Membership organisations may be interested in the result of a recent VAT tribunal we were involved in regarding the British Dental Association (BDA).

The BDA is an organisation for dentists and acts as both a professional body for dentists in business and as a union for employed dentists. Membership is not obligatory, meaning that the BDA has to offer an attractive range of benefits to attract and keep members. Experience has shown that if dentists join when students then they are likely to remain as members throughout their careers and the BDA therefore places a lot of emphasis on attracting student members.

In order to attract student members, dentists in years one to three of their dentistry training are entitled to free membership; as students advance through the course they are required to pay. HMRC took the view that this free provision of membership constituted a non-business activity and that consequently the BDA should restrict recovery on part of the VAT it incurred. An assessment was issued. The matter could not be resolved and went before the VAT tribunal.

The BDA’s argument was that the free student membership was a carefully considered promotion designed to maintain the membership. It was periodically reviewed by the organisation and when looked at last the conclusion was that it should be retained as it was clearly in the commercial interest of the organisation. This meant that it was provided for business purposes and all VAT incurred upon it was input tax.

HMRC conceded that the BDA provided the free membership for commercial purposes but did not believe this mattered. In a rather confused submission it argued that the provision of free membership must be deemed non-business in the VAT act and that notwithstanding this, the VAT assessed was attributable to a non-taxable supply and not recoverable. This last argument was particularly hard to follow and the court required written closing submissions in order to consider it.

The judgement of the court was a robust win for the BDA. The HMRC submission was wrong and it was correct that a trader that promoted their business by offering a free trial or ‘buy one get one free’ should be able to treat the VAT incurred as input tax. To find otherwise would offend ‘common sense’ as well as the tax legislation.

Any membership organisations that offer free membership in order to attract members may wish to note the BDA case. If you have been assessed by HMRC on this basis then it likely gives you scope for an appeal.

Peter Ladanyi is a director at Chantrey Vellacott DFK