Commission at the time of their visit in August 2009. This confirmed that it was not a charity at that time. They further submitted that the memorandum and articles of association, in their original form, were not sufficient for the taxpayer to be deemed a charity.
The taxpayer contended that HMRC should review the decision on the basis of the amended articles of association, as the original ones no longer existed. It also stated that it was now registered as a charity with the Commission. It submitted that HMRC could back date tax exemption to the date to which an organisation started to carry out exclusively charitable aims, even if this was before the date of its registration with the Commission.
HMRC contended that the criterion for charitable status had not changed during the relevant period as not all of the objects of the taxpayer in its memorandum and articles of association were exclusively charitable. They maintained that the relevant articles were those in existence at the time at which the taxpayer was required to be registered, i.e. on 1 November 2006.
(2) Whether the taxpayer should be registered with the Commission to be considered a charity.
(3) Whether the original or the amended articles of association was applicable in ascertaining whether the taxpayer had charitable status.
(4) Whether the taxpayer had charitable status.
Held, dismissing the taxpayer's appeal:
1.Registration gave a body charitable status which would have, had the taxpayer registered, undoubtedly ensured that its application for exemption from VAT would have been accepted by HMRC in the first instance. However, registration was not a prerequisite of tax relief under the law. Also, the lack of registration was not conclusive of the issue as to whether the taxpayer had exclusively charitable purposes at the relevant time on the basis that registration with the Commission had not been refused to the taxpayer, but rather registration had never been applied for.
2.The Tribunal then agreed with HMRC and ruled that the taxpayer was governed by its original memorandum and articles of association at the relevant time and therefore, it was on that basis that the issue of charitable status should be determined.
3.With respect to the issue of whether the taxpayer had a charitable status, the Tribunal noted the guidance enunciated in the case of Incorporated Council of Law Reporting in England and Wales v AGELR(1972) Ch 73, where Buckley LJ stated at (79): "To ascertain for what purpose the council was established one must refer to its memorandum of association and that alone…[I]n order to determine whether an object, the scope of which has been ascertained by due processes of construction, is a charitable purpose it may be necessary to have regard to evidence to discover the consequences of pursuing that object."
4.After carefully considering the taxpayer's memorandum, the Tribunal found that its provisions were not worded in a way that the taxpayer was exclusively charitable. One of the objects of the taxpayer in the memorandum, i.e. to provide the local community with a ready source of fully restored and attractively finished pre-owned furniture at realistic prices, did not prevent those of unlimited means from availing themselves of the taxpayer's activities. There was nothing to prevent any member of the public from entering the taxpayer's shop and purchasing furniture. Also, the taxpayer's object of providing charitable groups free access to its resources did not separate the taxpayer's objects and powers sufficiently.
5.The Tribunal also noted that one of the provisions in the memorandum, which provided for the transfer of funds on dissolution or winding up of the taxpayer, was not worded in a way so as to be exclusively charitable as it was possible for funds to be transferred to organisations with similar objects. Having found that the taxpayer's object was not exclusively charitable, it followed that the funds could be distributed to other non-charitable organisations upon its dissolution.
1.This is an appeal against HMRC's decision to register the Appellant in respect of taxable supplies made on the basis that the Appellant was not considered to be a charity at the relevant time. The decision was notified to the Appellant by letter dated 16 November 2009.
2.By email to HMRC dated 22 March 2012 the Appellant's representative, Mr P. Morrissey of Guild Appleton Limited stated that due to health reasons he was unable to attend the Tribunal. The Appellant is anxious for the case to be settled quickly and consequently no application to postpone the hearing was made. Mr Morrissey queried whether the Tribunal could continue in the absence of the Appellant and its representative given that a bundle had been provided. Mr Morrissey also requested that the Tribunal took into account the pre-hearing review hearing which took place on 17 October 2011.
3.In light of this email the Tribunal considered it to be in the interests of justice to proceed with the case under Rule 33 of the...
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