UT/2023/000115 - [2025] UKUT 00004 (TCC)

Article 132(1)(o) provides that Member States shall exempt certain supplies by charities “in connection with fund-raising events organised exclusively for their own benefit, provided that exemption is not likely to cause distortion of competition”.

It is common ground that Item 1 of Group 12 is compliant with Article 132(1)(o) in restricting exemption to an event that is organised for charitable purposes by a charity and whose primary purpose is the raising of money (sub-paragraphs (a) and (b) of Item 1). However, as the FTT correctly pointed out, there is no indication in the language of Article 132(1)(o) that it is necessary in addition for the event to be “promoted as being primarily for the raising of money” (the “promotion condition”).

In establishing whether or not Item 1(c) infringes the PVD, we must first construe Item 1(c) using normal domestic principles of construction: CG Fry and Son Ltd v SSLHC [2024] EWCA Civ 730 at [74]. Those principles include that the language must be construed in context and with regard to the purpose of the legislation.

In our opinion, the determination of whether or not the promotion condition conforms with the PVD depends largely on the purpose and function of the promotion condition.

In Loughborough FTT, having concluded that Item 1(b) was not ultra vires Article 132, Judge Kempster said this, at [86]:

Ms Mannion said that HMRC did not accept that Judge Kempster had properly described the purpose of the promotion condition. It followed that the FTT had erred in law in following Loughborough FTT on this issue.

HMRC’s position in relation to purpose and function is as follows:

In relation to the “evidential tool” argument, we accept that the way in which a charity promotes or advertises an event would in practice be one element of the relevant evidence in assessing whether or not Item 1(b), and for that matter Item 1(a), were satisfied on the facts. However, the promotion condition goes much further than that. It singles out one area of relevant evidence and elevates it to a distinct condition for the exemption. The question is whether such an additional restriction on the availability of the exemption is within the terms of the exemption which Member States must implement under Article 132(1)(o). Article 132(1)(o) addresses the status of the supplier, the need for an event, the purpose of the event, the need for it to be organised exclusively for the benefit of the charity, and the need to avoid distortion of competition. The exemption does not identify or address the purpose for which a qualifying event is promoted.

Ms Mannion’s suggestion that the promotion condition allows HMRC and others to easily appreciate the purpose of the event seems to us to echo the purpose suggested, somewhat speculatively, by Judge Kempster, but which HMRC have rejected as part of their case.

Where an event is found as a matter of fact to be both organised for charitable purposes by a charity and to have as its primary purpose the raising of money (as required by sub-paragraphs (a) and (b)), HMRC have not demonstrated any justifiable basis on which that event should then fall outside the exemption in Article 132(1)(o) purely because it was not promoted as being primarily for raising money.

Ms Mannion argued that the promotion condition was justified under Article 132(2). This allows Member States to introduce “any restrictions necessary” for the purposes of Article 132(1)(o). We reject that argument, for the following reasons.

While the words “any restrictions necessary” are wide, they are not to be construed in isolation. Article 132(2) itself refers to “any restrictions necessary, in particular as regards the number of events or the amount of receipts which give entitlement to exemption”. The reference to the number of events and amount of receipts is not exhaustive, but it is indicative of the types of condition which might be considered to be “necessary”. An example of such a condition can be found in the definition of “fund-raising event” in the pre-2000 provision, which referred to an event “which is separate from and not forming any part of a series or regular run of like or similar events”. Another example is set out in Notes 4 and 5 to Items 1 to 3 of Group 12, which state as follows:

The wording of Article 132(2) as a whole, and these examples, suggest that in determining whether a restriction to the exemption is “necessary”, the central question is whether it is necessary to avoid distortion of competition. That proposition appears to have been the view of the Upper Tribunal in Loughborough UT, at [66], and is recorded as being agreed by counsel for HMRC in that case (at [57]). If that is correct, then since HMRC has produced no evidence, beyond mere assertion, that the promotion condition is necessary in order to avoid distortion of competition, we consider that HMRC’s argument based on Article 132(2) is not made out. Indeed, as a matter of principle, we find it hard to see what relevance the promotion condition, as distinct from Items 1(a) and (b), could have to the prevention of distortion of competition.

Ms Mannion submitted that “necessary” in Article 132(2) has a wider meaning than necessary to avoid distortion of competition. However, even if that is correct, HMRC have not established on what basis the separate promotion condition would be necessary in relation to the exemption, as contrasted to being what HMRC describe as a helpful evidential tool in relation to Item 1(b). We agree with the FTT’s observations and findings to this effect, at FTT[129]-[130].

HMRC’s final argument was that the promotion condition is permitted under Article 131, which applies to all VAT exemptions, as being a condition imposed “for the purposes of ensuring the correct and straightforward application of [the exemption] and of preventing any possible evasion, avoidance or abuse”.

We reject that argument, for three reasons.

First, the correct and straightforward application of the exemption must be determined by reference to the exemption as set out in Article 132(1)(o). That is an exemption for fund-raising events organised by charities for charitable purposes. As we have explained above, we do not agree that the correct application of an exemption on those terms requires or justifies a condition relating to promotion. Further, far from ensuring the straightforward application of the exemption, in agreement with the FTT we consider that, as a practical matter, a condition requiring determination of the primary purpose for which the event is promoted introduces additional uncertainty in its application.

Second, CJEU law establishes that Article 131 does not permit conditions which narrow the subject-matter of the exemption. In Commission v Spain C-124/96, the CJEU said this in relation to the predecessor to Article 131, Article 13A(1) of the Sixth Directive 77/388/EEC, at [10]-[13]:

We consider that the promotion condition does affect the subject-matter of the exemption since, as we have said, that exemption is an exemption for fund-raising events organised by charities for charitable purposes.

Third, HMRC’s case in relation to Article 131 is mere assertion, and that is not enough. In Quadrant Amroq Beverages SRL C-332/21, the CJEU stated as follows, at [63]:

That decision, and other CJEU decisions, concern exemptions said to be justified under provisions other than Article 132(2), but we see no reason why an exemption said to be justified under Article 132(2) should not require evidence.

In conclusion, we consider that the FTT was correct in deciding that the promotion condition is ultra vires Article 132(1)(o).