Zero-rating of construction services for use ‘as a village hall or similarly’
First Tier Tribunal decision in Caithness Rugby Football Club released.
Some of our subscribers may be aware that in early 2014 HM Revenue and Customs (HMRC) devoted considerable resources reviewing publically available records regarding funding received by not-for-profit sports clubs. This included (but was not limited to) football, rugby, and cricket clubs. Following this review HMRC sent standard letters to clubs which had constructed buildings and annexes. This letter instructed the sports club to provide information and a sample of invoices relating to the building project. The purpose of this exercise was to check whether zero-rated ‘relevant charitable purpose’ certificates had, in HMRC’s opinion, been issued correctly.
Following this exercise HMRC issued a number of VAT assessments and penalties to sports clubs which had, in HMRC’s view, incorrectly issued zero-rated ‘relevant charitable purpose’ (RCP) certificates.
It was disappointing to learn of this initiative targeting not for profit organisations ; especially in light of the widely publicised alleged tax avoidance by corporate multinationals.
An appeal against a decision of HMRC, that the construction of a clubhouse did not qualify for zero-rating, has recently been heard by the First Tier Tribunal (FTT).
Caithness Rugby Football Club (CRFC) is a registered charity. It constructed a new clubhouse on land which it leased from the Highland Council. CRFC appealed HMRC’s decision that the construction services did not qualify for VAT zero-rating. CRFC argued that the clubhouse was intended to be used for a relevant charitable purpose ‘as a village hall or similarly in providing social or recreational facilities for a local community’ and therefore the construction services were zero-rated.
HMRC argued that the clubhouse was not used as ‘a village hall or similarly’. To be used as ‘a village hall or similarly’, in HMRC’s view, the question is whether the clubhouse is owned, organised and administered by the local community in the sense of providing equitable access and participation. HMRC argued that in this case equitable access and participation is missing. Only full members of CRFC can be elected to the executive committee that is responsible for managing the clubhouse, CRFC owns the lease and can deny access as it chooses.
The Tribunal considered the following points relevant to whether the use of the clubhouse was as ‘a village hall or similarly’:
- CRFC is a charity recorded on the Charity Commission register.
- Even if the clubhouse was used solely for rugby playing it would still satisfy the ‘social or recreational facilities’ requirement (a sporting facility is a recreational facility). On the evidence submitted, the clubhouse is in fact used for a variety of other sporting, recreational and social activities.
- Minor usage of facilities by persons outside the local community will not prevent the ‘local community’ requirement from being satisfied.
- The Tribunal did not consider it decisive that the clubhouse is managed by one of the groups that use it. In the case of Jubilee Hall Recreation Centre Ltd the Court of Appeal rejected the suggestion that a village hall must be ‘owned, organised and administered by the local community’. The Tribunal took into account that the needs of all users were accommodated. In practice, bookings once made by others are honoured, even where they conflict with subsequent needs of CRFC. 90% of the usage of the clubhouse is by clubs or groups other than CRFC; therefore, the Tribunal’s view was that it could not be said the majority of activities at the clubhouse are organised by CRFC or use by other groups is secondary or ancillary.
On the basis of its considerations (including, but not limited to, those outlined above), the Tribunal found that the facilities are used, and were at the time of construction intended to be used, as a ‘village hall or similarly’. Therefore, the zero-rate did apply to the construction services supplied in the course of construction of the clubhouse. The appeal was allowed.
It will be interesting to see whether HMRC decide to appeal this decision of the First Tier Tribunal. In our opinion this is appears a well-thought-out and analysed judgment. The Tribunal considered each requirement of the legislation:
- Is the building used by a charity?
- Is the building used to provide social or recreational facilities?
- Are the facilities provided to a ‘local community’?
- Are the facilities used as a ‘village hall or similarly’?
This decision by the First Tier Tribunal is only binding on the parties involved and does not necessarily set a wider precedent; however, we hope this is an indication of the direction the Courts will take going forward. Each case will depend on its own particular combination of circumstances. We understand that HMRC has other cases it is seeking to have heard at Tribunal as further ‘test’ cases. It will be interesting to see if HMRC pursue these cases through the Courts particularly where the organisations involved are registered charities. Some organisations which are not recorded on the charity register, Community Amateur Sports Clubs (CASCs), Community Interest Companies (CICs) may not have charitable status agreed with HMRC.
This case also illustrates the pressures (time, financial and other resources) placed on voluntary organisations by HMRC. This appeal arose out of decisions dated 17 December 2013 and April 2014 given by HMRC in response to a letter dated July 2013. This case was heard on 25 June 2015 and the decision released to the parties on 5 August 2015.
CVC would be happy to speak to or advise any sports club which is planning to undertake a project or has received a decision from HMRC that construction services received do not qualify for zero-rating. Any sports clubs intending to appeal VAT assessments and/or penalties should remember that strict time limits apply when appealing an HMRC decision; we would be happy to advise on this.
Constable VAT Consultancy LLP (CVC) is a specialist independent VAT practice with offices in London and East Anglia. We work together with many charities and not-for-profit bodies ranging from national charities to regionally based organisations. CVC has a nationwide client base.
We understand that charities wish to achieve their objectives whilst satisfying the legal requirements placed upon them. Charities may be liable to account for VAT on supplies made and VAT will be payable on certain expenditure. As irrecoverable VAT represents an absolute cost to most charities, regardless of their VAT registration status, there is a need to review the position regularly and carefully. We offer advice with planning initiatives, technical compliance issues, complex transactions, help with innovative ideas on VAT saving opportunities, and liaising with HMRC.
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