In Will Woodland v HMRC  TC06021, the First-Tier Tribunal (FTT) agreed with the partial exemption method used by the charity: based on the way in which the land was used, an area basis.
- WW are a charity whose objectives are to conserve, restore and establish trees, plants and wildlife. Part of the aims include creating new Woodlands and managing them, including the long-term plan to thin the trees, which would generate timber for sale.
- In 2001 WW applied for and HMRC agreed to a special land use Partial exemption (PE) method:
- Income basis would be inappropriate as timber sales would not take place for some time and the land was also used in part for Residential letting.
- HMRC carried out a review in 2006 and accepted the continued use of that method.
- Following a 2013 review HMRC decided that the land use method was not fair and reasonable:
- Wooded areas treated as wholly business are not 100% covered by trees. They also include paths, water, grasses etc. which would not be used for the business.
- The costs of planting and establishing trees cannot be solely for the purposes of future timber sales as they also relate to the main charitable objectives of conservation etc.
- This meant that the land had dual purpose use and the VAT relating to this land should be considered residual not wholly related to future taxable supplies of timber.
- HMRC also suggested that an income based method which includes an estimate of timber income spread over a number of years to try and ensure there was no distortion, was a more fair and reasonable method.
- HMRC rescinded the PE method agreement, a decision that cannot be appealed, but WW continued to use it having told HMRC they believed it remained fair and reasonable.
- VAT assessments were issued for the periods 10/14 to 03/15 and 04/15 to 03/16, totalling over £75,000, including interest.
- WW appealed these assessments.
The FTT found in favour of WW:
- Dual purpose of woodlands:
- An economic activity is within the scope of VAT “whatever the purpose or result of that activity”.
- On this basis, the charitable objectives, being non-business, are irrelevant.
- The purpose or result of the transaction, i.e. whether it helps achieve charitable non-business objectives, is also irrelevant in determining whether an activity is an economic activity or not.
- The costs associated with the planting, establishing, and maintenance of woodlands are clearly incurred wholly in respect of future taxable timber sales.
- There is no dual purpose and the VAT on these costs should not be apportioned.
- As to the residual costs and partial exemption method suggested by HMRC:
- HMRC’s income based approach was “hopelessly flawed”.
- It pre-supposed that future timber sales could be established in terms of value and timing, which was proved not to be the case.
- The income approach suggested by HMRC would not give a fair and reasonable result.
- As to the continued use of the land area basis:
- Burden of proof that this is a fair and reasonable method is normally on the appellant.
- This approach was agreed with HMRC in 2001 and following a visit in 2006: this was sufficient evidence that it was a fair and reasonable approach.
- It was down to HMRC to show there was a superior approach.
- HMRC’s objection to the land area approach, as per the statement of case, was solely down to the dual purpose of the woodlands.
- As the FTT found there was no dual purpose it was entirely sensible to allow continued use of the PE method on a land use basis.
The partial exemption method used was fair and reasonable and the assessments were cancelled.
Question 10 (the last one)
On Thursday 8th December 2022, people are asked to wear what item of clothing for charity?
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External link Will Woodland v HMRC  TC06021
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