Charity – New building – Construction works – Appellant charity claiming zero-rating for supplies in course of construction of building – Whether appellant intending to use building solely for relevant charitable purpose – Whether charity intending use otherwise than in course of or furtherance of business – Whether business use de minimis – Appeal allowed – Case remitted to First-tier Tribunal for reconsideration
The appellant was a charity which provided education for more than 10,000 students. It offered a range of full-time and part-time courses, including apprenticeships, for students aged 14 or over. More than 80% of its income was in the form of grants from funding councils and less than 10% was in the form of tuition fees paid by students or their employers. About 11% of students qualified for a reduced grant and they or their employers were expected to pay a proportion of the fees for their courses. A dispute arose whether the provision of education to the reduced grant students constituted a business for VAT purposes.
HMRC ruled that the construction of the new building by the appellant did not qualify for zero-rating for VAT purposes under the Value Added Tax Act 1994, Schedule 8, Group 5, item 2 as “the supply in the course of construction of (a) a building … intended for use solely for … a relevant charitable purpose”, “a relevant charitable purpose” being defined by Note (6) as “use by a charity … otherwise than in the course or furtherance of a business”.
The appellant appealed, arguing that the building was being used otherwise than in the course or furtherance of a business and that in providing further education the appellant was acting as a public body and so was not a taxable person for VAT purposes at all. The First-tier Tribunal dismissed the appeal ([2011] UKFTT 70 (TC); [2011] TC 00948). The appellant appealed contending that the term “solely” in Schedule 8, Group 5, item 2 could accommodate a de minimis margin of 5% business use and the tribunal had failed to determine whether the extent of business use of the building was de minimis or not.
Held: The appeal was allowed. Case remitted for reconsideration.
The First-tier Tribunal had not been referred to Business Brief 39/09 (issued on 1 July 2009) which indicated HMRC’s view to the effect that the term “solely” in Schedule 8, Group 5, item 2 could accommodate a de minimis margin of 5% business use. It had wrongly proceeded on the basis that the appeal had to be dismissed if the building was put to any business use at all, however small, whereas it should have gone on to decide whether the extent of the business use was de minimis or not. It had erred in law and the case had to be remitted to decide that issue.
The better view was that the tribunal had addressed but failed to decide whether the provision of education to the disputed group of students was a business for VAT purposes. Given that the matter had to be remitted on the de minimis issue, the tribunal would be able to make clear what its decision was on that point in the light of such further argument as it deemed appropriate.
Kevin Prosser QC (instructed by Deloitte LLP) appeared for the appellant; James Puzey (instructed by the solicitor to HM Revenue and Customs) appeared for the respondents.
Eileen O’Grady, barrister
