Commissioners of Customs and Excise v Yarburgh Children's Trust
| Jurisdiction | UK Non-devolved |
| Judgment Date | 29 November 2001 |
| Date | 29 November 2001 |
| Court | Value Added Tax Tribunal |
Chancery Division.
Patten J.
P Whipple (instructed by Solicitor for Customs and Excise) for Customs.
R Thomas (instructed by Robert Blackford) for the taxpayer.
The following cases were referred to in the judgment:
BLP Group plc v C & E Commrs VAT(Case C-4/94) [1995] BVC 159; [1995] ECR I-983
C & E Commrs v Lord Fisher VAT(1981) 1 BVC 392
C & E Commrs v Morrison's Academy Boarding House Association VAT(1977) 1 BVC 108
Eastbourne Town Radio Cars Association v C & E CommrsVAT[2001] BVC 271
EC Commission v France (Case 50/87) [1988] ECR 4797
EC Commission v UK VAT(Case 353/85) (1988) 3 BVC 265; [1988] ECR 817
Institute of Chartered Accountants in England and Wales v C & E Commrs VAT[1999] BVC 215
Jubilee Hall Recreation Centre Ltd v C & E CommrsVAT[1999] BVC 184
Van Tiem v Straatssecretaris van Financiën VAT(Case C-186/89) [1993] BVC 52; [1990] ECR I-4363
Wellcome Trust Ltd v C & E Commrs VAT(Case C-155/94) [1996] BVC 377; [1996] ECR I-3013
Value added tax - Supply - Zero-rating - Construction of building - Charitable purposes - Lease by charity of building for use by playgroup - Whether supply solely for relevant charitable purpose - Whether supply in course of business - Whether for use as village hall or similar - Whether supply sufficiently close to final consumer for his benefit - Value Added Tax Act 1994, Sch. 8, Grp. 5, item 2(a), Note (6).
This was an appeal against a decision of the VAT and Duties Tribunal (No. 17,209; [2001] BVC 2307) that the taxpayer was not entitled to treat as zero-rated for VAT purposes the supply of a building to be used as a playgroup because that use was in the course or furtherance of a business.
The taxpayer was a charity whose objects included the provision of day care facilities for children. It received a National Lottery grant to construct a building on condition that it granted a lease of the building to a playgroup. A 21-year lease was granted at a modest rent. The taxpayer challenged Customs' decision that the supply of services in the course of construction of the new building was not zero-rated for VAT purposes. It argued that the supplies qualified for zero-rating as the new building was intended for use solely for a relevant charitable purpose within the Value Added Tax Act 1994,Value Added Tax Act 1994 schedule 8 group 5Sch. 8, Grp. 5, item 2, Note (6). Customs took the view that the building was used for a business because the letting to the playgroup was an economic activity.
The tribunal decided that as the building was supplied for a relevant charitable purpose, the taxpayer was entitled to treat the supplies as zero-rated. It found that in this case the building was in fact supplied for a relevant charitable purpose and that the building was supplied as a village hall. Customs appealed to the High Court. The issues were whether the lease by the trust or the activities of the playgroup constituted a form of economic or business activity and whether either use fell within the village hall exception contained in Note (6)(b).
Held, dismissing Customs' appeal:
1. The exclusion from the definition of "relevant charitable purpose" in Note (6) of any use of the building in the course or furtherance of a business was designed to ensure the compliance of the UK legislation on zero-rating with the requirement that reduced rates of tax should only be maintained by member states for "clearly defined social reasons and for the benefit of the final consumer".
2. The concept of the final consumer was satisfied only where the supply was made to a person who did not use the exempted goods or services "in the course of an economic activity". Building services supplied in relation to the construction of a building intended for use solely for a relevant charitable purpose should not be zero-rated if the premises were to be used by the charity in the course or furtherance of a business.
3. The letting by the taxpayer constituted a use and therefore one of the intended uses of the building for the purposes of Note (6) and liability to VAT on a supply of goods or services in the UK depended upon that supply being made by a taxable person in the course or furtherance of any business carried on by him.
4. The letting of property was expressly included if it satisfied the description of the "exploitation" of property ineu-directive 77/388 article 4 subsec-or-para 2art. 4(2) of Council Directive 77/388. In the present case there was material from which the tribunal was entitled to conclude that the lease to the playgroup, although at an annual rent, did not constitute the carrying out of an economic activity. This arrangement, far from being commercial or business like in nature, was designed simply to facilitate the use of the new building by a second charity (the playgroup). The use by the taxpayer of the building was therefore within Value Added Tax Act 1994 schedule 8 group 5Grp. 5, Note (6), unless it could be said that the activities of the playgroup itself constituted a business. Although an intention to trade at a profit was not an essential feature of a business, it was relevant to whether the organisation in question could seriously be regarded as doing anything more than the carrying out of its charitable functions. In this case the tribunal was entitled to conclude from the evidence that no business user was involved.
5. The playgroup was either an association or an organisation within Value Added Tax Act 1994 section 94 subsec-or-para (2)s. 94(2) of the 1994 Act whose legislative purpose was to ensure that the activities of an association or other organisation which was not a legal person should not be excluded from the VAT regime for that reason alone. In the instant case Value Added Tax Act 1994 section 94 subsec-or-para (2)s. 94(2) did not have the effect of making the operation of the playgroup an economic activity.
6. For Note (6)(b) to apply the building had to be a village hall or its equivalent and provide social and recreational facilities for the local community at large. The building used by the playgroup was not generally available and did not do that so the tribunal's decision on that issue could not stand.
Patten J: Introduction
1. This is an appeal by the Commissioners of Customs and Excise against a decision of the VAT and Duties Tribunal (Chairman: Miss JC Gort) released on 26 April 2001 ([2001] BVC 2307). It concerns the use of a building owned by the trustees of the Yarburgh Children's Trust ("the trust") which was refurbished and let to the Yarburgh Community Playgroup ("the playgroup") in 1998. It has been occupied and used by the playgroup since then for a children's playgroup and other child related activities. I shall come to these in more detail a little later in this judgment.
2. The works to the building cost in the region of £100,000. Of this the trust contributed some £32,000 from its own funds. The balance was provided by a grant from the National Lottery Charities Board of £50,000 and from funds raised following an appeal by the playgroup. The building works were carried out under a contract entered into by the trust. The playgroup took no part in these arrangements although, as I have indicated, it did raise part of the necessary finance. VAT was charged on the services provided to the trust by the building contractors. The trust sought to have these zero-rated underValue Added Tax Act 1994 schedule 8 group 5item 2 of Grp. 5 of Sch. 8 to the Value Added Tax Act 1994 ("the 1994 Act") on the basis that they constituted:
The supply in the course of the construction of-
(a) a building … intended for use solely for a relevant charitable purpose.
3. This is defined in Note (6) to Grp. 5 as follows:
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6 Use for a relevant charitable purpose means use by a charity in either or both the following ways namely-
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(a) otherwise than in the course or furtherance of a business;
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(b) as a village hall or similarly in providing social or recreational facilities for a local community.
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Both the trust and the playgroup are registered charities but the commissioners took the view that the supplies should be standard rated because the lease to the playgroup constituted a business activity by the trust and therefore failed to satisfy the statutory definition of "relevant charitable purpose". Before the tribunal the trust advanced two main contentions:
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(2) that the lease was not an economic activity within the terms ofeu-directive 77/388 article 4 subsec-or-para 2art. 4(2) of Council Directive 77/388 and was not therefore business use within Note (6); and
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(3) that the use made by the trust of the building (whether or not comprising a business) came within the definition of use as "a village hall or similarly" in Note (6)(b).
4. The tribunal decided that the grant of the lease did not constitute an economic activity so as to bring it outside the scope of Note (6)(a). The purpose for which the building was designed was in the view of the tribunal an educational one. If wrong about that the tribunal was also satisfied that the use fell within Note (6)(b). The building had, it said, been constructed by a charity for a charity for the benefit of the local community. The trust's appeal was therefore allowed.
5. Before me the issues for discussion have been more widely defined than perhaps they were before the tribunal. It is accepted by Mr Thomas who appears for the trust that it is not enough for his client to show that the lease to the playgroup was not in itself an economic or business activity. It is also necessary to decide whether the playgroup's own use of the premises satisfies one or both limbs of Note (6). This issue arises in at least two ways. The tribunal's own assessment of the lease was based in part on the stated purpose of the letting. This was described in the user clause in the lease as: "Playgroup...
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