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18/01/2012 - Three Counties Dog Rescue v HMRC

Animal charities often ask for a donation from prospective owners when an animal is rehomed. In some circumstances, the donation may be treated as part of the charity's turnover enabling it to register for VAT and recover substantial amounts of tax. A recent First Tier Tribunal decision, Three Counties Dog Rescue v HMRC, illustrates the point.

Three Counties Dog Rescue is a charity that cares for and rehomes abandoned dogs. Prospective owners are asked to make a minimum donation of £150 for a dog towards the cost of its care and rehoming. The charity argued that the "donation” meant that for VAT purposes, it was making taxable supplies (a dog) in return for consideration (the donation) and was entitled to reclaim its VAT input tax. HMRC argue that the charity was simply rehoming dogs in return for a voluntary donation.

If the turnover of a charity reaches the threshold for registration for VAT, the charity can register for VAT. It can then zero rate the sale of goods which have been donated to it, which means that it does not have to account for VAT on the monies received for the goods, but can reclaim its input VAT. The amount at stake for Three Counties Dog Rescue was £61,939.

In Gables Farm Dogs' and Cats' Home, HMRC argued that dogs that had been abandoned or rescued had not been "donated”. The Tribunal adopted a wide definition of "donated” and held that it included dogs that had been abandoned or rescued.

The difficulty for Three Counties Dog Rescue was that it referred to a donation in return for a dog and that a short-lived version of its website had suggested the donation was voluntary. The Tribunal found on the facts that the "donation” was obligatory and that a dog would not be rehomed unless a prospective owner paid at least £150.00. It also found that the "donations” for a dog had been treated differently from other donations to the charity and, quite properly, there had been no gift aid claim in respect of them. Although described as a donation, the amount was in fact the consideration for the sale.

The case illustrates the importance of ensuring that the documentation and the arrangements with the owners is clear and avoids the potential for misunderstanding if charities involved in animal rescue are to take full benefit of the zero rating and be able to reclaim VAT.

Published by:

Geoff Trobridge (show profile)

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