R & C Commissioners v Mid Ulster District Council
| Jurisdiction | UK Non-devolved |
| Judgment Date | 20 July 2022 |
| Neutral Citation | [2022] UKUT 197 (TCC) |
| Year | 2022 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2022] UKUT 197 (TCC)
Madam Justice McBride, Judge Jonathan Cannan
Upper Tribunal (Tax and Chancery Chamber)
VAT – Local authority – Provision of sport and leisure facilities – Whether treatment as a non-taxable person would lead to significant distortions of competition – Directive 2006/112/ EC (PVD), art. 13(1) – Definition of ‘such activities’ – Appeal allowed.
In R & C Commrs vMid Ulster District Council [2022] BVC 507, the Upper Tribunal (UT) allowed HMRC’s appeal against a decision of the FTT, concluding they had wrongly defined the activities of the Council when considering distortions of competition, and remitted the matter back to the FTT for a further hearing.
There have been a series of appeals across the UK regarding the VAT treatment of sports and leisure facilities by local authorities. Mid Ulster District Council (formerly Magherafelt District Council)[2020] TC 07911 was the lead case in Northern Ireland, R & C Commrs v Chelmsford City Council [2022] BVC 504 the lead case in England and Wales, and Midlothian Council[2020] TC 07910 the lead case in Scotland.
In Mid Ulster District Council (formerly Magherafelt District Council)[2020] TC 07911 the FTT found the provision of leisure and recreational services by the Council was a supply for remuneration and therefore an economic activity under Directive 2006/112 (PVD), art. 9, but accepted the supplies were made by the Council in its role as a public authority so that, under PVD, art. 13 no VAT would be due on the fees charged unless such treatment led to significant distortions of competition.
The FTT held the Council was operating under a special legal regime, and its consequent treatment as a non-taxable person would not lead to significant distortions of competition.
HMRC did not dispute that either the provision of services was an economic activity, or the Council operated under a special legal regime. Their appeal related solely to whether treating the Council as a non-taxable person would lead to significant distortions of competition. They argued the FTT applied the wrong test.
HMRC submitted, and the UT agreed, in determining whether activities were similar and therefore in competition, the phrase ‘such activities’ in art. 13 should be interpreted as referring to the intrinsic characteristics, subject matter and nature of the activities, viewed from the consumers perspective. The legal regime under which the activities were provided was irrelevant unless it had a bearing on the consumer’s perspective of the similarity of the activities.
The UT concluded the FTT had wrongly defined the activities of the Council by reference to the special legal regime and remitted the appeal back to the original FTT.
Of the three leading cases in this series of appeals, it was only in this one that the second paragraph of PVD, art. 13 relating to distortions of competition had been considered.
In both the Chelmsford (Chelmsford City Council [2020] TC 07909) and Midlothian (Midlothian Council[2020] TC 07910) decisions, the FTT declined to rule on whether the second paragraph was applicable, the parties to those appeals acknowledging that if consideration of this point arose a continuation hearing would be required, dedicated to evidence and submissions on that point.
This judgment will, no doubt, also inform any such hearings that take place.
Comment by Angela Bedi, Senior Tax Writer at Croner-i.
Raymond Hill BL, instructed by the General Counsel and Solicitor for Her Majesty's Revenue and Customs for the appellant
Melanie Hall QC and Harry Gillow BL, instructed by DLA Piper UK LLP.
[1] This is an appeal against a decision of the First-tier Tribunal (“the FTT”) released on 17 October 2020 ([2020] TC 07911) (“the Decision”). The FTT allowed the appeal of Mid-Ulster District Council (“the Council”) against HMRC's determination that VAT was chargeable by the Council on its supplies of sports and leisure facilities.
[2] The issue in this appeal is whether the Council is a taxable person when making those supplies or whether it is not to be regarded as a taxable person by virtue of article 13 of the Principal VAT Directive 2006/112/EC (“the PVD”).
[3] There is a dispute between HMRC and local authorities across the United Kingdom concerning the VAT liability of charges paid by members of the public for access to sports and leisure facilities provided by these authorities. The Council submitted voluntary disclosures in 2010 and 2011 claiming repayment of VAT totalling £518,691 allegedly overpaid in its VAT accounting periods 12/06 to 03/11. The claims were rejected by HMRC in a decision dated 7 October 2011. That decision was upheld following a formal internal review on 28 September 2012. The Council appealed to the FTT.
[4] The FTT directed by way of case management that a single lead case be identified in each of the three UK territorial jurisdictions in England and Wales, Scotland and Northern Ireland. The nominated lead case for Northern Ireland is Magherafelt District Council. That council merged with two other local councils in 2015 and together they were renamed Mid-Ulster District Council. The nominated lead case for England and Wales is Chelmsford City Council and the nominated lead case for Scotland is Midlothian Council.
[5] Given the importance of the issues to be determined, in each lead case the FTT exceptionally consisted of the same three judges qualified in each of the three jurisdictions. Judge Kempster was the presiding member of the panel, together with Judge Rankin and Judge Anne Scott.
[6] HMRC originally refused the Council's claim for repayment on the basis that the admission charges should bear VAT at the standard rate. It appears from [44] of the Decision that at some stage prior to the hearing before the FTT, HMRC accepted that entrance fees to sports centres were exempt. However, the issue as to whether local authorities are to be treated as non-taxable persons by virtue of article 13 remains relevant to the amount of the repayment.
[7] We were referred to articles 2, 9 and 13 of the PVD. Articles 2 and 9 define the supplies which are within the scope of VAT:
2(1) The following transactions shall be subject to VAT: …
- c the supply of services for consideration within the territory of a Member State by a taxable person acting as such; …
9(1) “Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity …
[8] In this appeal we are principally concerned with article 13(1) PVD which provides:
1. States, regional and local government authorities and other bodies governed by public law shall not be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with those activities or transactions.
However, when they engage in such activities or transactions, they shall be regarded as taxable persons in respect of those activities or transactions where their treatment as non-taxable persons would lead to significant distortions of competition.
In any event, bodies governed by public law shall be regarded as taxable persons in respect of the activities listed in Annex I, provided that those activities are not carried out on such a small scale as to be negligible.
[9] Article 13(1) was implemented in UK domestic law by section 41A Value Added Tax Act 1994. The parties' submissions focussed on article 13(1) and we shall do the same. It is not necessary for us to set out the domestic provisions. The sub-paragraphs of article 13(1) are not separately numbered. For the sake of convenience and clarity we shall refer to them as article 13(1), (2) and (3) respectively.
[10] It is convenient to say at this stage that the question of whether public bodies provide goods and services “as public authorities” for the purposes of article 13(1) PVD (and its predecessor in article 4(5) of the Sixth Directive) has been considered extensively in the case-law of the European Court of Justice and the Court of Justice of the European Union (“the ECJ”). In Joined Cases C-231/87 and C-12/88 Ufficio distretualle delle imposte dirette di Fiorenzuola d'Arda v Carpaneto Piacentino[1991] BVC 70 (“Carpaneto”), the ECJ said at [15] and [16]:
[15] An analysis of the first subparagraph of article 4(5) in the light of the scheme of the directive shows that it is the way in which the activities are carried out that determines the scope of the treatment of public bodies as non-taxable persons. In so far as that provision makes such treatment of bodies governed by public law conditional upon their acting “as public authorities”, it excludes therefrom activities engaged in by them not as bodies governed by public law but as persons subject to private law. Consequently, the only criterion making it possible to distinguish with certainty between those two categories of activity is the legal regime applicable under national law.
[16] It follows that the bodies governed by public law referred to in the first subparagraph of article 4(5) of the Sixth Directive engage in activities “as public authorities” within the meaning of that provision when they do so under the special legal regime applicable to them. On the other hand, when they act under the same legal conditions as those that apply to private traders, they cannot be regarded as acting “as public...
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