In Will Woodland v HMRC [2017] 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  • HMRC rescinded the PE method agreement, a decision that cannot be appealed, but WW continued to use it having told HMRC they believed it remained fair and reasonable.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.

Christmas Quiz

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Question 10 (the last one)

On Thursday 8th December 2022, people are asked to wear what item of clothing for charity?


 Ask an elf for assistance



Partial exemption & input VAT


VAT: land and property (notes)

External link Will Woodland v HMRC [2017] TC06021



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