A significant Upper Tier Tribunal decision was released just before Christmas. Apart from the substantive issue, there is some criticism of the FTT for falling short in its analysis of the facts. I wonder if HMRC’s use of a ‘presiding officer’ at FTT stage contributed to this deficiency. HMRC’s arguments (paras 31-37 in the FTT decision) are pretty brief. A more robust and better argued HMRC case might have prevented such a poorly considered decision.
The substantive question was whether the construction of a new clubhouse was properly zero rated as the construction of a building to be used for ‘relevant charitable purpose’ (RCP).
The relevant wording in zero rated Group 5 is:
(6) Use for a relevant charitable purpose means use by a charity in either or both the following ways, namely—
(a) otherwise than in the course or furtherance of a business;
(b) as a village hall or similarly in providing social or recreational facilities for a local community.
The decision turned on whether those persons using the new clubhouse did so as members of the local community. The Upper Tier commented that ‘modest incidental use’ by persons who are not members of the local community may be acceptable, but more substantial use would breach the test in Note 6(b).
“Modest incidental use of the facility by other than members of the local community may be acceptable. However, it is no answer to say that it was used by members of the local community because the clubhouse was being used by members of GFC who were from that community. This is because the important issue is the capacity in which they were they using the facilities. If they were using the facilities as GFC members, junior members, affiliated members, associate members, playing members, its supporters, its parents etc ... , then they were not doing so as members of the local community (see Jubilee Hall at 394(f)” (para 42)
The Upper Tier then went further, and referred to s94(2), which was not considered in the FTT decision:
(2) Without prejudice to the generality of anything else in this Act, the following are deemed to be the carrying on of a business—
(a) the provision by a club, association or organisation (for a subscription or other consideration) of the facilities or advantages available to its members;
Following the logic from para 42 above, where members of the football club used the facilities, having paid a fee to do so, such use was excluded from RCP use, and must fall within ‘the carrying on of a business’ in s94(2).
Other use by an After School Club and tuck shop sales must be treated in the same way.
The Upper Tier concluded therefore that taxpayer was wrong to say that its use of the clubhouse was not for Relevant Charitable Purpose. Zero-rating was therefore denied. (At least the reasonable excuse for the £53,000 penalty was upheld!)
Readers will know that I deal with a lot of construction projects in the charitable sector.
I am therefore used to making a distinction between ‘village hall use’ of a new building, or an annexe, and use by, for example, commercial organisations. Where non village hall use falls under the 5% minor business use threshold, zero rating is allowed This case is quite helpful in providing the logic as to how such use is to be considered.
My concern will be the extent to which HMRC Officers will seek to apply Greenisland more broadly than is appropriate.
About Les Howard
Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire
I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.