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GRT100456

Summary The issue in this case was whether a

charity was entitled to claim zero-

rating for the construction of a

building. The charity claimed that

the building was to be used for a

non-business purpose and that it

was, thus, entitled to zero-rating.

Both the First-tier Tax Tribunal and

the Upper Tribunal agreed with the

charity. In both appeals, the

Tribunals agreed that the activity of

the charity did not amount to an

'economic' activity in a VAT sense.

In a unanimous judgment, the Court

of Appeal has overturned the Upper

Tribunal's judgment and has allowed

HMRC's appeal. The jurisprudence

of the Court of Justice construed

correctly means that the activity of

the charity is an 'economic' activity

for VAT purposes.

05 September 2016

Court of Appeal

Longridge on the Thames is a charity which provides water-sport (kayaking, canoeing etc) activities in return for a fee payable by those taking part. It constructed a new building which it claimed should have qualified for VAT zero-rating on the basis that it was a building which was intended to be used by it (ie as a charity) otherwise than in the course or furtherance of a business activity.

By contrast, HMRC took the view that the activity undertaken by the charity (the provision of water-sport activities in return for a fee) from that building was a business activity and that, as a result, the construction did not qualify for zero-rating. The First-tier Tax Tribunal (FTT) sided with the charity finding that the activity was not a business activity. The FTT reached that view despite acknowledging that the activity was 'business-like'. It relied on the fact that the fees set by the charity for the activities did not cover the cost of providing them and that the supervision of the various activities was predominantly undertaken by a corps of volunteers. HMRC appealed to the Upper Tribunal but it found nothing wrong in the FTT's conclusions and dismissed HMRC's appeal.

HMRC appealed to the Court of Appeal. By a unanimous judgment (3-0), the Court of Appeal has allowed HMRC's appeal confirming that, in its view, the concept of economic activity includes the activities carried on by the charity in this case. The issues relied upon by the FTT (such as the prices charged and the provision of a corps of volunteers) were irrelevant factors. Economic activity must be assessed objectively without regard to the purpose or result of the activity. In the circumstances, the charging of fees in return for the supply of water-sport activities constituted an economic activity and both the FTT and Upper Tribunals had misdirected themselves. HMRC's appeal was allowed and, as a consequence, the construction of the new building did not qualify for zero-rating.

Comment – although the result of this appeal will be disappointing for the charity in question, it is an important judgment. The concept of 'economic' activity is one based on EU law. The test to determine whether an activity is 'economic' is whether there is a direct link between the supply made (of goods or services) and the remuneration received by the person making the supply. By this judgment, it would seem that it is now irrelevant that any consideration for a supply is below market value or is to be regarded as some form of concession.

Court of Appeal sinks Longridge on

Thames!

Case Alert

Contact Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683

Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556