Neil Warren reviews how a local football club built a new clubhouse, designed to be used by the whole community, which therefore qualified for zero-rated building work.
When I started reading the FTT report (TC06321) for Greenisland Football Club (GFC) I thought: “HMRC have backed the wrong horse in taking this one to the courts.”
This case concerned whether the construction services for the GFC new clubhouse qualified for zero-rating, on the basis that it was for use by a charity as “a village hall or similarly in providing social or recreational facilities for a local community”, (per item 2, Group 5, Sch 8, VATA 1994).
GFC was registered as a charity with the Charity Commission of Northern Ireland. It built a new clubhouse in 2010, which was used by 12 charities and 15 other community bodies, as well as the football club.
The clubhouse was open for 70 hours a week for a range of activities, so the management committee felt very comfortable in issuing a certificate to the main building contractor to secure zero-rating on all the construction services. GFC considered that the new building qualified as a village hall in accordance with HMRC’s guidance (VAT Notice 708, para 14.7.4).
HMRC challenged the issuing of the certificate on the basis that the clubhouse was primarily used by the football club and its 300 registered players, and therefore the building work should have been standard rated, ie it was not a community building. The operation of the clubhouse was dictated by the football club rather than an all-purpose committee representing a range of different bodies.
HMRC issued a 20% penalty against the club (s 62, VATA 1994), based on the value of construction services that had been zero-rated: £265,505 x 20% = £53,101. In effect, the penalty replaced the VAT lost by what HMRC considered to be the incorrect zero-rating.
It was particularly strange that HMRC took this case to the courts, considering it had lost a case in both the FTT and UT about a rugby club in Scotland, which had an almost identical structure (Caithness Rugby Football Club  UKUT 0354). Somewhat cheekily, HMRC’s representative claimed that the Caithness case “turned on its own specific facts” and that “the decision was wrong”. She also claimed that GFC operated as a business rather than a charity by collecting subscriptions from the players, even though the annual income was only hundreds of pounds!
Not surprisingly, the football club’s appeal was successful and the penalty was withdrawn. The FTT judge concluded: “This Tribunal is satisfied that GFC uses the clubhouse in a manner similar to a village hall as the local community makes extensive use of the facilities. In 2017 the clubhouse was extensively used for an After Schools Club, karate classes, a Womens & Toddlers group, a Ladies Keep Fit, Irish Dancing classes as well as a church on Sundays and several birthday parties”.
The court also ruled that even if HMRC had been correct concerning the VAT liability of the building work, the taxpayer would have had a ‘reasonable excuse’ for its actions because the club secretary properly reviewed VAT Notice 708, and also took advice from the club’s accountant and a VAT adviser. In other words, the penalty would have been withdrawn anyway under s62(3), VATA 1994. It was definitely a final score of GFC: 5 HMRC: Nil!
There is no doubt that the nature of village halls has changed dramatically since the VAT legislation was written in the 1970s. There are now many more variations to the theme as far as community buildings are concerned. Perhaps HMRC need to move with the times. It definitely backed the wrong horse with this case!
Advisers need to be on the ball to challenge any similar attempts by HMRC to apply a narrow application of the VAT legislation when community buildings are used as village halls.
About Neil Warren
Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.