Charities who meet the criteria of being a charity are there, in the main, to provide what may be described as welfare services. This tends to form the core of their activities but it has been a source of contention with HMRC who are only prepared to exclude those services from the imposition of VAT in specific circumstances. In general, they will be prepared to exempt those services where they are provided 'significantly below' cost to 'distressed' persons for their relief.

Somewhat prosaically HMRC have indicated that in their view 'distressed' means someone 'suffering pain, grief, anguish, severe poverty etc.' but this does not include the unemployed unless they fit the category other than for unemployed reasons.

The difficulty is that there is no statutory definition of 'significantly below' although HMRC have indicated that the cost must be subsidised by at least 15%. However, as welfare services are exempt for the purposes of VAT some interpretation of that phrase within the context of 'exemption' is required.

For a start, it is necessary to calculate the cost of the provided