Charity Alert: Zero-rating of construction services – September 2015

CASE UPDATE – Charitable buildings ‘Village hall or similar’ question heard (again) 

First Tier Tribunal 

Witney Town Bowls Club – village hall or similar 

The First Tier Tribunal (FTT) decision in the case of Witney Town Bowls Club (Witney) has recently been released. This decision follows the recent judgment in Caithness Rugby Football Club (Caithness) and covers similar points. Caithness was successful in its appeal, unfortunately, Witney were not.


Both organisations constructed a clubhouse/pavilion and sought to benefit from zero-rating of the construction services received. In effect those services would not be subject to an additional 20% VAT charge which may represent an absolute cost, in full or in part.

Caithness is a registered charity recorded on the Charity Commission register. Witney is not a registered charity but is a Community Amateur Sports Club (CASC).

Both Caithness and Witney appealed against HMRC’s decision that zero-rating did not apply to construction services received.

The issue

Zero-rating of construction services applies when a building is intended to be used by a charity in either or both of the following ways:

  1. otherwise than in the course or furtherance of a business; or
  2. as a village hall or similarly in providing social or recreational facilities for a local community.

In Caithness the charity successfully argued its case before the FTT. The FTT agreed that the facility it constructed was similar to a village hall in providing social or recreational facilities for the local community.

Sadly, Witney has been unsuccessful in its appeal. The FTT decided that in Witney the definition of a ‘charity’ (as set out in paragraph 1, Schedule 6, Finance Act 2010) is not satisfied. The Club is a not for profit organisation; however, it is not registered under the Charities Act 2011. This being so, the construction of the building fails the first test set out above (i.e. the Club is not a charity) and construction services received do not qualify for zero-rating.

The FTT also considered whether Witney was in business for VAT purposes, (a) above refers.  The FTT ruled that the Club is carrying on a business. It provides facilities to its members in return for payment of a subscription.  Although the subscriptions are subsidised by the Town Council this does not alter the position.  The clubhouse is used for the purposes of Witney’s  business.

Turning to the ‘village hall or similarly’ point, the FTT also found in HMRC’s favour.  The reasons for this can be briefly summarised as follows:

  1. The project for the construction of the clubhouse was driven by the Club.
  2. The clubhouse is managed by the Club’s management committee on behalf of the Club and for the benefit of the Club.
  3. There is no input into the management of the clubhouse from other representatives of local community groups.
  4. The clubhouse is primarily used for the Club’s purposes although it is used by some local groups.
  5. Any income derived from the hiring of the clubhouse benefits the Club.

The FTT accepted the clubhouse is intended for use in providing social or recreational facilities for a local community; however, it is not intended for use as “a village hall or similarly” within (b) above.

Important distinctions between the two cases

The two cases on the face of it, appear very similar on the facts. Witney was heard on 9 June 2015, Caithness on 25 June 2015. Decisions of the FTT in Witney was released on 27 August 2015 and Caithness on 5 August 2015.

There are some differences between the two cases. Caithness is a registered charity, Witney is a CASC. In Caithness the FTT did not consider it a decisive fact that the clubhouse was managed by only one of the groups that use it, or that only members of the Rugby Club are able to be elected to the executive committee responsible for the management of the clubhouse.  The FTT dismissed  HMRC’s assertion that a village hall must be “at the direction of the local community”.  The Court of Appeal has previously rejected the argument that a “village hall” must be “owned, organised and administered by a local community” (Jubilee Hall Recreation Centre Ltd). However, the FTT in Witney appear to place greater emphasis on this point. 

Where it is accepted that a sporting pavilion or clubhouse is not a village hall the key question or test appears to be the interpretation of the word ‘similarly’.  If a clubhouse or sports pavilion is used by a charity to provide social or recreational facilities for a local community, i.e. the building is used by various local groups and organisations to benefit local people, does this satisfy the ‘similarly’ requirement as set out in VAT law?

Should a building be used by a charity to provide social or recreational facilities to local groups, is it not the use of the building, rather than the governance of any management committee overseeing its use, that is the important point?

HMRC’s approach

We know that this area is one which HMRC has devoted considerable resources to, issuing a number of standard letters to local sports clubs in Spring 2014.  Following these decisions it is likely that those sporting bodies not registered with the Charity Commission, and who have constructed similar buildings to Caithness and Witney, will be pursued for payments of VAT if HMRC view that zero-rating certificates have been incorrectly issued to contractors.  CVC are aware that a number of organisations have been contacted by HMRC and VAT recovery action suspended where VAT penalty notices have been issued whilst the decisions in Caithness and Witney were progressing through the courts.

A concern is HMRC’s approach in dealing with not-for-profit sporting organisations which are not registered charities.  These organisations are usually established and supported entirely by volunteers putting a huge amount of unpaid time and effort into benefitting the wider community.

HMRC will, no doubt, state it has an obligation to enforce VAT law correctly; however, it seems that VAT legislation in this case is clearly intended to deliver a social relief which benefits a local community.  In the case of Witney the Club could face a VAT bill over £50K (the total cost of the project was £273K). The FTT decision notes that Witney has an annual income in the region of £25K. In practical terms it seems difficult for Witney to budget for a VAT payment double this amount.

Action required

If your club is concerned about the impact of the Witney decision or its wider implications on your organisation, please contact us.  If your sports club is considering constructing a clubhouse or pavilion and would like to discuss the VAT position we would be pleased to help.  These cases demonstrate the importance of taking advice in advance of a project commencing.  It is vital that the correct VAT treatment is established at the outset to give certainty and avoid unwelcome surprises. Finally, if your club has been contacted by HMRC, a penalty notice has been issued by HMRC or an unfavourable non-statutory clearance decision has been given by HMRC please do not hesitate to call or email CVC at any time if you would like to discuss this matter further.  We would be pleased to assist if possible.



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. 

If you would like to discuss how VAT impacts on your organisation please contact Stewart Henry,  Laura Beckett or Sophie Cox on 020 7830 9669, 01206 321029 or via email on, and  Alternatively, please visit our website at where you can view some of the services we offer in more detail and subscribe to our free general and regular VAT alerts and updates. Visit our website for current news updates. You can also follow CVC on Twitter.


This newsletter is intended as a general guide to current VAT issues and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains or for any errors or omissions. CVC cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this newsletter. Specialist VAT advice should always be sought in relation to your particular circumstance.