HMRC internal manual

VAT Charities

Business and non-business: Charitable activities: Share dealing by charities

If a charity that is engaged in non-business activities deals in shares and other securities as part of the management of its charitable non-business funds, this is also a non-business activity. The tax incurred on the costs relates to share dealing etc. and cannot be reclaimed as input tax.

The status of share dealing by charities was confirmed by a tribunal involving the National Society for the Prevention of Cruelty to Children (NSPCC) (LON/92/602X). In this tribunal the Chairman reiterated that there were two key points to consider:

  • Was the activity carried out on a sufficient scale and for a sufficient length of time to qualify as a business?
  • Was the charity predominantly concerned with those supplies?

The Tribunal concluded in this case that the share dealings transacted by the NSPCC passed the first test, but not the second. The investment activities of the NSPCC were in support of its predominant charitable activities. In order to qualify as a business activity the activities would have to go beyond the activities of an ordinary investor managing its assets. This was not the case and would be unlikely to be the case so far as a charity was concerned.

Current policy therefore is that the acquisition or disposal of shares or of any other form of security by a charity is a non-business activity.

Since the NSPCC case there has been a further case concerning the Wellcome Trust.

The case concerned the sale, by public flotation, of the Trusts subsidiary Wellcome plc. Significant costs (including VAT) were incurred in the course of this flotation. Wellcome argued therefore that the share sale constituted a business activity in its own right. Many of Wellcome plc’s shares were sold outside the EU and would have been zero-rated.

The VAT tribunal referred the case to the European Court of Justice for guidance on EU law. The European Court ruled that

“the concept of economic activities….,is to be interpreted as not including an activity, such as that at issue…, consisting in the purchase and sale of shares and other securities by a trustee in the course of the management of the assets of a charitable trust.”

The tribunal subsequently confirmed that the sale of shares by Wellcome were not a business activity.