Embed Size (px)
Citation preview
Indirect Tax Update for week ending 14 November 2014
The Upper Tribunal has upheld the First –tier Tribunal's decision when considering whether a charity was carrying on a business/charitable activity when zero rating the construction of a building intended for use solely for a relevant charitable purpose.
In the case of HMRC v Longridge the Upper Tribunal considered HMRC's appeal against a decision of the First-tier Tribunal. The case concerned whether construction services supplied to Longridge should be zero-rated for VAT purposes on the basis that the services related to supplies for the construction of a building intended for use solely for relevant charitable purposes. By way of background, Longridge had taken over a site in 2005, which was in need of an extensive upgrade. The VAT at the centre of the dispute was incurred on the construction of a training centre at the site. The cost of the building and training centre were entirely met by donations and grants rather than out of charges to customers.
VAT law provides that where construction services are supplied for a building which is intended to be used solely for a charitable purpose otherwise than in the course or furtherance of a business, the supply of such services can be zero rated. However, in Longridge's case HMRC disagreed with the First-tier Tribunal's view that the services met this criteria. HMRC argued that the taxpayer's activities were in the course or furtherance of a business. HMRC argued that the First-tier Tribunal erred in law by focusing on the prices that Longridge charged for its services (the prices charged in most cases did not cover the costs of providing the services). HMRC's position centred upon the decision of C-246/08 Commission of the European Communities v Finland [2009] (‘Finland’) a case which reiterated the principle that an activity may be a business activity even though it is not intended to generate a profit.
The First-tier Tribunal had concluded in its earlier decision that "an activity whereby a supply is made for a price is not necessarily an economic activity; that it is necessary to identify in objective terms what the activity is in order to determine whether it is an economic activity; and that to identify what in truth that activity is it is necessary to look, not at purpose or results, but at the entirety of what it is and the context in which it is carried out". The Upper Tribunal found no fault with that reasoning and dismissed HMRC's appeal.
Comment – This case highlights the difficulty that exists when identifying whether an activity carried on by a charity is or is not an economic activity in a VAT sense. The view expressed by the Upper Tribunal in this judgment may be subject to challenge in a higher court and may be overturned on appeal. It would also be interesting to know how the Court of Justice would view the case as the concept of economic activity in EU VAT law is a little different to the concept of 'business' under UK VAT law.
For further information in relation to any of the issues highlighted in this Indirect Tax Update please contact: Karen Robb [email protected] Stuart Brodie [email protected]
Andrea Sofield [email protected]
Richard Gilroy [email protected]
© 2014 Grant Thornton UK LLP All rights reserved ‘Grant Thornton’ means Grant Thornton UK LLP, a limited liability partnership Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another's acts or omissions. This publication has been prepared only as a guide. No responsibility can be accepted by us for loss occasioned to any person acting or refraining from acting as a result of any material in this publication.
www.grant-thornton.co.uk
Indirect Tax Update 42/2014
