Slow growth

Relationship of woodlands activities to taxable sales of timber

The charity acquired land to establish woodlands. The aim was to improve the environment and provide opportunities for the peaceful enjoyment of the countryside.

The dispute concerned the input tax claimed by the charity on costs relevant to woodlands. It adopted an area-based method which gave a split of 93.6% for business of which 99.02% related to taxable activities. This allowed the charity to recover most of its input tax. HMRC considered this unfair because the aim of the charity was linked to the environment rather than making taxable sales of timber from the trees.

It preferred an income-based method showing that less than 11% of total income came from timber sales with the woodlands mainly funded by investment income from rent and grants from various forestry bodies. It issued two assessments for £36 866 and £37 501.

The...