Revenue and Customs Commissioners v Caithness Rugby Football Club
| Jurisdiction | UK Non-devolved |
| Judgment Date | 27 July 2016 |
| Neutral Citation | [2016] UKUT 354 (TCC) |
| Date | 27 July 2016 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
The Honourable Lord Doherty
Julius Komorowski, Advocate instructed by the Office of the Advocate General for Scotland appeared for the appellants
Philip Simpson QC, instructed by BBM Solicitors appeared for the respondent
Value added tax – Zero-rating – Construction by a rugby club of a clubhouse on a sportsground – Whether intended for use “as a village hall or similarly in providing social or recreational facilities for a local community” – Value Added Tax Act 1994 (“VATA 1994”), Sch. 8, Grp. 5, item 2 and Note 6(b) – HMRC's appeal refused.
The Upper Tribunal (UT) dismissed HMRC's appeal against the decision of the First-tier Tribunal (FTT) ([2015] TC 04560) that zero-rating applied to supplies made in the course of constructing a clubhouse.
The Club was a registered charity and a members' club affiliated to the Scottish Rugby Union. It was not registered for VAT. It had a lease from the Highland Council, for a peppercorn rent, over land in Thurso. The playing fields used by the Club are on that land.
In about 2012, the Club started to construct a clubhouse on that land. Some £300,000 was required to build the clubhouse, of which half came from Sports Scotland. Other contributions came from the Robertson Trust, the Community Landfill Fund and the Caithness and North Sunderland Fund. The remaining £95,000 was raised by the Club. On applying for funding, support was given by other local sports clubs, which were potential users. As the clubhouse was being built, the Club realised that other community groups would benefit from using it. The clubhouse comprises four changing rooms occupying about half of the building, a main hall, a kitchen that doubles as a bar during functions and which can be shuttered off from the hall, and toilets. There is also an officials' room, a store room and a boiler room. The main hall, kitchen and toilets occupy about 40% of the building. The constitution of the Club states that it provides a community benefit. The clubhouse was an opportunity to better fulfil that aim.
The clubhouse is used extensively by the community. Approximately 85% of the use is by residents of Thurso or the surrounding area. A dance school meets at the clubhouse weekly. Boxercise classes take place weekly. A choir meets every Friday. A community association uses it most months for activities for pre-school children. Harriers use the clubhouse and one dressing room. A big band uses the clubhouse for practice. A disability sport association uses it weekly for bowling. The clubhouse is used for social events and fundraising events unconnected with the Club. If booked for a social event, such as an adult's birthday party, it is staffed by volunteers.
HMRC decided that the construction project was ineligible for zero-rating.
The Club claimed that zero-rating applied, because the clubhouse was intended to be used “as a village hall or similarly in providing social or recreational facilities for a local community”. The burden of proof was on the Club to establish on a balance of probabilities the intended use of the building. It is the intention at the time of construction that is material.
The FTT was satisfied that the funding applications did not demonstrate an intention at the time of construction to limit the use of the clubhouse by other groups, or to reserve the principal use of the clubhouse to the Club's activities. The FTT was satisfied on the evidence that the use of the clubhouse following its construction is consistent with what was intended at the time of construction, even if the actual use by other groups was not foreseeable in detail and may have significantly exceeded expectations.
One requirement of VATA 1994, Sch. 8, Grp. 5, Note (6)(b) is that the building must be used in providing “social or recreational facilities”. To meet this requirement, the FTT held that it is sufficient that either social or recreational facilities are provided. A sporting facility is a recreational facility. Thus, even if the clubhouse were used only for rugby playing, it would still satisfy the definition of “social or recreational facilities”. However, the clubhouse was used for a variety of sporting, recreational and social activities (para. 78 of the decision).
A second requirement of Note (6)(b) is that the facilities must be provided to a “local community”. The FTT accepted that where facilities are provided to people over too large an area, they are not provided to a “local community”. However, in a rural area, the size of a “local community” may be significantly larger than in an urban area. In a remote and sparsely populated area, it may be larger. The evidence was that about 85% of the use of the clubhouse was by residents of Thurso or the immediate surrounding area. Some rugby teams travelled long distance to use the facilities, but sometimes this was to play against a team local to Thurso. The extent to which the clubhouse was used for matches between two teams, both of which have travelled from afar to play against each other in Thurso, was not explored by the FTT. In any event, the FTT held that minor use of facilities by persons from outside the local community does not stop the “local community” requirement from being met (para. 79 of the decision).
The remaining requirement of Note (6)(b) is that the facilities must be used as a “village hall or similarly”. The FTT held that this requirement was also satisfied because:
1) the clubhouse was used by a significant number of diverse community groups;
2) the clubhouse was constructed by and managed by a members' club on a non-commercial basis. The clubhouse was let out to other groups for modest rates, on the basis that users are responsible for the cleaning;
3) at the time of construction, the local town hall had ceased to be available for use as such, and the clubhouse had helped fill that gap;
4) the clubhouse is on council-owned land, which was rented to the Club for a peppercorn rent, as this saves the council the cost of maintaining the land, while ensuring that the land remains available for the Highland Games and other events unconnected to the Club; and
5) a sporting pavilion or clubhouse is capable of being used as a “village hall or similarly”.
On appeal to the UT, HMRC did not challenge any of the FTT's findings of fact. However, HMRC argued that the FTT had erred when determining whether the building had been intended solely for use by the Club as a village hall or similarly. A prerequisite of satisfying Note (6)(b) was that there must be local community direction or control of the use of the building. Direction or control could be indirect and representative (e.g. by the local community electing representatives to the managing body), but the end result must be that the local community had practical and effective direction or control of the use of the building (para. 10 of the decision).
HMRC recognised that a local community could be the real beneficiary of construction services supplied to a charity where the charity's object was to provide social or recreational facilities for the local community; and that that was so regardless of whether the community directed or controlled the use of the relevant building (para. 14 of the decision).
The UT held that nothing supported the proposition that the degree of closeness between the consumer and the supply will necessarily be insufficient to make the consumer the final consumer unless he has direction over or control of the goods or services or the product (e.g. a building) in which they have been incorporated (para. 20 of the decision).
The UT held that it should focus on whether the use or intended use of a building is similar to use of a building as a village hall, rather than, for example, on whether the building is similar to a village hall (para. 32 of the decision).
The UT held that usually the provision of sports pavilion facilities to a local community is likely to be the provision of social or recreational facilities. In sporting life, the commencement of society and recreation is not usually suspended until members of a local community step on to a sports pitch. It does not usually cease immediately with the final whistle. With team sports in particular, society and recreation often begins with the team gathering in the changing room, exchanging pleasantries and news, preparing for the match, and discussing tactics. Sometimes the pavilion can be resorted to at half-time for similar purposes. After the match the pavilion is the venue for post-match discussions and banter. The UT would be slow to conclude that none of that is social or recreational activity; or that the provision of facilities for it is not the provision of social or recreational facilities, but only an adjunct to social or recreational activity taking place outside the building (para. 33 of the decision).
Thus, the UT rejected HMRC's suggested interpretation of Note (6)(b). On a proper construction of the provision, it does not require that a local community has direction over, or control of, the use of the building within which the relevant facilities are provided. In any particular case, the existence or absence of direction or control is a relevant factor, but not necessarily a decisive one. The use of a building may be intended to be at the disposal of a local community even though the community is not the body directing or controlling its use (para. 34 of the decision).
Thus, HMRC's appeal failed and zero-rating applied.
The decision in this type of case depends on the facts. Much of the evidence concerned the use to which the building was put since it was constructed. HMRC claimed that the actual use of a building following its construction may not be the use that was intended at the time of construction. The FTT accepted this claim. However, the subsequent use...
To continue reading
Request your trial
-
Eynsham Cricket Club v Revenue and Customs Commissioners
...and storage of sporting equipment was not used as a village hall or similarly. [160] In R & C Commrs v Caithness Rugby Football Club [2016] BVC 532, a Rugby club, which was a registered charity, built a club house consisting of changing rooms occupying just under half of the building, a mai......
-
Eynsham Cricket Club v The Commissioners for HM Revenue and Customs
...of sporting equipment was not used as a village hall or similarly. 159. 10 15 20 25 30 35 40 In Caithness Rugby Football Club v HMRC [2016] UKUT 354 (TCC), a Rugby club, which was a registered charity, built a club house consisting of changing rooms occupying just under half of the building......
-
Eynsham Cricket Club v The Commissioners for Her Majesty's Revenue & Customs, TC 06047
...supplies (i.e. those that are contended to be zero-rated) are received. That was emphasised in Caithness Rugby Football Club v HMRC [2016] STC 2028 where Lord Doherty said: The judgments—particularly that of Beldam LJ—also suggest that in determining whether the requirements of note (6)(b) ......
-
Revenue and Customs Commissioners v Greenisland Football Club
...local clubs with no preference being given to GFC activities. Unlike the situation in the R & C Commrs v Caithness Rugby Football Club [2016] BVC 532 and Eynsham Cricket Club [2017] TC 06047 cases, GFC does not give any preference to GFC bookings. In fact Mr Munn advised the Tribunal that i......
-
Weekly Tax Update - 8 August 2016
...to this, HMRC failed to demonstrate any error of law on the part of the FTT. Revenue and Customs v Caithness Rugby Football Club [2016] UKUT 354 (TCC) www.bailii.org/uk/cases/UKUT/TCC/2016/354.html The content of this article is intended to provide a general guide to the subject matter. Spe......