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HMRC internal manual

VAT Business/Non-Business Manual

From
HM Revenue & Customs
Updated
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Clubs and associations: political parties

Background

Political parties and associations are likely to qualify for exemption under Item 1(e), Group 9, Schedule 9 of the VAT Act 1994 as they are bodies of a “political nature”.

Political parties may receive taxable income from supplies made in the course of other business activities. This might be from sales of ties, badges, literature, admission charges, or fund-raising activities such as dinner dances.

Local and regional political associations

The regional and constituency levels of political parties are often separate entities from the national parent body. They will be liable to register only if they have sufficient taxable turnover.

To work out the extent to which a subscription paid to a local association is consideration for locally supplied social and recreational facilities, as opposed to a donation to central funds, you should consider a number of questions.

These are listed in loose groupings with an explanation of what issues the information gathered will help you to resolve. Not all of the questions will have the same importance in every case. You may sometimes need to consider more information than is listed here.

Useful questions to consider

a. Identifying the consideration

All the questions in this grouping focus upon the consideration aspect of the potentially taxable transactions. They will pinpoint the income received by the national and local associations and show from whom it is received. This in turn will indicate the potential recipients of any supplies that are taking place.

  • What is the constitution of the local association - for example, is it a friendly society?
  • How much subscription does a member pay to the local association?
  • Does the member make a separate payment to the national party?
  • How much of the subscription, if any, is sent to the party headquarters?
  • If money is sent to the party headquarters, is all or part of the amount a compulsory payment to the national party?
  • Are there other payments to the local association, such as joining fees or the requirement of a share purchase?
  • Are there any other separate charges payable to the local association?
  • Are there different categories of members paying different subscriptions? If so, what does each category of member pay?

Friendly societies are required by law to confine their membership to ‘shareholders’. Therefore, where any body has such a requirement the payment for the required shareholding must be viewed as consideration for its local membership benefits rather than as a donation to the national party.

b. Identifying the supplies and liabilities

This grouping of questions focuses upon the supply side of the transactions. From the answers you should be able to determine the full range of supplies being made by the national and local associations and to whom they are made.

  • What is provided by the national association to individual members?
  • What is provided by the national association to the local association?
  • What facilities does the local association supply to full members?
  • Are the facilities of the local association also made available to associate members or non-members?
  • If the answer to the previous question is yes, are the facilities exactly the same as those provided to full members?

By matching the recipients of the supplies identified in this grouping of questions to the providers of payments identified in a. you should be able to establish what consideration has been given for each supply.

Having identified all the supplies being made you should be able to consider what liabilities are involved. You should also be able to see whether any payments are not, either wholly or partly, consideration for any supply.

c. Quantifying and valuing the consideration

This grouping of questions is subsidiary to those in a. and b., and may be necessary to clarify the nature of certain payments. All questions relate to how much is paid by different categories of person for the local facilities.

  • Can members of the national party that belong to other local associations use the local association’s facilities?
  • If the answer to the previous question is yes, what subscription or other charge do these people pay?
  • Can persons who are not members of the national party use the local association’s facilities?
  • If the answer to the previous question is yes, what subscription or other charge do these people pay?
  • Can casual visitors or guests use the local association’s facilities?
  • If the answer to the previous question is yes, what payments do these people make?

By establishing what others have to pay you will be able to value the supplies made by the local association to its members. You will also be able to identify any part of the payment made which is not consideration for the facilities supplied by the local association.