VAT – Zero rating – Village hall – Respondent rugby club registered as charity – Respondent building new clubhouse – Item 2 in Group 5 of Schedule 8 to Value Added Tax Act 1994 – Whether construction works zero-rated for VAT purposes as works in construction of building intended for use for charitable purpose – Whether purpose falling within note 6(b) to item 2 as use for village hall or similarly in providing social or recreational facilities for local community – Appeal dismissed
The respondent was a members’ club affiliated to the rules of the Scottish Rugby Union and was a registered charity. It occupied a site in Thurso under a lease from the local authority at a rent of £1 per year. In 2012, it embarked on a project to build a new clubhouse, which, as finally built, contained changing rooms, a main hall, a kitchen that doubled as a bar area where functions were held, toilets, an officials’ rom, a store room and a boiler room.
Before building the new clubhouse, the respondent requested confirmation from the appellants that the construction works would be zero-rated for VAT purposes, as supplies made in the course of construction of a building intended for a charitable purpose, within item 2 in Group 5 of Schedule 8 to the Value Added Tax Act 1994. It relied on note 6(b) to item 2, so far as it included, as a relevant charitable purpose, use “as a village hall or similarly in providing social or recreational facilities for a local community”.
The appellants refused to treat the works as zero-rated. They took the view that, in order to qualify under note (b), the use of a village hall had to be at the direction or control of the local community, which was not the case with the clubhouse since the respondent could grant or deny access to others as it chose. They considered that the requirement for local community direction or control flowed from article 17 of the Second VAT Directive (Directive 67/228), so far as it provided that provisions for reduced rates or exemptions had to be “for the benefit of the final consumer”.
The first-tier tribunal reversed the appellants’ decision and determined that the works were zero-rated: see (2015] UKFTT 378 (TC). It did not regard as decisive the fact that the clubhouse was managed by the respondent. It found that there had been substantial use of the clubhouse for a wide variety of sporting, social and recreational activities in addition to the rugby club’s own use and that, while the respondent gave priority to its own needs, the needs of all users were accommodated in practice and 90% of the usage of the hall was by clubs or groups other than the respondent. The appellants appealed.
Held: The appeal was dismissed.
While note 6(b) to item 2 had to be interpreted consistently with article 17 of the Second VAT Directive, there was nothing in article 17 to support the proposition that the degree of closeness between the consumer and the supply would necessarily be insufficient to make the consumer the “final consumer” unless he had direction or control over the goods, services or product in question: Commission of the European Communities v United Kingdom (Case 416/85) [1988] ECR 3127; [1990] 2 QB 130 and Jubilee Hall Recreation Centre Ltd v Commissioners of Customs and Excise [1999] STC 381; [1998] PLSCS 329 considered.
Accordingly, note 6(b), on its proper construction, did not require that a local community had direction over, or control of, the use of the building within which the relevant facilities were provided. The use of a building could be intended to be at the disposal of a local community even though the community was not the body directing or controlling its use. In any particular case, the absence of direction or control would be a relevant factor but not necessarily a decisive one. Other factors would be pertinent and an important focus would be the intended uses of the building at the time when goods or services were supplied. An examination of the actual uses that had ensued.
It followed that the FTT had not misdirected itself in law in finding that the supplies made in the course of construction of the clubhouse were zero-rated under item 2: New Deer Community Association v Commissioners for HM Revenue and Customs [2015] UKUT 604 (TCC); [2016] STC 507; [2015] PLSCS 328 distinguished.
Julius Komorowski (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.
Sally Dobson, barrister
