VAT and charity membership fees

There is a non-statutory concession allowing charities to apportion the VAT treatment of membership fees by reference to the VAT liability of the benefits provided. Several charities use this concession, typically treating most of their membership income as zero-rated on the basis of the costs associated with producing members’ magazines and other similar publications.

While there has been no change in terms of the concession, it does only apply to what HMRC describes as “genuine membership fees”, i.e. those membership schemes which allow members to vote at the Annual General Meeting (AGM) of the charity, etc. Simply calling something a membership fee or describing people as members does not get into the scope of the concession.

If you are applying the concession to membership schemes which do not confer voting rights, this could land you with an unexpected VAT bill.

Further, because of Coronavirus lockdown, charities that either did not have full AGMs or had online reduced meetings, have quietly amended the terms of their membership offering, to withdraw voting rights, or restricted them to a small group of patrons. In doing so, any agreements with HMRC, such as the application of the concession, become obsolete, and you will have to account for VAT on these fees using the general rules which apply to non-charities.

Operation of the concession versus the normal rules

The concession allows charities to look at the individual benefits provided to members and apportion the membership fees to those benefits. They can then account for VAT based on the portion of the benefits which are standard rated. Typically, this apportionment exercise is done on a cost calculation which usually gives the charities a favourable answer. They can attribute significant costs to the production of members magazines, etc. Other benefits (which might be very attractive to the members), like discounted entry fees or access to a helpline, often have little in the way of attributable marginal cost.

The general rule on subscription or membership fees is that VAT is charged by reference to the ‘predominant benefit’. If standard-rated, even though there may be some zero-rated benefits provided, the whole fee is standard-rated. The sting in the tail for charities is that this test is applied not by reference to the costs of providing a benefit or even the take up of a benefit, but rather what the members value the most. This is almost impossible to prove and HMRC has become adept at arguing that members will view a magazine as of little tangible value.

The move to digital publications

Partly driven by Coronavirus, a number of charities have moved away from printed magazines etc., and produce electronic membership publications. While these are still zero-rated, the costs of production are typically a lot lower. Charities who have traditionally based any apportionment calculation on the costs of producing physical printed magazines will need to revisit these calculations.

Please contact Geraint Lewis or Debbie Jennings if you require any further advice.