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Club pulls ahead to win on reasonable excuse

The upper tribunal has found that a charity had a reasonable excuse when it issued a zero-rated building certificate, because it had taken extensive professional advice before doing so.

14th Feb 2020
Independent VAT Consultant
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Water sports centre

In November 2013, Marlow Rowing Club [2020] UKUT0020 decided its new water sports hub building qualified for zero-rating on the builder services as it would be used by a charity for a relevant charitable purpose. It therefore issued a zero-rating certificate to the builder.

In July 2015, HMRC decided this decision was wrong and issued a penalty on 27 July 2015 for an incorrectly issued VAT certificate. The tribunal had to decide whether the rowing club had a “reasonable excuse” for issuing an incorrect certificate to a builder. 

Neighbouring issue

On 28 February 2013, the nearby rowing club Longridge on the Thames had a successful result in the first tier tribunal (FTT): its new clubhouse qualified for zero-rated building services. It had further success when HMRC appealed the decision to the upper tribunal (UT), but then the Court of Appeal eventually ruled in favour of HMRC in September 2016.

The building work was standard rated because, as with Marlow’s clubhouse, there was some business use of the building, albeit at a subsidised rate. It was a long-running saga: Longridge on the Thames v HMRC (EWCA Civ 930).

The FTT success of Longridge had prompted Marlow to seek professional advice from both Baker Tilley and counsel about its own new clubhouse, which led to the zero-rating certificate being issued to the builder on 4 November 2013.

HMRC used its powers under s62, VATA1994, to issue a penalty on 27 July 2015 for an incorrectly issued VAT certificate. The amount of the penalty is the same as the VAT amount not charged by the builder on the work in question (£279,866).

FTT hearing

Marlow appealed to the FTT on the basis of having a reasonable excuse for issuing the certificate. This is a potential escape clause in VATA 1994 s 62.

The club’s argument was that it had taken extensive professional advice before issuing the certificate and that the Longridge verdict in the FTT supported its decision that zero-rating was appropriate on the builder’s services. It had not obtained a ruling from HMRC because it knew that HMRC would rule that the work was standard rated.

The decision

The UT considered whether the issuing of the certificate was “objectively reasonable for this taxpayer in the circumstances.” It noted that there was “a supportive FTT decision of persuasive legal value” at the time it was issued (the Longridge case) and that “relevant law is confusing”.

The UT noted that the taxpayer was “genuinely seeking advice on the question of liability,” and it found in favour of Marlow Rowing club.

Danger zone

Decisions issued by the FTT are only binding on the parties involved in the case. An FTT decision does not provide other taxpayers with a justification to issue zero-rating certificates or claim exemptions in similar situations. HMRC is guided by FTT decisions but it will often claim that those decisions are fact sensitive. It is very dangerous if taxpayers start taking actions based on case decisions which have not reached the end of the litigation process, and then rely on the “reasonable excuse” fallback.


My personal view is that Marlow Rowing Club was wrong to issue the zero-rating certificate, and it did not have a reasonable excuse for doing so, knowing it was against HMRC’s policy at the time. As the FTT noted, there was a “fundamental uncertainty” at the time about the VAT liability of the builder services, and the club knew that HMRC would challenge it, as they did in July 2015 by issuing the VATA 1994 s62 penalty.

The UT decision gave Marlow a VAT windfall to which it was not entitled but this is a potential outcome of the “reasonable excuse” clause in s62. However, well done to the taxpayer on their perseverance in taking this issue to the higher court and winning the argument.

Replies (2)

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Glenn Martin
By Glenn Martin
14th Feb 2020 14:59

I just missed out on buying the pub in the picture a few year back in my FD days, the one that got away that deal.

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By johnfrancis
17th Feb 2020 15:32

I love the picture illustrating the article. That's what used once to be known as Brown's Boat House in Durham City.

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