HMRC’s tribunal tactics ruled off-side

The core question in the case of Netbusters (UK) Ltd (TC7915) was whether the company was supplying VAT exempt football and netball pitches, or a standard rated league management service. However, the interesting twist was the “red card” rebuke issued to HMRC by the judge for its misconduct. In fact, the department was definitely out of order in a big way.

Statement of case

A basic rule of a tax tribunal hearing is that both parties present their statement of cases in sufficient time for the other party to review the arguments and relevant issues.

On the eve of the hearing, HMRC introduced an argument that had not been previously raised. This was that the hire of football pitches by the taxpayer could not be exempt from VAT because the hirers were not schools, clubs or associations, a necessary condition for exemption in Note 16, Group 1, Sch 9, VATA 1994. The judge was not impressed.

The supply of sporting facilities is basically standard rated but regular lettings to the same hirer can be exempt from VAT in some cases (see VAT Notice 742, para 5.4).

Trial by ambush

The judge effectively accused HMRC of being sneaky with an attempt to make an unfair late tackle – he used the phrase “trial by ambush” in his report. He believed that HMRC was seeking “to change tack on the eve of the hearing.” 

He spoke of the need for a “cards on the table” approach to litigation. He refused to consider the issue concerning Note 16. 

The facts

With the goalmouth drama now over, a clear victory to the taxpayer, let’s return to the case facts. 

The company organised competitive football and netball leagues, and claimed that 87.5% of the fees received from participating teams were exempt from VAT as the hire of a sporting facility under the regular lettings rules. The other 12.5% of the fees related to the services of organising fixtures and providing referees and bibs. 

The company submitted a claim for overpaid output tax of £414,622 up to October 2016 and was then assessed by HMRC for output tax on later returns: £218,542 and £185,021 for periods to October 2019.

HMRC view

Each team paid the company a fee of between £350 and £779 in return for a fixture list consisting of 10 games organised in advance on specific dates. HMRC’s view was that the taxpayer was supplying the “organisation of football and netball leagues” – all standard rated for VAT. The taxpayer claimed this argument was invalid based on the 87.5/12.5 split above.

The decision

The tribunal rejected a mixed supply outcome. There were no composite elements that could be split.

The challenge was to consider the “objective characteristics of the transaction” and the judge decided this was the right for the teams to enjoy the pitches.

He said: “We placed significant weight upon the ability of the Appellant’s customers to exclude others from the pitches during the period of the matches[…]The additional (league management) services in the present case are, based upon the evidence available to us, of modest value. The additional services do not, therefore, change the fundamental nature of the more valuable service of pitch hire.” 

The appeal was allowed.

Conclusion

Has the referee’s final whistle has been blown and there is no scope for an HMRC comeback with a late goal?

I suspect that HMRC will seek an appeal to the upper tribunal, when it will definitely remember to raise the issue of whether the hirers were proper clubs and teams, rather than a group of work friends or pub mates getting together to play football. 

We are probably only at half-time in this game. But hopefully, there will be no more “trial by ambush” actions on the part of HMRC.