Neil Warren considers why Eynsham Cricket Club had to pay 20% VAT to the builder who constructed its new pavilion, rather than receive those services zero-rated for VAT.
Charities and VAT
In my VAT career, I have encountered a common misconception that if a project or organisation is doing, or will do, good work for the community that VAT can’t possibly be payable on its expenditure.
Unfortunately, that conclusion is often contrary to the letter of the law. As I have said many times over the years, charities get certain VAT concessions in the legislation, but not an automatic exemption from paying VAT on all their expenditure.
The case of Eynsham Cricket Club (TC06047) was solely about whether the builder’s services for its new pavilion could qualify for zero-rating. This was an important issue because the club was not VAT registered and therefore couldn’t reclaim input tax.
In order for zero-rating to apply, a number of boxes had to be ticked:
- The work must be carried out for a charity; and
- The charity must either use the building solely for its charitable purposes or as a village hall or similar; and
- The charity must issue a certificate to the builder to confirm its eligibility for zero-rating of services as specified in VAT Notice 708, section 17.
There was no doubt that the club provided a valuable service for local cricketers – there were 75 playing members (all amateur players) and it was accepted that a good standard pavilion was essential for a successful club playing league cricket in Oxfordshire. But was the club actually a charity as far as the VAT legislation is concerned?
The key sentence in the legislation is in Note 6 of Group 5, VATA 1994, which specifies that use of the building for a “relevant charitable purpose” means “use by a charity in either or both of the following ways:
(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.”
Eynsham Cricket Club was a Community Amateur Sports Club (CASC), but not a registered charity with the Charity Commission. The taxpayer put forward the view that it should be treated as a charity because of its aim of promoting participation in sport.
However, a key factor was that there was a high degree of social use with the club’s activities: “the predominant purpose for which the club was established was the promotion of amateur sport. However, it also had a subsidiary purpose of providing social facilities to the residents of Eynsham that stood separate from the purpose of promoting amateur sport.”
Because the tribunal rejected the club’s “charitable status” argument, the other issues about the use of the building for non-business purposes, and whether the building qualified as a village hall, were irrelevant. But the court also considered these issues as well.
Use of the building
With regard to the other issues relevant to zero-rating, the tribunal concluded that the club failed on the condition about the building being used solely for non-business purposes. This was because the bar activity and charging of the venue to hirers for events and functions were sufficient to be classed as an ‘economic activity’.
However, it concluded that the wide involvement of the general community in the project meant that it did qualify as a “village hall or similar.” The judge commented: “The local community was, in a real sense, the true consumer of the services of its construction.” But as explained above, this fact was irrelevant because the club’s charitable status argument had failed.
Overall, this was an interesting case, and although HMRC’s victory was not by a big margin, it was not the last over thriller that us cricket fans enjoy watching with such great excitement.
About Neil Warren
Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.