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.