Loughborough Students' Union
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 May 2012 |
| Neutral Citation | [2012] UKFTT 331 (TC) |
| Date | 08 May 2012 |
| Court | First Tier Tribunal (Tax Chamber) |
[2012] UKFTT 331 (TC)
Judge Richard Barlow
John Tallon QC instructed by VAT angles VAT consultancy appeared for the Appellant
Richard Chapman of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
VAT - Supplies by a students' union - Was it run essentially voluntarily - No - Output tax was properly payable and an appeal in respect of a reclaim for overpaid tax is dismissed
The First-tier Tribunal decided that a taxpayer union was not run on an essentially voluntary basis by persons having no direct or indirect financial interest in the activities under the Value Added Tax Act 1994 ("VATA 1994"), Value Added Tax Act 1994 schedule 9 group 13Sch. 9, Grp. 13. The sabbatical officers of the taxpayer were paid a sufficiently large amount and took a sufficient role in the decision making process of last resort and had sufficiently large influence over those decisions of the taxpayer as to preclude it from being managed and administered on an essentially voluntary basis at all material times. The Tribunal also decided that the taxpayer's annual freshers' and graduation balls were not promoted primarily for the purpose of raising funds, but merely for the students' entertainment. Hence, it was not exempt under VATA 1994, Value Added Tax Act 1994 schedule 9 group 12Sch. 9, Grp. 12.
The taxpayer union appealed against HMRC's decision refusing to agree to repay the VAT output tax claim of £455,000 for the tax periods ending January 2002 to July 2008. The taxpayer's claims in respect of VATA 1994, Value Added Tax Act 1994 schedule 9 group 13Sch. 9, Grp. 13 covered a number of events in each relevant period such as gigs, events or balls consisting of musical performances by bands, dances and the like held for the students. The VATA 1994, Value Added Tax Act 1994 schedule 9 group 12Sch. 9, Grp. 12 claims were for smaller sums and restricted to annual freshers' balls and graduation balls. The taxpayer made the output tax claim by way of voluntary disclosures.
The taxpayer was formed upon the creation of the Loughborough University of Technology ("the university"). The taxpayer's constitution had two forms: the first covered all material periods up to 22 May 2005, whilst the second covered the period from 23 May 2005 to 31 July 2008, after which date the constitution was amended again and no overpayment of VAT occurred thereafter.
The taxpayer consisted of a union for the university and two other colleges. All registered students of those institutions were members of the taxpayer by reason of registration, unless they had opted out of membership. The governing body ("the council") of the taxpayer consisted of the executive committee, the student officers of the taxpayer, and the representatives of the halls of residence and the colleges. The student officers included nine sabbatical officers who were members of the executive committee whose duty was to oversee and manage the taxpayer's finances and to make decisions in the absence of the committees.
In the earlier version of the constitution, all of the council members had a vote at the council and the decisions were made by a simple majority with a quorum of 50 per cent of the members. From 23 May 2005, the voting rights of those sitting on the executive committee were removed. In practice, that meant that the sabbatical officers no longer had a vote. The amendments to the constitution also limited, but did not abolish, the executive committee's plenary powers during the vacation. The amendments precluded it from changing the constitution or any existing union policies.
A salaried general manager (Mr AP) of the taxpayer contended that the council had responsibility for budgets until the further change to the constitution made from 1 August 2008 and that it was the decision maker of last resort until that date. He explained that the decisions taken by the council were often the result of an informal process by which a consensus was reached before the actual meeting, but categorically denied that the council acted merely as a rubber stamp. He added that the sabbatical officers were paid approximately two-thirds of what might have been considered a starting salary for a graduate in his or her first employment at the times in question.
A sabbatical officer ("Ms GP") of the taxpayer said that much of the decisions within the executive committee were made by the individual members who were responsible for that area of the taxpayer's activities. Although they were discussed in the executive committee meetings, the same were consisted more of sharing information than debating and taking decisions.
As far as the balls were concerned, Mr AP said that they were a celebration and that the taxpayer tended to book well-known acts for the balls. Ms GP added that the balls were part of the student experience and a regular feature of the calendar wherein they made money. She said the publicity for the balls mainly centred on publicising the performers and that it was made clear that proceeds would go to the taxpayer.
(2) Whether the taxpayer was managed and administered on a voluntary basis by persons having no direct or indirect financial interest in the activities under VATA 1994, Value Added Tax Act 1994 schedule 9 group 13Sch. 9, Grp. 13.
(3) Whether the taxpayer's annual freshers' and graduation balls were promoted primarily for the purpose of raising funds, so as to be exempt under VATA 1994, Value Added Tax Act 1994 schedule 9 group 12Sch. 9, Grp. 12.
Held, dismissing the taxpayer's appeal:
The payment of remuneration at a proper rate which is not variable according to the results of the body's activities does not give an employee a financial interest for the purposes of note 2(c) under VATA 1994, Value Added Tax Act 1994 schedule 9 group 13Sch. 9, Grp. 13 or an interest. This does not, however, dispose of the question whether the management and administration is essentially voluntary. To exclude a body from the exemption, there should be a nexus between the financial interest of a relevant person and his or her participation in the highest decision-making process of the body. No person who has a financial interest may take any part in the management and administration of the body. However, the question whether the body is managed and administered on an essentially voluntary basis is separate, and turns on the terms and basis on which all those who take part in the management and administration do so. The fact that a managing director is paid at a full and proper rate for doing so means that, even though he is only one out of several directors, the management and administration of a taxpayer is not carried out on an essentially voluntary basis (Bournemouth Symphony Orchestra v R & C CommrsVAT[2006] BVC 839 ("Orchestra") applied).
In the present case, the Tribunal held that although the sabbatical officers were not paid a full salary for a new graduate, this did not assist the taxpayer's case that it was run on an essentially voluntary basis. This was because small payment was irrelevant in the taxpayer's claim that it was conducted on an essentially voluntary basis (Orchestra applied).
Before the change in the constitution in May 2005, the sabbatical officers were paid a salary at a high rate and were voting members of the body which made the decisions of last resort. Coincidentally, they represented approximately the same proportion of that body's membership (being nine of about 75) as the managing director represented on the board of the orchestra. However, the Tribunal did not regard that coincidence in any way decisive, being that payment of salaries to some members of the body of last resort decision making could not be ignored just because the paid members could not outvote the unpaid (Orchestra applied).
The Tribunal found that the sabbatical officers had an influence on the decision making process of the taxpayer far in excess of their proportionate members. The taxpayer acted on an admirably democratic basis of prior consultation and attempted consensus but it was very clear that the sabbatical officers played a very large part in that process.
The factual analysis of the essentially voluntary issue for the period after the sabbatical officers no longer had a vote on the council was not different from that for the period when they did have a vote on the council. It was shown that the influence and importance of the sabbatical officers had continued to be effectively the same as it was before the change in the voting arrangements. For this reason, the Tribunal held that the voluntary disclosure for the repayment of VATA 1994, Value Added Tax Act 1994 schedule 9 group 13Sch. 9, Grp. 13 failed.
As far as the claims under VATA 1994, Value Added Tax Act 1994 schedule 9 group 12Sch. 9, Grp. 12 was concerned, the Tribunal held that it was not proven that the primary purpose of the balls was to raise money. The evidence was that the balls were put on for the students' entertainment. But there was neither evidence about what profits were made nor that the balls were promoted primarily for that purpose. The publicity disclosing that the profits would go to the taxpayer was not the same as that the primary purpose of the events was to raise funds.
1.Loughborough Students' Union (the Union) appeals against decisions by the respondents by which they refused to agree to repay to the Union sums accounted for as VAT output tax, repayment of which the Union has claimed by way of voluntary disclosures. Not all the voluntary disclosures are technically subject to this appeal but the Decision should enable the parties to settle all the claims. The sum in dispute is substantial, being in the region of £455,000, but the parties have made their submissions and presented their evidence on the basis that the Tribunal need not, at...
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