Osborne v Revenue & Customs [2010] UKFTT 368 (TC)

FTT-Tax
Osborne v Revenue & Customs
[2010] UKFTT 368 (TC) · 2010-08-09
[1]The Appellant appealed against the refusal of HMRC to accept his claims to give gift aid relief for the six financial years ending the 5 th April 2006 in respect of that element of his subscription paid to his Lodge, as was paid through the Grand Lodge to the Masonic Grand Charity. The dispute[2]The issue in this appeal is whether a payment to the Grand Charity, made out of a mason’s annual subscription payment to his own Lodge, is a qualifying donation for gift aid purposes.[3]The Respondent sets out its case as follows: Facts The Freemason’s structure in England consists of a central body, the United Grand Lodge of England (“UGLE”), and a national network of local Lodges. The Grand Charity is a registered charity set up by UGLE. Neither the UGLE nor the local Lodges are charities. Individual masons pay subscriptions for membership of their own Lodge. Individuals may be a member of more than one Lodge in which case a subscription for each membership is required to be paid. Each year UGLE agrees with the Grand Charity how much money the Charity requires that year to carry on its activities and determines how much of the total is to be paid by each Lodge (based on the number of members in each Lodge). Clause 271 of the Masonic Book of Constitution states:
“ There should be payable to the Grand Charity by every Lodge (i) in London and (ii) in a Province in respect of each of its members annual contributions of not less than such respective amounts as shall be fixed for each calendar year by resolution of the Grand Lodge in the preceding March.”
[4]Although it is the obligation of the Lodges to make annual payments to the Grand Charity under clause 271 of the Masonic Book of Constitutions, the Lodges source the funds to make such payments from the annual subscriptions paid by their members. Each member is aware that a proportion of his subscription is paid by his Lodge to the Grand Charity – through UGLE – and knows how much the payment is each year, as it is itemised on his subscription form.[5]If a mason withholds the portion of his Lodge subscription that is passed to the Grand Charity, then his Lodge membership will lapse on the basis that he has not paid all of his membership subscription.[6]The Respondent has refused the Appellant’s claim for Gift Aid in respect of the Grand Charity element of his annual Lodge subscriptions for the six years up to and including the year ending the 5 th April 2006 (the Grand Charity has not itself made any claim for Gift Aid).[7]The first four of these are given in the form of disallowances of the Appellant’s claims and the second two were given by way of Revenue amendments. The Law[8]The Gift Aid legislation is presently contained in Sections 413 – 425 of the Income Tax Act 2007, which superseded the Gift Aid legislation contained in the Finance Act 1990 (“FA 1990”) with effect from the tax year commencing on the 6 th April 2007. For the purposes of this appeal, the relevant legislation is that contained in the Finance Act 1990.[9]The Gift Aid legislation allows a charity which receives “ a qualifying donation ” from a donor to reclaim tax from HMRC by treating the donation as a net amount from which income tax at the basic rate has already been deducted. In the context of an individual donor, the basis of the Gift Aid relief is that the donor has effectively donated a sum which is net of basic rate tax (i.e. the donation is made from money which is deemed to have been taxed at the basic rate). As charities are, generally, exempt from paying tax, the Gift Aid legislation allows the charity to claim back the basic rate tax deemed to have been paid by the donor. A charity can only claim Gift Aid if the donor has given the declaration that he has paid income tax or capital gains tax at least equal to the amount of basic rate tax, which is the subject of the Gift Aid claim.[10]In addition, individual higher rate tax payers are entitled to further relief on “ qualifying donations ”, which they make to a charity insofar as their personal income tax affairs are concerned. In general terms, this relief puts a higher rate tax payer into the same position as a basic rate tax payer by compensating the higher rate tax payer for the fact that they have had to bear a higher rate of tax on the income out of which their “ qualifying donation ” is made.[11]Only donations, which are “ qualifying donations ” within the meaning of Section 25 Finance Act 1990 can qualify for Gift Aid. Section 25 (1) FA 1990 reads as follows: (1) For the purposes of this section, a gift to a charity by an individual (the donor) is a “qualifying donation” if- (a) is made on or after the 1 st October 1990; (b) it satisfies the requirements of sub-section (2) below; and (c) the donor gives an appropriate declaration in relation to the charity.[12]The principal question, which arises in this appeal insofar as the Respondent is concerned is whether such part of the Appellant’s annual subscription payment to his Lodge as is passed on by his Lodge to the Grand Charity is a “ gift made by an individual to a charity” within the meaning of Section 25 (1) FA 1990. The Appellant’s case[13]In the Appellant’s statement of case, the following is said: “A Masonic Lodge, called a “ Private Lodge” in the Book of Constitutions is the basic organisation of Freemasonry. Freemasons meet as a Lodge and not in a Lodge.[14]The Appellant was initiated into St Mary’s Lodge of Freemasons as an Apprentice on the 22 nd November 1971. After a period of instruction followed by an examination, he was passed to the degree of Fellow-craft on the 23 rd October 1972. After a further period of instruction followed by an examination, he was raised to the sublime degree of Master Mason on the 26 th March 1973. He was elected into the chair of the Lodge in May 1983 and served as its master for 12 months. He was appointed Charity Steward in May 1981 and held that appointment until May 2010 with the exception for the year of his mastership and the year of past master that followed.[15]The Appellant’s rank now is Past Provincial Grand Junior Warden in the Province of Leicestershire and Rutland. The Appellant is one of the founding members of Framland Hundred Lodge, which was warranted on the 13 th November 1991 and consecrated on the 27 th May 1992, at which ceremony the Appellant was elected as its Treasurer and which position he still holds.[16]Every brother upon initiation is supplied with a copy of the Book of Constitutions and his acceptance is deemed a declaration of his submission to its contents. The Book of Constitutions contains a copy of the Grand Charity Deed. The Grand Charity[17]The Grand Charity was created by resolution of UGLE to establish a fund for the purpose of receiving contributions made by Freemasons of the English Constitution and others to be held on exclusively charitable trust. The Trust Deed was approved and signed on the 16 th April 1980.[18]Each year Grand Lodge is informed by Grand Charity of its financial requirements and Grand Lodge determines how much each brother will be required to contribute. This is put to the Quarterly communication held in March each year and published in the June edition of Masonic Quarterly. Every brother is aware of his personal commitment to Grand Charity for the following year, which he will pay to his Lodge Treasurer for onward transmission to Grand Charity.[19]Rule 271 in the Book of Constitutions provides that there has to be payable by Lodges to the Grand Charity annual contributions of not less than amounts stipulated each year in respect of its members and each year Grand Lodge issues instructions to Lodge Treasurers that when considering future subscriptions the amount of the subscriptions payable, and that element of the subscription attracting VAT, is set out for collection by the Treasurer who then remits the full amount, being subscription plus VAT and sum due in respect of the charity gift by way of one payment to UGLE who distributes the money appropriately.[20]The Appellant relies upon the fact that the charity contribution is separate from the subscription by way of an original receipt given by the Treasurer of St Mary’s Lodge on the night of the initiation of brother S Hedley Kendall on the 25 th January 1954 at page 347 in which the subscription for the year 1954, 5 guineas and charity contribution 1 guinea, is shown separately.[21]An annual return is required to be submitted to Grand Lodge showing the names of all the members who were on the Lodge register for the year under review. The return also records how much is payable to Grand Lodge for Dues, plus the amount of VAT, and the amount payable to the Grand Charity, being the total collected from all the members of the Lodge. Thus instead of each member sending his personal contribution to the Grand Charity direct, the member pays it to the Treasurer of his Lodge who then pays what he has collected to Grand Lodge for onward transmission to the Grand Charity under Rules 271 of the Book of Constitutions.[22]Membership of the Grand Charity is awarded according to rank in the craft per rule 6 of the Trust Deed. Members of the Grand Charity shall be members of Grand Lodge and all master masons who were subscribing members of London or Provincial Lodges under the UGLE subject to the right of any brother to decline membership of the Grand Charity by notice in writing to the Secretary of the Grand Charity. However, any brother initiated into a Lodge under the UGLE, or who has joined from another Constitution may apply to the Grand Charity for financial assistance per rule 0307 of Section 3 of the Trust Deed.[23]The Appellant has included as evidence copies of the annual accounts for St Mary’s Lodge for the relevant tax years, as have annual accounts for Framland Hundred Lodge also been included.[24]In response to the Respondent’s case, the Appellant says this: He does not claim that a mason’s annual subscription to his own Lodge is a “ qualifying donation ” for Gift Aid purposes. The payment to the Grand Charity is separate from the subscription. The amount required by the Grand Charity is not based on the number of members in each Lodge, but, as Rule 271 states, is in respect of each member of the Lodge. In order to meet the requirements of Rule 271, the Lodge does not “source the funds to make such payments from the annual Lodge subscriptions paid by their members”, but from the specific contributions received from members to meet their personal obligations. This acknowledges that masons are aware of the amount to be passed on to the Grand Charity. A mason’s contribution to the Grand Charity is not part of his subscription to the Lodge, but is separate. The Appellant’s contribution to the Grand Charity is a “ qualifying donation” . The Appellant is a higher rate tax payer. The Appellant’s contributions to the Grand Charity are within the terms of Section 25 FA 1990 (1) as: (a) they have been made on or after 1 st October 1990. (b) they satisfy the requirements of sub-section (2) below and (c) he has given declarations in relation to them to the Grand Charity. Sub-section (2) states: A gift satisfies the requirements of this sub-section if: (a) it takes the form of a sum of money; (b) it is not subject to a condition as to repayment; (c) N/A; (d) it does not constitute a sum falling within section 202 (2)of the Taxes Act 1988; (e) neither the donor nor any person connected with him receives a benefit in consequence of making it, where the donor or a person connected with him does receive a benefit in consequence of making it, the relevant value in relation to the gift does not exceed the limit imposed by sub-section (5A) below and the amount to be taken into account for the purposes of this paragraph in relation to the gift does not exceed £250; (f) it is not conditional on or associated with, or part of an arrangement involving, the acquisition of property by the charity, or otherwise than by way of gift, from the donor or a person connected with him; (g) N/A; (h) the sum paid does not, when aggregated with any qualifying donation already made by the donor in the relevant year of assessment exceed £5,000,000; and (i) the donor is resident in the United Kingdom at the time the gift is made.[25]The Appellant contends that no part of the annual subscription, which he pays to his Lodge is passed on by his Lodge to the Grand Charity, but what is passed to the Grand Charity is the contribution the Appellant makes for the Grand Charity.[26]The Appellant contends that he makes to the Grand Charity a “qualifying donation”.[27]The contribution the Appellant makes to the Grand Charity is a gift to which he has voluntarily committed himself.[28]A Lodge is a group of individual masons acting together. As such the Lodge has no separate identity. There is no conversion of anything which has been expressed to have a separate identity.[29]The Lodge Treasurer collects the amounts due, which are the obligations of the members. The Lodge is thereby one stage of the conduit through which the amount due to the Grand Charity is remitted. The Proceedings[30]We heard oral submissions from both Mr Osborne and his son, Mr Michael Osborne. We also heard oral submissions on behalf of the Respondent. The documentation[31]There were two principal bundles to which we will refer to where appropriate in our reasons for our decision. The second bundle contained copies of the correspondence between the Appellant and the Respondent from the 11 th November 2005 to the 24 th December 2008.[32]Both parties had provided a Skeleton Argument as directed.[33]The Appellant has provided a response to the Respondent’s Skeleton Argument and a further note “ conclusion ”. The Law[34]The relevant legislation is that contained in FA 1990. The relevant part of FA 1990 is set out as part of the Appellant’s case. Our decision[35]Having considered carefully the Appellant’s case and the Respondent’s case, and reviewed the parties’ respective Skeleton Arguments and their responses to each others Skeleton Arguments we conclude that a proper finding in this appeal is that the appeal should be dismissed and we do so for the following reasons: We find that no part of the Appellant’s annual subscription payment to his Lodge is “ a gift made by an individual to a charity ” under Section 25 (1) FA 1990.[36]We do so for the following reasons: We accept the Respondent’s submission that the purpose of the annual subscription payment made by the Appellant to his Lodge is to secure his membership of that particular Lodge – the Lodge is not itself a charity – and in order to retain membership of his Lodge, the Appellant is obliged to pay a subscription fee in full. Should the Appellant not wish to pay the Grand Charity element of his subscription fee, his subscription to the Lodge would fall into arrears and his Lodge membership would be terminated.[37]The payment of the Appellant’s entire annual subscription fee (including the Grand Charity element) is compulsory in order to retain membership of his Lodge. There is no “ gift ” element so far as the Grand Charity element of the subscription fee is concerned.[38]The term “ gift ”, connotes a voluntary donation, but the Appellant is not making a voluntary donation to the Grand Charity; he pays his annual subscription fee to his Lodge and it is his Lodge which passes a portion of that subscription fee to the Grand Charity (as it is required to do under the Masonic Book of Constitutions – Rule 271).[39]Rule 271 of the Masonic Book of Constitutions states that: “There shall be payable by Lodges to the Grand Charity annual contributions of not less than the following amounts in respect of each of its members....... Rule 271 makes it clear that the Lodges themselves are under an obligation to make annual payments to the Grand Charity in respect of each of their members. The rule does not say that individual Lodge members are to make contributions to the Grand Charity, and nor does it say that a Lodge is only required to make a contribution to the Grand Charity in respect of a member if that member puts the Lodge in funds first. The way in which the payments between the Lodges and the Grand Charity are structured means that there is simply no “ gift ” by an individual to the Grand Charity.[40]At the end of paragraph 2 of his Skeleton Argument, Mr Osborne states that:
“Lodge Treasurers are instructed annually by UGLE – the Grand Lodge – to collect from the Lodge members a subscription to the Grand Lodge and the annual contribution to the Grand Charity. There is nothing to suggest that UGLE is “instructing”
Lodge Treasurers to collect subscription payments to the Grand Lodge or contributions to the Grand Charity from individual masons. Each Lodge is itself required to pay a subscription fee to UGLE and a contribution to the Grand Charity in respect of each of its members. The Lodges bear these obligations in mind when setting their own annual membership subscription fees, but the Lodge itself is not instructed by UGLE to collect those fees.[41]If UGLE instructed Lodges to collect fees from individual masons, this would not assist the Appellant’s case for if, which is not accepted by the Respondent, UGLE “ instructs ” Lodges to collect Grand Charity contributions from individual masons, then the contribution should properly be characterised as mandatory payments. If the contributions are mandatory (and hence not voluntarily made) they cannot qualify for Gift Aid. Section 25 (1) FA 1990 requires there to be a “ gift ”, which by its very definition requires a voluntary disposition.[42]No individual mason is under any sort of personal commitment to make a payment to the Grand Charity; Rule 271 makes it clear that the obligation belongs to the Lodges. Each year UGLE determines how much money the Lodges need to pay over to the Grand Charity and express this as an “ amount per member ”.[43]A member who wishes to become a member of a Lodge pays the sum necessary in order to secure membership of the Lodge. That Lodge will pass part of that sum to secure the members membership of the Lodge and the balance goes to the Grand Charity, but that sum paid by the Lodge to the Grand Charity cannot transform that sum into a “ gift ” by the member, i.e. the Appellant, to the Grand Charity.[44]In paragraph 5 of Mr Osborne’s Skeleton Argument he argues that VAT is imposed on that part of a Lodge’s annual subscription fee, which is to be paid over to UGLE. The VAT treatment of Lodge subscription fees is irrelevant for Gift Aid purposes; the question with which we are concerned with is whether the conditions in Section 25 FA 1990 are satisfied and in particular the Appellant has to demonstrate to us that the payments are voluntary and are made to a charity by him as an individual.[45]The documents at pages 348 to 351 of the bundle clearly indicate that local Lodges themselves have to make payments to the Grand Charity irrespective of whether or not they are put in funds by their own members.[46]Mr Osborne has relied upon a 1954 receipt from a Lodge to another member – page 347 – but the fact that a Lodge, in preparing their own internal accounts/receipts, split the payment between “ subscription fees ” and “ contributions to the Grand Charity ” does not determine whether or not the payments are “ gifts by individuals to a charity ”.[47]Mr Osborne has stated that the declarations, which he has previously sent to the Respondent at pages 379 to 380 of the bundle “ have been accepted by the Respondent as valid subject to the issue of obligation .”[48]That, with respect, is to misunderstand the requirements of Section 25 FA 1990. Whilst the making of a valid Gift Aid declaration by a donor who makes a gift of money to a charity, is one of the conditions for that gift to be a “ qualifying donation” , and hence to qualify for Gift Aid, it does not follow that the making of such a declaration is all that is required to make the gift a “ qualifying donation ”.[49]The Respondent wrote to Mr Osborne on the 21 st December 2005 –page 381 – when Gift Aid was refused on the basis that the test of Section 25 (1) FA 1990 had not been satisfied, i.e. there had been no gift by an individual, the Appellant, to the Grand Charity. The fact that Mr Osborne has subsequently sent a Gift Aid declaration to the Grand Charity does not by itself transform the payment to the Grand Charity into “ qualifying donations ”, which qualify for Gift Aid.[50]The Tribunal accepts that no part of the Appellant’s subscription fees to his Lodge can be characterised as a “ qualifying donation ” within the meaning of Section 25 (1) FA 1990. For the reasons we have set out above and having taken into account all of the papers before us, we have no alternative but to dismiss the appeal.[51]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. TRIBUNAL JUDGE RELEASE DATE: 9 August 2010

Cited in 1 later judgment