What is the difference between a bowls club and a rugby club, asks Neil Warren after reviewing some recent tribunal decisions on VAT and sports club building projects.
Well apart from the obvious answer about the shape of the ball, there has been fun and games in the first-tier tribunal recently where the courts concluded that a rugby club in Caithness was eligible to receive zero-rating on builder services for its new clubhouse, whereas the services for a new clubhouse at a bowls club in Witney were standard rated. Why the different treatment?
The starting point is that zero-rating for builder services applies in the following situations:
- The building will be used for a “relevant charitable purpose” by a charity (excluding business use); or
- It will be used by a charity as a “village hall or similarly in providing social or recreational facilities for a local community” (this is the key one in the cases)
- Legislation – VATA1994, Sch 8, Group 5, Item 2/Note 6.
- Cases - Witney Bowls Club (TC4598); Caithness Rugby Football Club (TC4560)
The stumbling block in the Witney case was that the club was not a registered charity and was not established for charitable purposes. It was registered as a community amateur sports club, but that was not enough.
The court also noted the high number of social members who enjoyed the club’s facilities. A difference in charity law in Scotland, however, meant that Caithness RFC was a registered charity. But the courts then considered whether the new clubhouses were similar to village halls in providing community facilities and gave different opinions on what seemed to be the same situation:
- Both clubs were controlled by their own committees which promoted their own interests as much as possible. There were no committee members from other organisations.
- In order to generate use of the clubhouses, and an income flow, a variety of other organisations hired the facilities when there was no bowls or rugby use taking place.
HMRC’s argument in the Caithness case was that the key issue was the intended use of the building at the time of construction, not subsequent use where the benefit of hindsight was available. The tax department felt that the higher than expected use by other organisations (95%) was irrelevant. At the time of construction, the clubhouse was mainly intended to be for the benefit of the rugby club – it was not similar to a village hall.
The other users, HMRC argued said, were intended to help the club pay for some of the building costs. The tribunal disagreed and allowed the appeal, but agreed with HMRC in the other case that Witney Bowls Club was not similar to a village hall.
So what does this mean in practical terms? The Caithness decision seems to contradict the long-standing view that a village hall must be aimed at a wide audience and controlled by a community committee rather than mainly benefiting specific activities such as swimming, bowls or rugby.
There any many sports clubs across the country that allow third parties to occupy buildings when they don’t need them, but are not village halls. In cases of doubt, a charity should ask HMRC for a written ruling from its charity unit in Bootle. This is important because a charity must issue a certificate to builders confirming a project is eligible for zero-rating before the work actually starts.
The good news is that if builders receive a certificate from a charity, there should be no comeback against them as long as they make sensible checks and act in good faith (HMRC Notice 708, para 17.3).