Value added tax – Zero-rating – Charity – Building services – Respondent charity constructing building training centre intended for use solely for relevant charitable purpose – Respondent seeking VAT zero-rating for supply of construction services – Appellant commissioners ruling supplies standard-rated – First-tier tribunal allowing respondent’s appeal – Appellants appealing – Whether respondent carrying on a business/economic activity – Appeal dismissed
The respondent was a company limited by guarantee without a share capital and registered as a charity. Its objects included “the advancement of education in water, outdoor and indoor activities for young people generally”. It arranged for the construction of a training centre on a site which it owned on the River Thames, near Marlow in Buckinghamshire. The centre included toilets, shower rooms and changing rooms on the ground floor and meeting room facilities on the upper floor. The training centre was entirely met by donations and grants rather than out of charges to customers. Charges were made for activities and courses having regard to the need to make sure that the activities were affordable for young people and their families, balanced by the need to cover operational costs, after taking account of donated income and volunteers.
The respondent argued that the construction services supplied to it should be zero-rated for VAT purposes because those services related to supplies for a building that was intended for use solely for relevant charitable purposes. The appellant Commissioners of Revenue and Customs issued a ruling that the construction of the centre was standard-rated. The respondent appealed, contending that it qualified for zero-rating. The First-tier Tribunal accepted that contention and allowed the appeal on the basis that the respondent was not carrying on an economic activity at the site, and that the building was used solely for a relevant charitable purpose: see [2013] UKFTT 158 (TC).
The appellants appealed, contending that the tribunal had erred in law by focusing on the prices that the respondent charged and the fact that those prices in most cases did not cover the costs of providing the service. They submitted that that was an error because it amounted to treating the activity as not being an economic activity because it was not profit-making and not designed to be so. An activity might be a business even though it was not intended to generate a profit.
Held: The appeal was dismissed.
(1) The six criteria for determining whether an enterprise amounted to the carrying on of a business were evidence of: (i) a serious undertaking earnestly pursued; (ii) pursued with reasonable continuity; (iii) substantial in amount; (iv) conducted regularly on sound and recognised business principles; (v) predominantly concerned with the making of taxable supplies to consumers for a consideration; and (vi) such as consisted of taxable supplies of a kind commonly made by those who sought to make profit from them: Customs and Excise Commissioners v Lord Fisher [1981] STC 238 and Institute of Chartered Accountants in England and Wales v Customs and Excise Commissioners applied.
(2) There was a dividing line to be drawn between a situation where the activities did amount to the furtherance of a business even though the activities were not aimed at making a profit: see Customs and Excise Commissioners v Morrison’s Academy Boarding Houses Association [1978] STC 1; and where the activity was not conducted as a business even though payment was made by the recipient for the services provided: Commission v Finland (Case C-246/08) [2009] ECR 1-35 10605. It was for the First-tier Tribunal to decide, on the basis of all the facts before it, on which side of the line the present case fell.
(3) The tribunal had considered the scale of payments made, the way they were calculated and the way the finances of the respondent were dealt with in terms of donations and the use of volunteers. There was nothing in their discussion of the test to be applied or its application to the facts found that showed any error of law. Looking at the totality of the observable terms and features of the activities carried out by the respondent at the site, the tribunal had conclude that the activities were not economic. That was precisely the kind of evaluation of the facts that the tribunal was well-placed to make and with which the appellate court should not interfere. It was necessary to take into account the charitable nature of the activity as part of its observable terms and features whilst avoiding the twin heresies of taking account of the purposes for which the activity was conducted or regarding an activity as not economic because it was non-profit making: Customs and Excise Commissioners v Yarburgh Children’s Trust [2001] EWHC 2201 (Ch) and Customs and Excise Commissioners v St Paul’s Community Project Ltd [2004] EWHC 2490 (Ch) considered.
Michael Jones (instructed by Solicitor to HM Revenue and Customs) appeared for the appellants; Roger Thomas QC appeared for the respondent.
Eileen O’Grady, barrister
