Value added tax – Zero-rating – Construction works – Respondent commissioners deciding appellant cricket club not entitled to zero-rating on construction works for new pavilion – First-tier Tribunal and Upper Tribunal upholding decision – Appellant appealing – Whether appellant “established for charitable purposes only” – Whether EU law principles of equal treatment or fiscal neutrality applicable – Appeal dismissed
The appellant was a village cricket club in Oxfordshire run by volunteers. It had been an unincorporated association, registered as a community amateur sports club (CASC) since 2003. In 2012, the appellant’s pavilion was destroyed by fire in a suspected arson attack and it engaged a contractor to build a new pavilion. The respondent commissioners (HMRC) refused to treat the construction services as zero-rated under item 2 in group 5 of Schedule 8 to the Value Added Tax Act 1994, which provided for zero-rating of supplies in the course of the construction of a building intended for use only for a “relevant charitable purpose”. As a CASC, the appellant could not benefit from the VAT relief provided specifically for charities.
The First-tier Tribunal (FTT) dismissed the appellant’s appeal on the basis that the appellant was not “established for charitable purposes only”. Although it was established for the charitable purpose of “the advancement of amateur sport” within section 3(1)(g) of the Charities Act 2011, it also had a subsidiary purpose of providing social facilities to local residents and so was not “established for charitable purposes only” within the definition of “charity” in Schedule 6 to the Finance Act 2010.
The Upper Tribunal (UT) dismissed the appellant’s appeal, holding that: (i) the deeming provision in section 6 of the 2011 Act applied so that, as a CASC, the appellant was not established for charitable purposes and could not be a charity within Schedule 6; and (ii) the principle of fiscal neutrality did not apply to differential VAT treatment of construction supplies because a body that was a charity was not objectively the same as a body that was not a charity: [2019] UKUT 286 (TCC); [2019] PLSCS 196. The appellant appealed.
Held: The appeal was dismissed.
(1) Paragraph 1(1) of Schedule 6 to the 2010 Act provided that for a body to qualify as a charity for tax purposes it had to fulfil four conditions: the charitable purpose condition, the jurisdiction condition, the registration condition and the management condition. That definition of a tax charity was both new and distinct from the definition of “charity” for general purposes in the Charities Act 2011. However, with some exceptions, there was nothing in the new definition in Schedule 6 to indicate an intention to depart significantly from the 2011 Act definition of “charity”.
In order to meet the charitable purpose condition in paragraph 1(1)(a) of Schedule 6, the body concerned had to be established “for charitable purposes only”, which had the meaning given in section 2 of the 2011 Act. The absence of any reference to section 6 of the 2011 Act in Schedule 6 to the 2010 Act did not mean that that provision did not apply to Schedule 6 tax charities. Section 6 of the 2011 Act, which was in force before Schedule 6 was enacted, stood as a statement of the general law of England and Wales for all purposes, unless and until expressly disapplied. In the absence of any such disapplication, a CASC could not be a charity. That was consistent with the broader legislative context, history and purpose of the Acts.
There was nothing in the wording of Schedule 6 that disapplied, or in any way limited, the effect of section 6 of the 2011 Act. It applied without limitation and for all purposes. Furthermore, the secondary legislation that brought the new definition in Schedule 6 into effect provided that, for supplies made on or after 1 April 2012, the definition of “charity” in section 1(1) of the 2011 Act ceased to apply for the purposes of enactments relating to VAT to which it would otherwise apply. Accordingly, the definition of “charity” in paragraph 1 of Schedule 6 applied for the purposes of those enactments. There was nothing in the clear and unambiguous language of Schedule 6, or in the explanatory notes and memorandum, to indicate that parliament intended a return to a position where a club could be both a CASC and a charity at the same time. Accordingly, as paragraph 1 of Schedule 6 defined a charity for the purposes of VAT as a body established for charitable purposes only, in the absence of any provision capable of disapplying section 6 of the 2011 Act, that provision operated to deem a CASC as not being established for charitable purposes and therefore not a charity.
(2) The principle of equal treatment required that similar situations were not to be treated differently unless such difference was objectively justified. The principle of fiscal neutrality by contrast, precluded treating similar goods and supplies of services which were in competition with each other, differently for VAT purposes; but the similar nature of the two supplies entailed the consequence that they were in competition with each other so that it was not necessary to demonstrate the actual existence of competition or the existence of distortion of competition in order to show a breach of that principle.
The 2010 Act and the 2011 Act together reflected a domestic social policy choice made by parliament to treat a CASC and a charity as separate and different entities, governed by different regulatory regimes and eligible for different tax treatment. Although there were similarities between the appellant and the comparator charity put forward by the appellant, in terms of their purposes and activities, what was material for VAT purposes was the regulatory regime under which the two clubs had chosen to operate. The comparator had chosen to submit to the regulatory regime governing charities with the greater burden that imposed. The appellant by contrast had chosen to operate within the CASC regime. The two clubs were materially different since their relevant circumstances were neither similar, nor the same. In any event, the difference between the two clubs was a substantive difference. The two regimes were different, both in terms of the burdens and reliefs available, and the difference in treatment between the two clubs was objectively justified by the different regimes they had chosen to operate within.
John Brinsmead-Stockham (instructed by Hogan Lovells International LLP) appeared for the appellant; Howard Watkinson (instructed by the General Counsel and Solicitor to HM Revenue and Customs) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a transcript of Eynsham Cricket Club v Commissioners of HM Revenue and Customs
