R & C Commissioners v Netbusters (UK) Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 July 2022 |
| Neutral Citation | [2022] UKUT 175 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2022] UKUT 175 (TCC)
Mr Justice Miles, Judge Rupert Jones
Upper Tribunal (Tax and Chancery Chamber)
VAT – Exemption – Supply of pitch hire – Passivity principle – Composite supply – Threshold for interference – Whether factual finding was within a reasonable range of conclusions – VATA 1994, Sch. 9, Grp. 1, item 1
In R & C Commrs v Netbusters (UK) Ltd [2022] BVC 505, the Upper Tribunal (UT) upheld the decision of the FTT in Netbusters (UK) Ltd[2020] TC 07915 that the services provided were one single composite supply and the objective character of the supplies fell within the grant of any interest in, right over or licence to occupy land and were therefore exempt from VAT.
Netbusters organised five-a-side football and netball leagues. It hired pitches from third parties and made them available to the teams signed up to the leagues to enable them to play their fixtures.
The FTT decided the services Netbusters provided were one single composite supply of pitch hire that fell within the definition of the grant of any interest in, right over or licence to occupy land and were exempt from VAT under VATA 1994, Sch. 9, Grp. 1.
It should be noted, due to an error in HMRC’s statement of case before the FTT, the note 16 conditions relating to the exclusion of grants of facilities for playing sport were not in issue in this case. The only issue under appeal therefore was whether the supplies fell within Grp. 1.
HMRC appealed on the basis the decision was made in error of law and were granted permission to pursue the following five grounds:
- The FTT failed to have any proper regard to relevant case law.
- The FTT failed to properly consider and apply the ‘passivity principle’.
- The FTT failed to consider the objective character of the supplies.
- The FTT erred in finding 87.5% of the value of supplies was attributable to pitch hire and 12.5% to league management services.
- The FTT failed correctly to analyse the true nature of the rights granted to Netbusters by third parties.
The UT considered the threshold to interfere with factual findings and evaluative judgments or multifactorial assessments of the FTT, and decided the test was whether it was within a reasonable range of conclusions that a properly directed tribunal could have made on the evidence before it.
It found the first ground of appeal was insufficiently particularised.
While noting that previous judgments had stated the leasing or letting of immoveable property is usually a relatively passive activity, the UT decided they had referred to passivity as a typical feature rather than a necessary requirement. The FTT had considered the ‘passivity principle’ and concluded the additional services did not represent significant added value to the supply of the pitch hire. This conclusion was open to it on the evidence available. The FTT had not failed to give appropriate weight to the other services and therefore had not erred in law.
It was submitted, in failing to take account of the relevant authorities, or give any weight to the proper evidence, the FTT had failed to consider the economic reality and/or objective character of the supplies made by Netbusters which, it was argued, was the arrangement and provision of football and netball league services. The UT disagreed. The FTT had correctly identified the test it should consider and reached an available conclusion on the issue. It had concluded the league management services were of modest value and did not change the fundamental nature of the supply.
The fourth ground of appeal was also rejected by the UT. The only evidence before the FTT on this issue was the witness evidence to this effect which was not challenged by HMRC.
Finally, the UT rejected the argument the FTT should have found the supply was not pitch hire, based upon its own lack of rights to occupy the relevant pitches as owner. The UT found, instead, the FTT was entitled to conclude the objective intention was that Netbusters were granted exclusive occupation which satisfied the ‘right to occupy as owner’ test.
Each of the grounds of appeal therefore failed.
It was not sufficient for HMRC to simply disagree with the conclusions reached by the FTT following its multifactorial assessment. The FTT had applied the correct tests in law and was entitled to reach the conclusion it did, which was within a reasonable range of potential conclusions, irrespective of whether the UT would have come to the same conclusion.
The distinction between a supply of facilities and a supply of land can be quite obscure and it was perhaps notable, therefore, this was the second recent case where HMRC raised the ‘passivity principle’. In Errol Willy Salons Ltd [2022] TC 08370 they were also unsuccessful in their attempts to exclude supplies from exemption on this basis, suggesting they may be over-emphasising the point.
Comment by Angela Bedi, Senior Tax Writer at Croner-i.
Kate Selway QC, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs appeared for the appellant
Michael Firth, Counsel appeared for the respondents
[1] Her Majesty's Revenue and Customs (“HMRC”) appeal the decision of the First-tier Tribunal (“FTT”) dated 2 November 2020 which was released as [2020] UKFTT 438 (TC).
[2] As the FTT outlined at [1] of its decision: “The appeal concerns the proper classification for VAT purposes [of] the supplies made by [Netbusters]. The activities in question are the organisation by [it] of various competitive football and netball leagues and the supply of pitches for these league matches to be played upon.”
[3] The FTT allowed the appeal of the Respondent, Netbusters (UK) Ltd (“Netbusters”) against decisions of HMRC: (1) to refuse to repay VAT that Netbusters contended was overdeclared output VAT for the periods 04/13–10/16 in the total sum of £414,622; (2) to assess Netbusters to pay VAT for the periods 01/17–07/18 totalling £218,542.
[4] Netbusters organises competitive 5-a-side football and netball leagues. It hires pitches from third parties (such as schools and local authorities) as regular series of block bookings. It then makes these pitches available to the teams who have signed up to the league to enable them to play their league fixtures. Netbusters manages all aspects of league administration. Typically, a team will pay one match per week on the same evening each week and each booking will be long enough to enable two or more matches to be played one after the other. On the larger pitches two matches might be played at any one time.
[5] The FTT decided at [35] that the services provided by Netbusters were one single composite supply. The FTT allowed the appeal, finding that the objective character of the supplies made by Netbusters fell within the definition of “the grant of any interest in or right over land or of any licence to occupy land” for the purposes of Schedule 9, Group 1, Value Added Tax Act 1994 (“VATA 1994”) (see [37] of the decision). Thus, the supplies were exempt from VAT.
[6] HMRC appeal the FTT's decision on the basis it was made in error of law. They were granted permission to appeal by the Upper Tribunal to pursue five grounds of appeal which are set out below. HMRC submit in short that the FTT should have concluded that the objective character or economic reality of Netbusters' supplies was not the grant of a licence to occupy land, the hiring out of sports pitches, but, rather, was supplying competitive league sports management services.
[7] References to numbered paragraphs in parentheses, [xx], unless stated otherwise, are references to paragraphs in the FTT's decision.
[8] The FTT made the following findings of fact at [16] (references to the Appellant being to Netbusters):
- The Appellant was registered for VAT on 15 February 2012.
- The Appellant enters into binding agreements with third parties, such as local authorities and schools, to hire venues belonging to these third parties for set periods of time. It then hires these venues to its customers. The Appellant also organises competitive football and netball leagues and the majority of the pitches are hired by teams participating in one of its leagues – either as a block booking for the season or one-off bookings.
- The venues hired are 5/6/7-a-side artificial football pitches and netball courts. There is no one overseeing the use of pitches during the period of hire. Usually, but not always, the venue comes with toilet and changing room facilities. There are no other facilities provided and people tend to turn up to the games and leave straight after. No parking facilities are provided at any of the grounds.
- Where the pitches have floodlighting this is sometimes turned on by the Appellants, but it is usually turned on and off automatically.
- There is minimal equipment supplied by the third party school or local authority consisting usually of goal posts which the Appellant puts up. The Appellant has purchased around 3–4 sets of goals which it supplies for one of its venues.
- On rare occasion when one team fails to attend a fixture the other team's hire of the pitch goes ahead in their pre-allocated slot resulting, often, in a friendly match supervised by the referee (or not) depending on the preference of the players.
- The Appellant's league/tournament management services are, in principle, available independently of pitch hire, but in practice rarely are.
- A team who wishes to participate in a league and make a block booking will register online. Once on the site the participants are asked to supply a team name, captain's details, to choose a league and agree with the terms and conditions.
- The cost to each team of entering a league is between £350–£779 per season of around 10 matches. There is a single price to pay for both pitch hire and league management services. The Appellant allocates 87.5% of the fee to pitch hire and...
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