The issue

John Eaton of SME Strategies, advised the Management Committee of the Feckenham Village shop in its long running dispute with HMRC over an assessment to Corporation Tax (CT). John believed that as a principle, a voluntary organisation such as a Community Enterprise Village Shop where all the profits were ploughed back into village projects should not be subject to Corporation Tax.

HMRC position

However The Village Shop, which is VAT registered because of its turnover level gets caught under the seven badges of trade. Even though there are exemptions for certain classes of voluntary organisations if they organise more than 15 functions in a year at the same location they are generally deemed to be trading and subject to CT. John, on behalf of the Shop argued that the “Peterhead“ * principle applied, and contended that the notional cost of its volunteer staff should be taken into account as expenses in assessing the profits of the Shop. HMRC resisted the argument for two years and refused to move their position..

Outcome of appeal

Any taxpayer in dispute with an Inspector can ask for the case to be reviewed by a second inspector. In the event the Inspector sent the case straight to Special Office who after careful consideration agreed that John was correct. The Inspector then agreed the notional charge in the accounts. The Management Committee had calculated a cost based on hours worked at the minimum salary which came to about 30% of turnover. This was disputed by HMRC on the basis that the volunteers probably worked inefficiently and they offered 15% which was accepted. Since that time tax losses have been made and a reclaim of the £6,000 tax paid in the previous two years was paid back by HMRC.

John said “This is a stunning victory for common sense and local communities. Of course HMRC has to collect the tax due under legislation passed by elected governments. In this case though, HMRC practice and government policy towards local communities was at odds with other. Thankfully this issue has now been resolved. We are not only delighted for the community of Feckenham but for countless other community shops which will also benefit from this ruling.”

History of the Shop

In 2009 after 20 years without a shop a group of villagers, with no previous retail experience, upgraded a redundant building and opened a new one. They raised £40,000 in just seven months and 300 villagers signed up as shareholders. The result has been a resounding success, not just because a shop has returned to the village after so long, but also because the project has brought the wider community together, from teenagers to pensioners, enabling friendship, co-operation and a sense of pride. This has rippled outwards and local schools and businesses are also benefiting from this shop’s support. Inspired by their achievement the community planned and built phase 2, which saw the addition of a café with free Wi-Fi. It has proved very successful and is popular with cyclists, walkers and villagers alike.

It was the first such community enterprise in Worcestershire. It is kept open 60 hours a week by a team of 80 plus volunteers from the village and surrounding area. In 2009 it won the national ‘Best Village Shop’ award in 2009, from nearly 900 entries. In 2015 it won a Queens’s Award for Voluntary Service.

John Eaton receiving the Queen’s Award for Voluntary Service for 2015 on behalf of the Feckenham Community Shop Association from the Lord-Lieutenant of Worcestershire, Lt Col Patrick Holcroft LVO OBE.