Cricket club bowls out HMRC in rollover case
The first tier tribunal had little difficulty in deciding that the sale of Headingley Cricket Stadium was the sale of a business including goodwill, dismissing HMRC's argument that it was the sale of land with associated income streams.
The Leeds Cricket Football & Athletic Company Limited (LCFA) owned the freehold of Headingley Cricket Stadium and leased the pitch to Yorkshire County Cricket Club (YCCC). In addition, LCFA provided related activities covering hospitality, catering services and advertising.
In December 2005, YCCC purchased the freehold of the Headingley pitch and the related activities carried on at the stadium from LCFA. HMRC contended that the sale proceeds should be regarded as a disposal of land (the cricket ground) and associated income stream, rather than the sale of a ‘business’ including attached goodwill. LCFA appealed (TC07362).
Rollover relief: A corridor of uncertainty
Although not set out in the judgment, reference is made to TCGA 1992 s152 which indicates that LCFA would be eligible to rollover the chargeable gain arising on the disposal of a business.
Rollover relief would not be available if the disposal was simply one of land alongside a number of associated income streams, and instead the gain arising on the sale of the land element would be subject to corporation tax on chargeable gains, and the proceeds relating to the sale of income streams would be taxed under general principles as part of the turnover of LCFA’s business.
There are clear parallels in this case with the arguments raised by HMRC in the case of Richard Villar v HMRC (TC06983), albeit in this case there is no suggestion that HMRC were seeking to invoke the anti-avoidance provisions of ITA 2007 Pt 13 Ch 4.
Definitions of business and goodwill
The FTT did not concern itself with a lengthy consideration of the meaning of ‘business’, quoting with approval the comments in Ramsay v HMRC  UKUT 226 (TCC) that “the concept of business should be afforded a broad meaning and a business will exist where the activities are a serious undertaking earnestly pursued with reasonable or recognisable continuity giving rise to a turnover and being conducted in accordance with recognised business principles.”
LCFA’s activities met this threshold in the opinion of the tribunal, and HMRC’s argument that the income streams arising from the hospitality, catering and advertising operations were ancillary to the land was “devoid of merit”.
The fact that an ‘income stream’ is ancillary to the ownership of land and would not exist without the land does not mean that a business is not being conducted from which the ‘income stream’ is derived.
It made no difference to the position that some activities had immediately been sub-contracted back to LCFA as this merely indicated the wish to ensure that those activities were not interrupted by the sale. It was also not relevant that the hospitality business conducted by LCFA was contracted to another entity, and “If anything, it shows a property business-like approach to outsourcing to bring about efficiencies.”
Balloon goes up
Having determined that a business existed, the FTT considered the issue of whether goodwill attached to the business.
The findings of Balloon Promotions were quoted with approval, but the more interesting point is that the tribunal did not consider it necessary to distinguish between ‘inherent’ and ‘adherent’ (or free) goodwill, concluding that either goodwill exists or it doesn’t, and to distinguish further was an ‘unhelpful’ and ‘splitting hairs’.
Further, the tribunal rejected the idea that adherent goodwill should be subsumed into the value of the property, as not only was this an artificial split, but also that “the Cricket Business could be purchased by another (possibly a competitor) and carried on at another location. We accept that the connection that the Cricket Business had was not with the land, per se, but with the staging of major cricketing spectacles there.”
Unsurprisingly, the FTT had little difficulty dismissing HMRC’s arguments and found in favour of LCFA that the December 2005 transaction had the character of a disposal of a business.
The tribunal’s comments relating to goodwill not necessarily being subsumed into the value of the particular property is in contrast with HMRC’s view that such goodwill forms part of the value of the property and is reflected within that value. However, the judgement in this FTT case is not binding on future cases and without further appeal it is unlikely to result in any change of approach by HMRC.
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Jacquelyn Kimber is a tax partner at Newby Castleman LLP in Leicester, where she advises on a range of tax issues affecting individuals and businesses, including offshore matters and trusts. She can be contacted on 0116 254 9262 or by ...