I have made the enquiry to the VAT enquiry office, but I'm not sure they've given me the correct answer. I'd be interested in other (preferably professional) views.
A charity is using an external fundraising business (ie. a PFO) to collect donations and sell lapel badges at supermarkets and other similar places. The charity is not VAT registered and has no need to be in the foreseeable future.
However the PFO has recently registered for VAT.
The service provided by the PFO to the charity is that of making bookings with supermarkets etc. (to get permission to collect) in the charity's name, to provide staff (issued with charity photo id cards and logo'd T-shirt etc.) to attend to collect donations and sell badges in the charity's name. (ie. the money is collected in the name of the charity and not the PFO)
For example, if someone wanted to make a donation or pay for a badge by cheque instead of cash, they'd make the cheque payable to the charity - not the PFO.
Also, the badges are charity stock and are not sold to the PFO for resale - the charity is selling them using the PFO's staff provided to do so.
In return for this service, the PFO is paid a percentage of the money by the charity. For practical reasons, the PFO will bank the cash locally: retaining their percentage and depositing that due to the charity directly into the charity's bank account.
The VAT enquiry office advised me that VAT is not due on any of the donations collected, but is due on the full sale price of the badges. They consider that the PFO is making a taxable supply of the sale of the badges.
My view is that the taxable supply being made by the PFO is in fact the charge they levy for performing the collection and badge selling service for the charity. ie. that they should start charging VAT on the percentage of the money they charge the charity.
This means that they should charge VAT on both parts of the service - that of collecting donations and that of selling the charity's badges; and that only their percentage of the money is subject to VAT.
What's your view?