Marlow Rowing Club v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 22 January 2020 |
| Neutral Citation | [2020] UKUT 20 (TCC) |
| Date | 22 January 2020 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2020] UKUT 20 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Judge Swami Raghavan, Judge Kevin Poole
Philip Ridgway, counsel appeared for the appellant
Joanna Vicary, counsel, instructed by the General Counsel and Solicitor to Her Majesty's Revenue & Customs appeared for the respondents
Value added tax – Penalty for issuing incorrect zero-rating certificate – Appellant had sought advice from accountants and counsel – Whether FTT erred in law in concluding appellant did not have reasonable excuse – Yes – Decision set aside and remade – Appeal allowed.
The Upper Tribunal allowed an appeal against an FTT decision upholding a penalty issued to a charity which had incorrectly issued a zero-rating certificate. The Upper Tribunal accepted that the club had a reasonable excuse for the error.
Marlow Rowing Club is a registered charity. It constructed a new clubhouse because its old clubhouse was destroyed in a devastating fire.
The construction of a new relevant charitable purpose (RCP) building is zero-rated. In order to secure zero rating the purchaser must provide the contractor undertaking the building work with a certificate confirming that the completed building will be used for am RCP (item 1 and Note 12 of Grp. 5, Sch. 8, VATA 1994). If a certificate is issued incorrectly the issuer is liable to a penalty equal to 100% of the tax saved, unless they have a reasonable excuse for the error (s. 62, VATA 1994).
Marlow issued its contractor with a certificate. It is accepted that, in fact, the new clubhouse was not an RCP building and therefore the certificate was issued incorrectly.
The question as to whether the new clubhouse was an RCP building was clarified by the Court of Appeal in Longridge on the Thames v R & C Commrs [2016] BVC 33. The Court of Appeal upheld HMRC's interpretation of the law, the FTT and UT having previously held in the taxpayer's favour.
Marlow issued its zero-rating certificate before the Court of Appeal released its judgement, but after the UT decision. The question before the UT, and the FTT before it, was whether Marlow had a reasonable excuse for issuing the certificate incorrectly.
In the course of planning the new clubhouse Marlow took professional advice on the VAT position, which included a consideration of the VAT planning options available to it and an assessment of how reliant the club was on the FTT and UT's decisions in Longridge being upheld. Both tribunals reviewed the club's dealings with its advisors in detail.
FTT concluded that the club was aware that the correctness of its certificate depended on Longridge succeeding at the Court of Appeal and that, because of this, the club should have approached HMRC and made them aware of its position. The fact that it did not do so meant that it did not have a reasonable excuse for issuing the certificate (see extract from FTT decision quoted at para. 39).
The UT considered the club's evidence regarding the advice it took and heard from HMRC how an enquiry from the club would have been dealt with. The FTT's decision was based upon the proposition that the club could, had it approached HMRC before issuing the certificate, have obtained an appealable decision. However, the UT concluded that this would not have been possible. This represented an error of law on the part of the FTT (para. 59). Having identified an error of law, the UT decided that the most appropriate course of action was for it to remake the decision (rather than remitting it back to the FTT) (para. 63).
The UT applied the tests for determining reasonable excuse from Perrin v R & C Commrs [2018] BTC 513 to the facts before it. It decided that the club had acted reasonably and, in particular, it had acted reasonably in not approaching HMRC for advice. As the club had acted reasonably it follows that it did have a reasonable excuse for issuing the certificate and the appeal was allowed (para. 96).
The outcome of this case is fact dependent, based as it is on a detailed analysis of the professional advice obtained by the club when its new clubhouse was being planned. Taxpayers (and their advisors) should be wary of over-extrapolating the tribunal's reasoning to other circumstances. However, it may assist other taxpayers who, like Marlow, are facing issues which are not yet resolved by the courts and those who have received professional advice with which they do not agree in full.
HMRC expressed considerable dissatisfaction to the UT that a consequence of accepting that the club had a reasonable excuse was that it did not incur a VAT cost on the construction (had it not issued an incorrect certificate it would have paid VAT on the build). However, the UT pointed out that this was an inherent consequence of the law as drafted (para. 97).
[1] This is an appeal by Marlow Rowing Club (“Marlow”) against a decision of the First-tier Tribunal (“FTT”) issued on 7 November 2018 (“the FTT Decision”). The decision was in relation to an appeal by Marlow against a decision of HMRC that Marlow was liable to a penalty of £279,866 under s62 of the Value Added Tax Act 1994 (“VATA”) because it did not have a reasonable excuse for issuing a certificate (the “Certificate”) to a supplier of construction services for a new clubhouse building that incorrectly specified that the supply fell within Group 5 of Schedule 8 (and that the supply was therefore zero-rated). As regards the question of whether Marlow had a reasonable excuse, the parties' arguments before the FTT centred around the significance of various pieces of advice Marlow had sought from its accountants and counsel in advance of the issue of the Certificate. The particular element of Group 5 which was of concern was the condition relating to whether the relevant parts of the building were intended to be used “otherwise than in the course or furtherance of a business”. The interpretation of that provision has since been clarified by the Court of Appeal in Longridge1 in favour of HMRC. However, at the time the Certificate was issued, the litigation had only got as far as the FTT and the FTT had decided the issue in favour of the appellant charity, Longridge.
[2] Marlow submits that, for a number of reasons, the FTT erred in law in not accepting, despite the advice that was sought and given, that Marlow had a reasonable excuse. With the permission of the Upper Tribunal (“UT”), it now appeals to the UT against the FTT Decision.
[3] Section 30 of VATA provides a supply is zero-rated if it is specified in Schedule 8. Item 2 to Group 5 of Schedule 8 specifies:
1. The supply in the course of the construction of–
- a building designed as a dwelling or number of dwellings or intended for use solely for a relevant residential purpose or a relevant charitable purpose; or
- any civil engineering work necessary for the development of a permanent park for residential caravans,
of any services related to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity.
[4] Note 12 to Group 5 Schedule 8 to VATA 1994 provides:
Where all or part of a building is intended for use solely for a relevant residential purpose or a relevant charitable purpose–
- a supply relating to the building (or any part of it) shall not be taken for the purposes of items 2 and 4 as relating to a building intended for such use unless it is made to a person who intends to use the building (or part) for such a purpose; and
- a grant or other supply relating to the building (or any part of it) shall not be taken as relating to a building intended for such use unless before it is made the person to whom it is made has given to the person making it a certificate in such form as may be specified in a notice published by the Commissioners stating that the grant or other supply (or a specified part of it) so relates.
[5] Section 62 VATA (Incorrect certificates as to zero-rating etc.) sets out the circumstances where a person who gives an incorrect zero-rating certificate is liable to a penalty. It provides as relevant:
(1) Subject to subsections (3) and (4) below, where–
- a person to whom one or more supplies are, or are to be, made–gives to the supplier a certificate that the supply or supplies fall, or will fall, wholly or partly within any of the Groups of Schedule 7A, Group 5 or 6 of Schedule 8 or Group 1 of Schedule 9, orgives to the supplier a certificate for the purposes of section 18B(2)(d) or 18C(1)(c),and
- the certificate is incorrect,
the person giving the certificate shall be liable to a penalty.
…
(2) The amount of the penalty shall be equal to–
- in a case where the penalty is imposed by virtue of subsection (1) above, the difference between–the amount of the VAT which would have been chargeable on the supply or supplies if the certificate had been correct; and 5the amount of VAT actually chargeable;
…
(3) The giving or preparing of a certificate shall not give rise to a penalty under this section if the person who gave or prepared it satisfies the Commissioners or, on appeal, a tribunal that there is a reasonable excuse for his having given or prepared it.
[6] In the appeal before us there was no dispute that the applicable test was that set out in Clean Car Co Ltd [1991] BVC 568.
a reasonable excuse should be judged by the standards of reasonableness which one would expect to be exhibited by a taxpayer who had a responsible attitude to his duties as a taxpayer, but who in other respects shared such attributes of the particular appellant as the tribunal considered relevant to the situation being considered.
[7] As we discuss later, the FTT's approach to questions of reasonable excuse was considered extensively by the UT in Perrin v R & C Commrs [2018] BTC 513. The UT stated an approach that was expressed to be in accordance with that in Clean Car (at [71] of Perrin).
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Marlow Rowing Club v The Commissioners for HM Revenue and Customs
...[2020] UKUT 0020 (TCC) Appeal number: UT/2019/0025 VAT Penalty for issuing incorrect zero-rating certificate – appellant had sought advice from accountants and counsel - whether FTT erred in law in concluding appellant did not have reasonable excuse – yes – decision set aside and remade- ap......