Charity’s activities were all business supplies

The taxpayer was a charity whose primary aim was to improve vehicle safety by carrying out extensive crash testing procedures on new cars and alerting the manufacturers to weaknesses. The manufacturers then paid the charity to carry out further testing. It was important for the manufacturers to obtain the charity’s seal of approval because this was an important marketing tool to encourage future sales. The initial testing was carried out free of charge so HMRC decided that the charity was carrying out two separate activities:

• Non-business activity – free testing – therefore no input tax could be claimed on the charity’s expenses and overheads for this activity.
• Business activity – the subsequent testing fees paid for by the manufacturers – a taxable supply of services with a right to claim input tax.

Note that the costs of the actual vehicles were incurred overseas so the taxpayer’s input tax claims...