HMRC loses £1m VAT case against Scottish farmer

In a judgement issued on 29 July, the court said taxpayers can deduct VAT incurred in purchasing the rights to a subsidy, in this case entitlements to Single Farm Payments (SFPs).

HMRC had refused to allow the farmer, Frank A Smart & Son Ltd (FASL), to deduct VAT of £1,054,852 in its returns between December 2008 and June 2012, arguing that the subsidy was unrelated to the creation of non-exempt supplies. FASL appealed to the First Tier Tribunal (FTT) which ruled in its favour, finding that FASL intended when it purchased the entitlements to use the income from them to pay off its overdraft and develop the business. To read more – click here

Relevant Charitable Purpose for Nurseries? Review of the Yeshivas Lubavitch Manchester VAT case

In the wake of the court decisions in Longridge and Wakefield College we were wondering where the newly stricter conditions for defining ‘relevant charitable purpose’ left children’s care charities that had relied on the ancient precedents of Yarburgh and St Paul’s.  HMRC did not withdraw their policy to the effect that such ‘creche’ charities could be regarded as carrying out relevant charitable purposes despite making charges, but this no longer appeared to align with the recent decisions, and the basic tenet on which they were based, the concept of ‘predominant concern’, had been clearly superseded.  We awaited the next step… read more: click here

Does VAT exemption for ‘welfare services’ extend to provision of a payroll service? Cheshire Centre for Independent Living case

Cheshire Centre for Independent Living (‘the charity’) has been involved in a long-running dispute with HMRC over the VAT treatment of charges made to disabled persons in running a payroll service.  The scenario arises as follows.

A disabled person may need a carer.  Where possible… To read more…

click here

Mydibel and tax adjustments

The wider application of Sch 10 ‘clawback’ provisions to lease back financing deals.

As you read this piece the UK may already have left the EU, though it hadn’t at the time of writing. The accepted position is that all CJEU decisions pre-dating that departure date become binding decisions at Supreme Court level. We therefore need to pay heed to the dates of decisions. The CJEU’s decision in Mydibel (Case C-201/18) makes the cut, so to speak, and would have done so by two days even had the UK left as planned on 29 March. It is therefore binding precedent.

And it has something direct to tell us… read more here

VAT recovery – the tussle with HMRC continues

A subject that never seems to go away is the issue of how much VAT can be claimed on charity purchases.  Quite apart from the difficulty of determining whether, say, an activity is business or not, or exempt rather than zero rated, which can drastically affect the level of recovery, there is the issue of the approach to apportionment of the related costs… Read more, click: here

Privacy notice

City & Cambridge Consultancy, takes your privacy seriously and will only use your personal information to administer your account and to provide the services that you have requested.

We also have two newsletters: VAT Chatter and Charity Tax Brass Tacks.  You will need to subscribe to receive either or both of those newsletters.  You can unsubscribe at any time and each newsletter has the option to automatically unsubscribe.

We update our privacy notice regularly to reflect changes in line with the current legislation such as the General Data Protection Regulation (GDPR) and the Privacy and Electronic Communications Regulations (PECR).

The Importance of Being Earnest

Amateur productions of famous plays are associated in the public’s consciousness with community centres and village halls. I would imagine that Oscar Wilde’s Importance of being Earnest has entertained many village hall audiences over the years since first produced in 1895. The play has some lessons for those who aspire to run and operate community centres.

There is a very valuable VAT relief for newly constructed village halls, and similar enterprises, such as community centres and recreational centres. As long as they are owned and run by charities, and operate genuinely as centres for an identifiable community, a newly built structure for such purpose can be constructed without a VAT charge. No wonder, then, that charities which seek to construct new buildings also seek to fall within the definition of a “village hall or similar”. There has been a considerable amount of litigation on this over the years. It has been alleged that a sports hall belonging to a school was a village hall or similar, on the basis of occasional community lets, although that was not accepted. One amateur dramatic society built itself a new centre, and did manage to convince the tribunal that this operated as a village hall largely because the building had a central role in the community in which the dramatic society flourished, and because the trustees of the charity, whilst themselves dedicated to ‘am dram’, allowed the community equal use of the building, on a first-come, first-served, basis.

But it is important, when making the decision to use a building for the wider community in which it is to be constructed, rather than limiting it to the particular objectives of a particular charity, (which, it should be remembered, you may only have decided to do in order that the building could be built without VAT), to be earnest in your intentions to use it in precisely that way. After all, the government introduced the relief for village halls after considerable lobbying from the village hall community. It is a very valuable relief, and were it to be seen to be “hijacked” for purposes other than were originally intended by parliament, there is a risk that the relief will be abolished, to the considerable impoverishment of many localities which need facilities to continue to be provided cost effectively.

This struck me when I read the very recent tribunal decision in Caithness Rugby Football Club (TC04560). This is a charity, and it provides a very important local community service, centred around rugby football. It built a new building. It wanted the building to be zero rated to save VAT costs. It did not qualify under the most common leg of relief, which was to use it otherwise than for a business, since it wanted to generate income. The only other definition that could fulfil its objective was for it to be a “village hall or similar”. It opted for that.

HMRC, however, disagreed with that designation. It took the view that this was a football club building, the uses of which would be too circumscribed to be similar to a village hall. HMRC had several arguments, some of them without much merit, such as the fact that it was most suitable for sports use. The tribunal pointed out that a village hall, or similar facility, could be used for recreational facilities alone, not necessarily for community meeting purposes. In any case, it had been used for such purposes. This on its own was not the problem. The problem for the charity was whether the facility would be, broadly speaking, open to all of the community, or be used mainly, and preferentially, by the owning club, and visiting opponent clubs, to the relative exclusion of other local recreational groups.

As it turned out, the charity was successful in winning its appeal to the tribunal, but only on the “balance of probabilities”. The issue they faced was that the VAT relief depends squarely on the intended use of the building prior to its construction. How the building turns out to be used is, strictly speaking, not the ‘test’. Much to the charity’s good fortune, it turned out heavily to be used by many parts of the community. That is fortunate both in terms of the VAT issue, and in terms of extra earned income for the charity. But it had not done a particularly good job in making clear, from the outset, that that was its actual intention. And that, after all, is the important thing in terms of the VAT treatment.

In particular it is worth noting that, when making applications for funding from grant givers, it had been stated that the estimated use of the building would be roughly 65% for the football club itself, and therefore only roughly 35% for other community users. As it turned out, the usage in real terms was very much more heavily weighted towards the community. Other funding applications emphasised wider use, but restricted these very much to mainstream sports, rather than general recreation or anything particularly obviously associated with the community as such. This may have matched the funders’ criteria, with obvious benefits; but was it the real expectation or intention?

Somewhat tellingly, the lease under which the club rented the grounds on which they built the structure, limited its use to rugby football or soccer, and occasional gala events (and even an annual circus). From this one would deduce that the permitted use of the building, by its superior landlord, is far narrower than the building’s actual use following construction. Many a tribunal would have said that a building which cannot legally be used as a village hall or community centre, cannot claim the benefits of that status for VAT purposes.

As the name suggests, the tribunal decision was made in Scotland, and Scottish tribunal judges have traditionally had a more emollient view of the definition of “village hall” than has been prevalent south of the border. Furthermore, Caithness is an extremely remote area, and one can understand the attraction, to a judge, of ensuring the affordability of any kind of community facility for such sparse populations.

Nonetheless one is left with the thought that the person, or people, making applications for funding did not necessarily emphasise the same intentions as when deciding that it would qualify as a “village hall” for VAT purposes. There is always an immense temptation to tailor or position one’s case somewhat differently to different parties depending on the desired outcomes in each instance, but the danger comes when one is simply facing two or three ways at once, and cannot demonstrate that one is being earnest in any of the potentially contradictory positions that have been adopted. In this case, fortunately or otherwise, the person who made the funding applications for the club, and who signed the lease, was not available to be at the hearing – and nonetheless the tribunal judge gave the benefit of the doubt to the charity. In the tougher climate south of the border, and particularly in the south of England itself, one would imagine that the decision could very easily have gone the other way.