Friends of the Earth's chief executive has condemned a tribunal decision instructing it to pay a tax bill of over £1m - a ninth of its annual income - as “shocking”.

Friends of the Earth had appealed against a decision by HMRC that arose over the issue of whether certain payments made by supporters are donations, and therefore outside the scope of VAT, or consideration for a supply of the magazine Earthmatters.

The tribunal, which took place last week, held that certain payments made by a charity’s supporters were donations rather than consideration for any supply. This means that VAT incurred on street fundraising costs was not recoverable.

But the charity’s chief executive, Craig Bennet, said that the charity had been following advice provided to it by HMRC until it was contacted by them to say the charity owed HMRC over £1m.

 Bennett said that “all that Friends of the Earth has ever been guilty of is following HMRC’s own advice on this matter”, and that the tax authority changed its own advice two or three years ago.

Bennett said that the tribunal’s decision has “big implications for the charity sector as a whole”, and in particular for any charity that benefits from regular supporter donations and offers benefits and returns, such as magazines.

He said that he is surprised by the government’s decision to come after charities over huge corporations who are avoiding tax, and that the charity is currently considering whether to take the case to an upper-tier tribunal.

He said: “It is very surprising and disappointing that the government’s priority at the moment is to try and grab extra tax from charity, meaning less money going to good causes, when they seem to be doing so little to get tax from large corporations and from tax havens. There priorities are in completely the wrong direction, and that is very surprising and disappointing.

“We have letters from HMRC stretching back to 1999 telling us that the way we were doing this is correct. All FotE’s interest has even been is to follow the guidance that we’ve received in the past from HMRC and are own tax advisers.”

Bennett said that this advice has changed for “no apparent reason”, and that it seems to be “at the discretion of a handful of inspectors rather than a reasoned position”.

He compared HMRC going after Friends of the Earth, which had an income of £9m last year, with the deal the tax authority struck with Google.

He said: “I find myself reflecting that given there was this big fanfare not long ago when HMRC settled a deal with Google for £110m or £112m over many years.

“In this case, little old Friends of the Earth will need to be coughing up over a million pounds which will reveal how weak of a deal that was between HMRC and Google, given the size of these things. Is this now the government’s solution for tax avoidance, to come after charities that aren’t avoiding tax but have always followed HMRC’s advice? It is pretty shocking.”

An HMRC spokeswoman said: "The tribunal’s decision in this case supported our view that monthly donations by supporters to Friends of the Earth were not payment for its magazine."