Bletchingley Church House Charity
| Jurisdiction | UK Non-devolved |
| Judgment Date | 29 June 2022 |
| Neutral Citation | [2022] UKFTT 211 (TC) |
| Court | First Tier Tribunal (Tax Chamber) |
[2022] UKFTT 211 (TC)
Judge Newstead Taylor, Mr Christopher Jenkins
First-Tier Tribunal (Tax Chamber)
VAT – Zero-rating – VATA 1994, Sch. 8, Grp. 5, item 1(a)(ii) – First grant of a major interest – Whether intended for use solely for a relevant charitable purpose – Appeal dismissed.
In Bletchingly Church House Charity [2022] TC 08534 the FTT dismissed the taxpayers appeal, ruling that, although it had made a first grant of a major interest in a building it had constructed, the grant was not zero rated under VATA 1994, Sch. 8, Grp. 5, item 1(a)(ii) because the building was not intended for use solely for a relevant charitable purpose.
The appellant, Bletchingly Church House Charity (BCHC) was a registered charity. It had constructed a building and granted a 21-year lease to a company, Bletchingly Church House Administration Ltd (BCHAL). BCHAL was not a registered charity. BCHAL hired the building to various organisations. The hirers were a mixture of commercial businesses, local charitable organisations and individuals.
BCHC registered for VAT and recovered VAT incurred on construction costs. BCHC argued that it was entitled to recover this VAT because the 21-year lease was zero rated under VATA 1994, Sch. 8, Grp. 5, item 1(a)(ii) because the building was intended for use solely for a relevant charitable purpose (RCP).
RCP use is defined in Note (6) to group as follows:
Use for a relevant charitable purpose means use by a charity in either or both the following ways, namely–
- otherwise than in the course or furtherance of a business;
- as a village hall or similarly in providing social or recreational facilities for a local community.
The building itself was originally constructed by BCHC in 1907, the construction costs on which BCHC was seeking to recover VAT were recently incurred refurbishment and improvement costs. However, because no major interests had been granted since 1907, the lease under consideration was accepted to be the first grant of a major interest by the person constructing (see para. 80, C & E Commrs v Link Housing Association Ltd[1992] BVC 113 referred).
BCHC argued that Note (6) could apply to its use of the building, it did not solely refer to use of the buildings by the lessee of the building, i.e. BCHAL. However, the FTT dismissed the appeal finding that the lease granted by BCHC was not zero-rated. The FTT’s findings may be summarised as follows:
- Although BCHC was a charity, it was leasing the building to BCHAL and generating a regular income stream in the form of rent payments. It was not therefore using the building ‘otherwise than in the course or furtherance of business’;
- BCHAL was not a charity, its use therefore fell outside the scope of Note (6). However, even if it were a charity, its subletting activity represented a business use of the building;
- Although some of the hirers of the building were charities, over 5% of the hirers were not and no evidence as to the use they made of the building was presented.
The FTT further found that BCHC had not demonstrated that the building was used as a village hall or similar. In particular, in relation to the ‘village hall test’ no submissions on the definition of ‘local community’ in this context were made (para. 119).
The appellant is a small charity and the trustees were not VAT specialists. It appears that the appellant had not fully understood the legal definition of a ‘relevant charitable purpose’.
Comment by Sarah Kay, CTA, Senior Tax Writer at Croner-i.
Mrs Lisa Swan, the Appellant's Treasurer appeared for the appellant
Mr Michael Farrell, litigator of HM Revenue and Customs' Solicitor's Office appeared for the respondents
[1] The Appellant (Bletchingley Church House Charity or BCHC) appeals against the Respondents' decision dated 11 May 2016 (“the Decision”), upheld on review on 6 September 2016, disallowing input tax in the sum of £87,002.75 in respect of VAT periods 05/15, 08/15, 11/15 and 02/16 on a number of grounds, but specifically that:
2. BCHC is incapable of making a grant that qualifies for zero rating under Item 1(a)(ii) of Gp, 5, Sch. 8 of the VAT Act 1994, and hence the goods and services on which the VAT has been charged cannot be used for the purpose of any taxable business, which carries the right of recovery.
BCHC is incapable of making a grant that qualifies for zero rating, for two reasons:
- Such a grant is not lawful without Charity Commission approval, which has not been given, and;
- Even if the Charity Commission approved the grant, the person to whom the grant will be made does not meet the requirements of Note 6 of Gp. 5, Sch. 8 of the VAT Act 1994, and so cannot issue a valid certificate under Note 12(b) of Sch. 8 …
[2] For the avoidance of doubt, BCHC has also submitted VAT returns for the periods from 05/16 to 02/17. These VAT returns are not the subject of the Decision and, accordingly, are not in issue in this appeal. The extent to which, if at all, this Judgment determines the issues in respect of the later VAT returns is, presently, a matter between the parties.
[3] The hearing took place on 10 January 2022, 23–24 May 2022, and 26 May 2022.
[4] The Tribunal has considered the parties' skeleton arguments, the documents in the hearing bundle comprising 481 pages, the oral evidence as detailed below, and the authorities bundle comprising 648 pages along with the supplementary authorities bundle comprising 94 pages.
[5] On 10 January 2022, neither Mr John Brown (BCHC's volunteer VAT Consultant) nor Officer Rowe could join the video hearing by video. They both agreed to join by telephone and did so. After a short adjournment, Mr Brown confirmed that he had the electronic bundles and that, whilst he could not print them off, he could work from them electronically. BCHC, the Respondents and Mr Brown all consented to proceed with Mr Brown giving oral evidence and being cross examined by telephone, which he did. Mr Brown's evidence concluded at around 15.30.
[6] At the conclusion of Mr Brown's evidence, BCHC applied for permission to adduce witness statements from Mrs Swan (BCHC's Treasurer and the director of Bletchingley Church House Administration Limited (“BCHAL”) and Mr Fowler (one of BCHC's Trustees). There were no witness statements from BCHC itself. The only existing witness statement was from Mr Brown. The Respondents did not object to the application. We granted the application having considered rule 2 of the First-tier Tribunal (Tax Chamber) Rules 2009 (“the Rules”). We concluded that permitting the further witness statements was both fair and just because it was a proportionate step given the importance of the case and the complexity of the issues, it ensured that the parties were able to participate fully in the proceedings, it would enable proper consideration of the issues and, due to a lack of time, the hearing was to be part heard in any event.
[7] Also, in advance of the next hearing dates, the Tribunal invited the parties to consider the following authorities, none having been referred to in the original skeleton arguments:
- Jubilee Hall Recreation Centre Ltd v C & E Commrs; C & E Commrs v St Dunstan's Educational Foundation[1999] BVC 184 (Jubilee Hall)
- C & E Commrs v Yarburgh Children's Trust[2002] BVC 141 (Yarburgh Children’s Trust)
- Hanbury Charity [2007] BVC 4,090 (Hanbury)
- R & C Commrs v Caithness Rugby Football Club [2016] BVC 532 (Caithness).
[8] Unfortunately, due to ill health, Mr Brown was unable to attend the hearing after the first day. Mrs Swann, BCHC's representative, confirmed by email to the Tribunal that BCHC was content to proceed in Mr Brown's absence.
[9] On 23 May 2022, Mrs Lisa Swan, Mr Fowler, Officer Seymour, and Officer Rowe of the Respondents all gave oral evidence and were cross examined. At the end of Day 2, the Tribunal invited the parties to consider the following authorities in advance of their closing submissions, Longridge on the Thames v R & C Commrs [2016] BVC 33 (“Longridge”) and Wakefield College v R & C Commrs[2018] BVC 22 (“Wakefield”).
[10] On 24 May 2022, as agreed with the parties, the Respondents made their oral closing submissions first. Due to lack of time, the Appellant's closing submissions were adjourned to 26 May 2022, thereby allowing Mrs Swan time to consider the Respondents' closing submissions and prepare a response.
[11] On 26 May 2022, the Appellant made oral closing submissions and, at the Respondents request, both parties were afforded a short final right of reply. In her closing submissions Mrs Swan, who is not legally trained, tended to give evidence that had not been given before. The Respondents objected to this. The Respondents submitted that they were prejudiced because they had been unaware of this evidence and, consequently, had been deprived of the ability to consider it and test it under cross examination. We agree. For these reasons, in reaching our decision we have not considered any new evidence given in closing submissions.
[12] Mr Brown confirmed that Mrs Swan had written his witness statement for him, and he had signed it. Whilst he accepted that the content of the witness statement was true, he could not confirm if the references in the witness statement to the documents were correct. Therefore, with the Respondents' agreement, Mr Brown's witness statement was admitted in evidence without the references. At paragraph 6 of his witness statement, Mr Brown stated that “… We argue that it is BCHC, as the owner of Church House, and a registered charity that is using the building as a village hall, albeit via BCHAL which manages the lettings on its behalf.”
[13] In examination in chief, Mr Brown contended that BCHAL managed the letting of Church House on behalf of BCHC not in its own right, that, whilst he did not have details,...
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