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Hole in one VAT victory for golf club

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19th Apr 2017
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Neil Warren considers a dispute about whether a golf club was trading as a non-profit making body, and therefore could qualify for VAT exemption on its playing fees.

Background

Stoke by Nayland Golf and Leisure Ltd (referred to as Leisure for the rest of this article) (case TC5726) is a company limited by guarantee and a members’ golf club. It also has income from green fees (paid by non-member golfers).

Stoke by Nayland Club Ltd (referred to as Club for the rest of this article) is a commercial business that charges an annual licence fee of £725,000 to Leisure for the use of the land and buildings it owns.  So Club is the landlord and Leisure is the tenant.

The law

The legislation in VATA 1994, Sch 9, Group 10, Item 3 exempts the “supply by an eligible body to an individual of services closely linked with and essential to sport or physical recreation in which the individual is taking part.” Note 2 then defines an “eligible body” as having the following features:

  • it is precluded from distributing any profit it makes, unless to another non-profit making body;
  • profits should be used to maintain or improve the sporting facilities; and
  • it is not subject to commercial influence.

The problem

In 2011 HMRC decided that Leisure was a “long standing tax avoidance” vehicle intended to take advantage of the sporting VAT exemption that is only available to non-profit making bodies. The reviewing officers highlighted the fact that the board of directors was chosen by Club and not elected by the members of Leisure. They also concluded that Leisure and Club were operated as a single commercial business and that the annual licence fee paid by Leisure was a way of extracting profits from Leisure to Club.

The decision

The Court supported the taxpayer on all aspects of the arrangement:

  • All cross charges between Club and Leisure were made “on a fair and reasonable arm’s length basis and do not constitute a back-door way of distributing profits from Leisure to Club”.  This outcome was supported by an independent licence fee valuation of £735,000 provided by Christie and Co, higher than the actual figure of £725,000 paid by Leisure.
  • The Board of Directors served the interests of Leisure and were not puppet directors installed by Club for its commercial interests. They had been appointed for their skills and experience.
  • Leisure and Club were not part of a single commercial operation

The taxpayer’s appeal was allowed.

Conclusion

HMRC have not enjoyed much success in the courts with golf clubs. The long-standing issue about the liability of green fee income found its way to the ECJ in the case of Bridport and West Dorset Golf Club, the outcome being that the fees were exempt from VAT. Then the issue of “unjust enrichment” was also conceded when the clubs eventually received their rebates following the CJEU decision (see R&C Brief 10/2016).  

Was this latest decision correct? A comment I thought was significant was made by the company owner, who described the golf club as “emotionally draining” before the arrangement between Club and Leisure was created. She also commented that the constant demands of the club and its members meant that “it was impossible to get on with any other work.”

I think the motive of the Leisure/Club arrangement was to allow the owners to pass the responsibility of the club onto its members and a separate committee, so they could have a quieter life that would allow them to focus on the core business operations. I don’t think that VAT avoidance was high on the agenda! 

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