20519

ZERO-RATING – sales of cats and dogs by animal charity – whether cats and dogs given to the charity by persons other than original owner are  donated – satisfied on the facts that the cats and dogs are donated – the sales not a result of an arrangement – Appeal allowed 

LONDON TRIBUNAL CENTRE

	GABLESFARM DOGS AND CATS HOME  	Appellant

	- and -

	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal: MICHAEL TILDESLEY OBE	 (Chairman)
				      ANGELA WEST FCA  (Member)	  

Sitting in public in Plymouth on 11 October 2007

Nicholas Ashton counsel instructed by Messrs Whiteford and Crocker, solicitors, for the Appellant 

Jessica Simer, counsel instructed by the  Solicitor for HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION
The Appeal
1.	The Appellant was appealing against an assessment for unpaid VAT in the sum of £14,285 issued on 22 April 2005.
2.	The Appellant was an unincorporated charity based in Plymouth with the charitable purpose of rescuing and sheltering abandoned and unwanted cats and dogs.  The dispute concerned whether the sale of cats and dogs by the Appellant was zero-rated for the purposes of VAT. The Appellant contended that its sale of cats and dogs which were given to the Appellant were zero-rated. The Respondents considered that zero-rating only applied to the sale of cats and dogs donated by their owners. According to the Respondents, the sale of stray and abandoned cats and dogs given to the Appellant by persons other than their owners was a standard rated supply.
3.	The determination of the dispute depended upon the construction of item 1 schedule 8 group 15 of the VAT Act 1994, and in particular the meaning of the word donated. Essentially the Appellant submitted that the word donated meant transferred for no consideration. Thus zero-rating applied to the sale of all cats and dogs given to the Appellant. The Respondents contended that ownership was a pre-requisite to donation. Thus only the owners of the cats and dogs were capable of donating them to the Appellant. 
4.	The Respondents also relied on a subsidiary argument if their principal contention failed. The subsidiary argument was restricted to dogs brought in to the Appellant by the Local Authority (Plymouth City Council).  The Respondents submitted that the Appellant kennelled these dogs pursuant to a contract with the City Council. This agreement fell foul of the anti-avoidance measure of note 1 schedule 8 group 15 of the VAT Act 1994 in that zero rating did not apply to sales   which took place as a result of arrangements entered into before the dogs were sold. The Appellant contended that the sale of the dogs did not result from any agreement between it and the City Council. The contract existed simply to provide a mechanism by which the City Council complied with its statutory duty to kennel the dogs.
The Law
5.	Section 30 of the VAT Act 1994 provides that
(2) A supply of goods or services is zero-rated by virtue of this subsection if the goods or services are of a description for the time being specified in Schedule 8 or the supply is of a description for the time being specified.

6.	Item 1 group 15 schedule 8  of the VAT Act 1994 provides that the following is zero-rated:
1)  The sale or letting on hire by a charity of any goods donated to it for –
a)	sale
b)	letting
c)	sale or letting
7.	Note 1 to group 15 schedule 8  of the VAT Act 1994 provides (so far as relevant):
Item 1 or 1A does not apply unless the sale or letting –
a)	takes place as a result of the goods having been made available –
i)	to two or more specified persons or
ii)	to the general public.
       for purchase or hire (whether so made available in shop or elsewhere), 
and
b)	does not take place as a result of any arrangements (whether legally binding or not) relating to the goods and entered into, before the goods were made so available, by –
i)	each of the parties to the sale or letting, or
ii)	the donor of the goods and either or both of those parties.
8.	The Environmental Protection Act 1990 provides a statutory scheme for the control of stray dogs. Section 149 provides (so far as relevant):
1) Every local authority shall appoint an officer for the purpose of discharging the functions imposed or conferred by this section for dealing with stray dogs found in the area of the authority.
2)   The officer may delegate the discharge of his functions to another person but he shall remain responsible for securing that the functions are properly discharged.
3)   Where the officer has reason to believe that any dog found in a public place or on any other land or premises is a stray dog, he shall (if practicable) seize the dog and detain it ……
4)      Where any dog seized under this section wears a collar having inscribed thereon or attached thereto the address of any person, or the owner of the dog is known, the officer shall serve on the person whose address is given on the collar, or on the owner, a notice in writing stating that the dog has been seized and where it is being kept and stating that the dog will be liable to be disposed of it is not claimed within seven clear days after the service of the notice and amounts for which he would be liable under subsection (5) below are not paid.
5)     A person claiming to be the owner of a dog seized under this section shall not be entitled to have the dog returned to him unless he pays all the expenses incurred by reason of its detention and such further amount as is for the time being prescribed.
6)    Where any dog seized under this section has been detained for seven clear days after the seizure or, where a notice has been served under subsection (4) above, the service of the notice and the owner has not claimed the dog and paid the amounts due under subsection 5) above the officer may dispose of the dog –
a) by selling it or giving it to a person who will, in his opinion, care properly for the dog;
b) by selling it or giving it to an establishment for the reception of stray dogs; or
c) by destroying it in a manner to cause as little pain as possible; 
but no dog seized under this section shall be sold or given for the purposes of vivisection.
7) Where a dog is disposed of under subsection 6)a) or b) above to a person acting in good faith, the ownership of the dog shall be vested in the recipient.
9.	Section 150 of the Environmental Protection Act 1990 deals with the responsibilities of a person other than a dog warden (the finder) who takes possession of a stray dog.  Essentially the finder is required either to return the dog to its owner or take the dog to the officer of the local authority or to the police station. If he takes the dog to the local authority the finder is entitled to keep the dog provided he gives identification details to the officer and keeps the dog for one month. 
The Evidence
10.	We heard evidence from Mrs Carol Virginia Gow, the Chair of the Board of Trustees for the Appellant.  The witness statement of Mr Leslie George Bingham, the officer who carried out the review of the assessment was admitted as there was no challenge from the Appellant. We received a bundle of documents in evidence. The facts of the Appeal were agreed.
The Facts
11.	The Appellant was founded in 1907. Its principal objects were as follows:
(1)	To rescue and shelter lost, unwanted and homeless dogs and cats, and so save them from starvation and ill-treatment, and in doing so to remove a source of danger from the streets.
(2)	Wherever possible to restore lost dogs and cats to their owners.
(3)	To find suitable houses for unclaimed and unwanted dogs and cats.
(4)	If accommodation is available to receive dogs and cats on a temporary base where the owners face an emergency.
(5)	Such other activities as shall promote to the welfare of such animals and as appropriate to the organisation and capacity of the Charity.
12.	The Appellant operated out of a purpose built home on the outskirts of Plymouth with ample accommodation for cats and dogs. The Appellant received cats and dogs from the Local Authority dog warden, police, members of the public and owners. The Appellant admitted all cats and dogs except dangerous dogs. Once in their care the Appellant neutered, vaccinated and micro-chipped the cats and dogs. The animals were made available to the general public for re-homing. Prospective applicants for re-homing the cats and dogs had to demonstrate to the Appellant some ability to care for them, which would normally involve the Appellant interviewing and visiting their homes. The Appellant’s application form for re-homing specified that the animals were the Appellant’s property. The Appellant charged the applicants for the animals if they were re-homed with them. The charge took account of the commercial value of the cats and dogs but was less than the rate charged by a professional breeder. The current charge for a crossbreed dog was £93, whilst the charge for a pure breed would start at £130. The charges collected contributed towards the Appellant’s running costs. The number of animals put to sleep by the Appellant was minimal.
13.	The Appellant’s constitution permitted it to co-operate with outside agencies and contract with them to provide services on their behalf.
14.	From the 1970’s the Appellant was involved in discussions with Plymouth City Council, over the handling of stray dogs. In 1987 the City Council appointed a dog warden which led to a 25 per cent increase in stray dogs brought to the Appellant. From 1994 the Appellant contracted with the City Council to provide a kennelling service for stray dogs. The current agreement was dated 21 September 2002. The conditions of the contract detailed the requirements of City Council for the reception and kennelling of stray dogs found within the Council’s area. Most of the requirements stemmed from sections 149 and 150 of the Environmental Protection Act 1990. 
15.	Clause six of the  contractual conditions  stated the following:
(1)	The Appellant shall kennel all dogs brought to it by the Council under the terms of the contract. The usual means of dogs being brought to the kennels will be by the Council’s dog warden. Other stray dogs can be accepted by the kennels if brought in by the police or members of the public. Dogs brought in by the police or members of the public must have the Council documentation raised by the Appellant who must also inform the Contract Supervisor at the first opportunity. Any dog brought to the kennels shall be checked by the Appellant for injury or damage and be treated by an appropriate means. A record shall be kept of any damage, injuries or identification found.

(2)	The Appellant shall provide good quality kennelling to the satisfaction of the Council. In any case there must be an enclosed section for protection against the elements and for night time accommodation. Each kennel area shall be cleaned daily using a Veterinary approved cleaning agent, The Appellant shall ensure that each animal is given proper and appropriate food, drink and suitable bedding on each day that it is in the care of the Appellant.
(3)	A dog which has been in the care of the Appellant for seven clear days and has not been claimed shall be taken over by the Appellant whereupon the Council’s obligations will immediately cease.
16.	Under the contract the Appellant was entitled to charge Plymouth City Council for the kennelling of stray dogs. The entitlement to charge expired at the end of   seven clear days, after which the Appellant assumed responsibility for the dog. The charges included an administration charge of £18, kennelling charges of £10 per day, and veterinary fees at £60 per hour. Plymouth City Council imposed no charges on the Appellant for taking over the stray dogs at the end of seven days.  
17.	Under the contract the Appellant was obliged to take in up to 20 stray dogs. The contract applied to stray dogs brought in by members of the public and the police. Stray cats were generally brought to the Appellant by members of the public, which constituted about 50 per cent of the cats received by the Appellant. The remaining 50 per cent were brought in by their owners who were no longer able to care for them. 
18.	Mrs Gow explained that the Appellant took steps to trace the owner of stray cats and dogs but this was very difficult unless the animal carried on it a form of identification, such as an address tag on a collar. Equally the Appellant could not be sure whether a person claiming to be the owner of the animal was in fact the owner as there were no formal means of proving ownership of the animal. 
Reasons
19.	The Respondents accepted that sales of cats and dogs which have been given to the Appellant by their owner were zero-rated. The dispute concerned the VAT status of sales of cats and dogs which were not given by their owner.
20.	We were required to determine two separate arguments in relation to the dispute. The first concerned the construction of item 1 schedule 8 group 15 of the VAT Act 1994 which affected  the Appellant’s sales of cats and dogs given by persons other than their owners. The second argument concerned the construction of the contract between the Appellant and Plymouth City Council which impacted only on the sale of stray dogs received by the Appellant in accordance with the agreement.
First Argument: Construction of Item 1 Schedule 8 Group 15
21.	The provisions of item 1 schedule 8 group 15 zero rated sales by charities of donated goods provided the goods were available for sale to the general public or to specified persons. The parties agreed that domestic animals like other personal and moveable chattels were the subject of absolute property, and fell within the definition of goods. Further the Appellant was a charity and its animals were available for sale to the general public. The dispute concerned whether the word donated restricted the application of zero-rating to sales of cats and dogs which were given by their owners.
22.	The Appellant contended that ownership was not a pre-requisite to donation. The Appellant relied upon a construction of item 1 schedule 8 group 15 which distinguished between animals given to the charity, and animals sold to the charity as the determining criterion for fixing VAT liability of the subsequent sale by the charity. Under the Appellant’s construction the word donated meant animals transferred for no consideration. The Respondents, on the other hand, submitted that the word donated applied only to gifts by the owners of goods. Thus the subsequent sale of animals   that were given to the charity by persons other than the owner, would be standard rated for VAT in same way as the sale of animals purchased by the charity.
23.	 Article 28(2) of EC Council Directive 73/88 (the Sixth Directive) permits the zero-rating of supplies which satisfy the conditions of art 17 of EC Council Directive 67/228 (the Second Directive), namely, such measures may only be taken for clearly defined social reasons and for the benefit of the final consumer. 
24.	The zero rating provisions are interpreted strictly as they provide an exception to the general principle that VAT is to be levied on all goods or services supplied for consideration by a taxable person. A strict construction, however, is not be equated with a restricted construction. It is incumbent upon the Appellant to establish that the supply comes within a fair interpretation of the words of the exemption (per Chadwick LJ in Expert Witness Institute v C & E Commissioners [2002] STC 42). 
25.	 The national legislation dealing with zero-rating has to be interpreted in the light of the wording and purpose of the Sixth Directive in order to achieve the result required by it. This may require a construction of the national legislation which  involves some departure from the strict and literal application of the words used  and implying words consistent with giving effect to the purpose of the directive  (per Lightman J in Jubilee Hall Recreation Centre Ltd v Commissioners of Customs and Excise [1997] STC 414).
26.	Thus the zero-rating provisions in item 1 group 15 schedule 8 dealing with sales by charities of donated goods must meet a defined social reason and be of benefit to the final consumer. 
27.	In EC Commission v the United Kingdom (Case 416/85) [1988] STC 456 the European Court of Justice decided that social reasons were in principle a matter of political choice for the member states provided the measures taken were proportionate to the reasons. Further the Court of Justice defined final consumer as the person who acquired goods or services for his personal use. The benefit derived by the final consumer from the zero rating was the non-application of VAT at the retail stage. The EC Commission did not challenge in the proceedings the validity of the zero-rating provisions in the United Kingdom dealing with supplies by and to charities.
28.	Item 1 group 15 schedule 8 of the VAT Act 1994 permits charities to zero-rate sales of goods donated to it. Note 1 to group 15 places restrictions on the zero-rating provisions. First the donated goods must be sold either to two or more specified persons or to the general public. Specified persons are defined as those with disabilities or in receipt of defined welfare benefits. Second the sale does not take place as a result of any arrangements relating to the goods entered into before the goods were made available for sale. The relevant arrangements are those between the parties to the sale or the donor of the goods and either or both of the parties to the sale. 
29.	The original legislation, the Finance Act 1972, implementing VAT in the United Kingdom did not permit the zero-rating of supplies by charities. The VAT (Consolidation) Order 1978 SI 1978 1064 introduced a new category of zero rated supplies, group 16 to schedule 4 of the Finance Act 1972 headed Charities etc. Group 16, amongst other matters, permitted the zero-rating of supplies of donated goods by charities primarily established for relief of poverty. The VAT (Handicapped Persons and Order) 1981 SI 1981/365 extended the zero-rating relief on sales of donated goods to charities for the protection or benefit of animals. The Finance Act 1991 amended the VAT Act 1983 allowing all charities to zero-rate the sale of donated goods. The rationale given for the inclusion of all charities was to help those charities whose legal objects were not primarily for the relief of distress or for the protection of animals, but whose activities were very similar. High street charity shops were seen to be the main beneficiaries of the zero-rating reliefs. 
30.	The extension of zero-rating relief to all charities was accompanied by the implementation of anti-avoidance provisions to ensure that the relief was not abused. Initially the only restriction in the 1972 Act was that zero rating only applied if the sale was by the first donee of the goods. The VAT Act 1994 incorporated provisions about making the sales available to the general public, and disallowing zero-rating of supplies which were made as a result of arrangements between the donor, charity, and the person to whom the goods were sold.
31.	We deduce from the history of the domestic legislation that the social reason for the zero-rating of sales of donated goods was to help charities to raise funds for their charitable objects. We place weight upon the fact that the relief was initially introduced to help specific charities, in particular those dealing with the protection of animals. The restriction of making sales available to the general public ensured that the final consumer requirement was met. We consider it significant that the arrangements restriction was introduced after the extension of the relief to all charities which presumably recognised the higher risks of abuse associated with sales from high street charity shops.  
32.	At the hearing the parties did not consider Article 28(2) of the Sixth Directive in their submissions about the correct construction of item 1 group 15 schedule 8 of the VAT 1994 Act. Their submissions focussed on the meaning of donate and the law dealing with ownership of animals. 
33.	The word donate was derived from Latin, donare which means to give. The New Short Oxford English Dictionary defined donate as make a donation of especially to a charity or institution. Donation was given several meanings: the action or act of donating; the right of bestowing or conferring a benefice, gift; a thing which is donated: a gift or contribution to a charity, fund etc. The specialist legal meaning of donation as recorded in the Short Oxford English Dictionary was the transfer of ownership as a free gift.   
34.	The Court of Session in Customs and Excise Commissioners v Tron Theatre Ltd [1994] STC 1977 considered an Appeal by Tron Theatre Ltd  about whether value added tax at the standard rate was due on fund-raising activities involving sponsorship of new theatre seats to raise money for refurbishment of the company's theatre.  As part of its decision the Court of Session considered the meaning of donation: 
“The essence of a donation is that no consideration is expected for it in return. It is not a consideration in money but is a gift. The recipient takes the money without incurring any obligation to pay or supply anything in exchange for it”. 
35.	The Respondents’ policy as set out in its internal guidance, Chapter 7.2 Sales of Donated Goods, V1-9 Charities, stipulated that the sale of donated and bought in goods by a charity was always a business activity. The VAT treatment of the supply would depend on the type of goods and how they are held out for sale. The policy stated that only goods freely given to the charity could be sold at the zero rate. Bought in goods must be sold at the standard rate.
36.	The parties accepted that as a matter of law a domestic animal like other personal and moveable chattels is the subject of absolute property.  At common law the finder of a stray animal acquires rights of possession under the legal principle of bailment by finding. Essentially the finder assumes the obligations of a depositary to the true owner, including the obligations to take reasonable steps to locate the owner and acquaint him with the finding and the present whereabouts of the animal, to exercise due care for the safety of the animal until its return to the owner and to return it to him on demand. Further, the finder cannot claim a lien on the animal for any expense to which he may have been put in keeping or preserving it. The possession of the finder, however, is rightful and continues rightful until the owner demands the return of the chattel, and by taking the chattel into his custody he does no wrong to the true owner. Thus a finder who takes in a stray animal into his care and control acquires rights of possession except against the true owner (Armoury v Delamire (1722) 1 Stra. 505).  The finder may, however, acquire ownership of the animal if the true owner intentionally abandons the animal: 
“If one is possessed of a jewel, and casts it into the sea or a public highway, this is such an express dereliction, that a property will be vested in the first fortunate finder that will seize it to his own use. But… if he (the owner) loses or drops it by accident, it cannot be collected from thence that he designed to quit the possession, and therefore in such case the property still remains in the loser, who may claim it again of the finder”: 2 Bl Com 9 (Halsburys Laws of England: Bailment by Finding Volume 3 (2005 re-issue)
37.	The provisions of the Environmental Protection Act 1990 modify the common law in relation to stray dogs. The 1990 Act gives dog wardens appointed by a local authority the right to seize and detain stray dogs. Under the Act wardens are required to notify the owners of the dog, if known, that the dog has been seized and will be disposed of within seven clear days unless claimed. After seven clear days of seizure or giving notice to the owner the warden may sell or give the dog to a person who will care for it or to an establishment for the reception of stray dogs or destroy the dog. Where a dog is sold or given to a person acting in good faith the ownership of the dog shall be vested in the recipient. 
38.	The Dogs Act 1906 gives similar powers to police officers in respect of the seizure of stray dogs. Under section 3(4) of the 1906 Act the Chief Officer of Police may sell or destroy a seized dog after seven clear days. Under section 3(7) the Chief Officer of Police may transfer the stray dog to an establishment for the reception of stray dogs.   
39.	The Environmental Protection Act 1990 requires a finder of a stray dog to return it to the owner or take the dog to the local authority warden or a police station. The finder, however, can keep the dog provided he informs the local authority warden of this fact and furnishes his name and address to the warden.
40.	 The Appellant received stray dogs from the warden of the City Council, the police and members of the public. The Appellant informed the City Council when it received stray dogs from the police and members of the public, which had the effect of bringing the stray dogs within the provisions of the Environmental Protection Act 1990.  We are satisfied that the Appellant applied the same notification procedure to the stray dogs received from the Devon and Cornwall Constabulary. The City Council exercised its powers under the 1990 Act to give the stray dogs after the expiry of seven clear days to the Appellant.  This gift had the effect of vesting the ownership of the stray dog in the Appellant. 
41.	Members of the public were generally responsible for bringing in stray cats to the Appellant.  The Appellant made no payment to members of the public  for the stray cats 
42.	The Council warden was responsible for notifying the owner, if known, that his dog had been seized. The Appellant also took steps to inform the owner of stray animals which had means of identification.  By the time the Appellant made the cats and dogs available for re-homing it was satisfied that the ownership in the animals had transferred to it, as evidenced by its declaration in the re-homing application form and the steps taken to locate their owners if their identity was known. 
43.	We consider that the Appellant or the warden would have returned genuinely lost cats and dogs to their owners. In our view responsible owners would have taken steps, such as a collar with an address tag, to enable return of their lost animal. Further they would make early contact with the warden and the Appellant if their animal had gone missing. We are satisfied that the cats and dogs offered for re-homing by the Appellant were those which had been deliberately abandoned by their owners. 
44.	 The Respondents’ submission that the word donated related solely to a gift by the original owner of the cat or dog was based on the proposition that a donation transferred ownership in the gift which can only be effected by the owner.  We consider the words owner and ownership are not absolute concepts in English law. Ownership disputes in English law are generally about who has the better right to title. The Respondents’ submission overlooked the range of proprietary rights in stray animals, in particular, the statutory right of the warden to sell or dispose of the dog after seven clear days and the ownership rights vested in a finder of a stray animal which had been abandoned intentionally by its owner.  We find that a gift of a stray cat or dog to the Appellant by a person other than the original owner was capable of transferring ownership rights in the animal to the Appellant. Further we consider that the Respondents’ analysis has been skewed by concentrating upon the circumstances at the point of admission of the animals to the Appellant’s home rather than circumstances of the actual animals offered for sale. It was the circumstances of the cats and dogs re-homed for consideration which determined eligibility for zero rating. We are satisfied that the Appellant held ownership rights in the animals offered for sale. The Appellant acquired those ownership rights from the gifts of those animals whether by the owner, the finder or the warden. 
45.	The Respondents made a subsidiary proposition that the ownership of the dog conferred upon the Appellant under section 149(6) and (7) of the Environmental Protection Act 1990 could not constitute a donation because the Appellant acquired ownership of the dog through  operation of statute rather than a direct transfer from the original owner. We consider the Respondents’ subsidiary proposition misconceived and not supported by the legislative provisions in the VAT Act 1994. Under section 149(6) of the 1990 Act the dog warden has a choice. He can either sell or give the dog to a person who will care for it or to an establishment for the reception of stray dogs or destroy the dog. After the relevant period of seven days the warden for Plymouth City Council chose to give seized dogs to the Appellant which had the legal effect of vesting ownership of the dogs in the Appellant.  We consider the warden’s gift of the seized dogs to the Appellant amounted to a donation within the meaning of item 1 paragraph 15 schedule 8 of the VAT Act 1994. The warden’s act has the hallmarks of a donation: freely given, no consideration, and transfer of ownership. The fact that the warden exercised his right to give under statute did not in our view exclude it from constituting a donation within the relevant part of the VAT Act 1994.

46.	We construe the provisions of item 1 group 15 schedule 8 of the VAT Act 1994 as follows:
(1)	Goods must be freely given to the charity for the purposes of onward sale.
(2)	Transfer of ownership in the goods is effected by the gift before the goods are sold by the charity.
(3)	 The charity makes the goods available for sale to the general public or  disabled persons or persons in receipt of specified benefits.
(4)	The sale must meet the requirements of a defined social reason and final consumer.
47.	The question before us was whether the Appellant was entitled to zero-rate the sale of cats and dogs given to it by persons other than the original owners.  On the facts found we are concerned with sales of cats and dogs intentionally abandoned by their original owners.  At this stage we are not considering the effect of the Appellant’s contract with the City Council dated 21 September 2002. 
48.	We find that the warden and members of the public freely gave the stray cats and dogs for no payment to the Appellant. They gave in knowledge that the Appellant would find suitable homes for the cats and dogs for which the Appellant would charge the new owners a fee. We hold that the Appellant acquired ownership rights to the cats and dogs arising from the gift either by statute under section 149(7) of the Environmental Protection Act 1990 or by common law. We find that the Appellant made the cats and dogs available for sale to the general public, and did so on terms that the Appellant owned the cats and dogs. We hold that the sale of the cats and dogs met a defined social need of protecting animals, and that the sales were to persons for their personal use rather than for business use. We, therefore, conclude that the  Appellant’s  sales of cats and dogs given to it by the  warden, police officers and members of the public constituted sales of donated goods which met the requirements of  zero rating in  item 1 group 15 schedule 8 of the VAT Act 1994.
Second Argument: Construction of the Contract between the City Council and the Appellant
49.	Since February 1994 the Appellant has contracted with the City Council to receive and kennel up to a maximum of 20 stray dogs brought in by the dog warden. The City Council entered into this contract for the purposes of discharging its responsibilities for stray dogs under the Environmental Protection Act 1990.   Under the contract the Council paid fees to the Appellant for kenneling, administration and veterinary services. The Council’s obligation to pay the fee expired after seven days when under the terms of the contract the ownership of the dog passed to the Appellant under the provisions of the 1990 Act.
50.	The Respondents contended that the contract between the Council and the Appellant constituted an arrangement within the meaning of note 1 to group 15 schedule 8 which had the effect of denying zero-rating to the Appellant’s subsequent sales of  dogs received under the contract. The Appellant countered that the sales did not result from any arrangement between the Appellant and Council. Their contract simply provided a mechanism by which the Council complied with its statutory duty to kennel the dogs.
51.	We find that the contract dealt with the arrangements for the care of seized dogs detained by the City Council under its statutory responsibilities in the 1990 Act. The agreement in respect of each dog expired after seven clear days. The terms of the contract did not regulate what happened to the dogs after the expiry of the seven days and their subsequent sale by the Appellant. The Council received no benefit whatsoever under the contract from the subsequent sale of the dog by the Appellant.
52.	We are satisfied that the subsequent sale of the dogs by the Appellant did not take place as a result of its contract with the City Council. The contract dealt with an entirely separate matter involving the discharge of the Council’s responsibilities under the 1990 Act which did not affect the subsequent sale of the dogs by the Appellant. The reason why the sales took place was a result of the Appellant’s charitable objects requiring it to find suitable homes for abandoned cats and dogs not because of the contract with the City Council.
53.	Further we consider that the provisions of Note 1 are anti-avoidance measures directed at arrangements intended to circumvent the requirements for zero-rating, for example an arrangement whereby the donor receives part of the proceeds from the sale of the donated goods as an incentive for making the donation. The contract with the Council bore no hallmarks of avoidance in respect of the zero-rating provisions dealing with the sale of donated goods. Under the terms of the contract the City Council did not benefit in any way from the Appellant’s sale of the dogs. 
54.	We are, therefore, satisfied that that the Appellant’s contract with the City Council  was not an arrangement within the meaning of note 1 to group 15 of schedule 8 of the VAT Act 1994. The Appellant’s sales of the dogs did not take place as a result of the contract with the City Council. Further the provisions of the contract did not circumvent the zero-rating provisions dealing with sale of donated goods.
55.	Finally the Respondents stated that the Appellant was obliged to accept dogs brought to it by the Council’s warden and may take dogs from the police and the public under the contract, for which the Council would take responsibility. In those circumstances the Respondents submitted that those dogs were not donated to the Appellant but accepted by the Appellant pursuant to a contractual obligation. In our view the Respondents submission confused acceptance under the contract with donation which were separate and distinct events. The act of donation by the City Council took place after the expiry of seven clear days when the contractual obligations in relation to the specific dog had ceased.  The City Council had no authority to give away the dog until after the specified time period.  The Council exercised its statutory powers under section 149(6) of the Environmental Protection Act 1990 to donate the dogs to the Appellant.
Conclusion
56.	We have decided that 
(1)	The  Appellant’s  sales of cats and dogs given to it by the  warden, police officers and members of the public constituted sales of donated goods which met the requirements of  zero rating in  item 1 group 15 schedule 8 of the VAT Act 1994.
(2)	The Appellant’s sales of the dogs did not take place as a result of the contract with the City Council. Further the provisions of the contract did not circumvent the zero-rating provisions dealing with sales of donated goods.
57.	We consider that our findings are consistent with the purposes of zero-rating sales of donated goods by charities. The historical analysis of the zero-rating provisions showed that animal charities were the second group of charities to benefit from this relief. They were granted this relief for the specific purpose of protecting animals. The Respondents’ position of distinguishing between sales of animals directly given to the Appellant by their owners and sales of animals intentionally abandoned by their owners produced an irrational result when set against the specific purpose of animal protection.
58.	We, therefore, allow the Appeal. We order the Respondents to pay the reasonable costs of the Appellant. In the event of a disagreement over the costs either party may apply to a Tribunal Chairman for a determination.

            

                                 MICHAEL TILDESLEY OBE
CHAIRMAN
RELEASE DATE: 4 January 2008

LON/05/907