Not for profit sports clubs hit by VAT enquiry
In early 2014 HM Revenue and Customs (HMRC) devoted considerable resources to reviewing publicly available records on funding received by not-for-profit sports clubs. This included (but was not limited to) football, rugby and cricket clubs. Following this review, HMRC sent standard letters to clubs which had constructed buildings and annexes. This letter instructed the sports club to provide information and a sample of invoices relating to the building project. The purpose of this exercise was to check whether zero-rated ‘relevant charitable purpose’ (RCP) certificates had, in HMRC’s opinion, been issued correctly.
Following this exercise HMRC issued a number of VAT assessments and penalties to sports clubs which had, in it’s view, incorrectly issued zero-rated certificates.
Charity’s ‘zero rating’ decision challenged
Caithness Rugby Football Club (CRFC) is a registered charity. It constructed a new clubhouse on land which it leased from the Highland Council. CRFC appealed HMRC’s decision that the construction services did not qualify for VAT zero-rating. CRFC argued that the clubhouse was intended to be used for a relevant charitable purpose ‘as a village hall or similarly in providing social or recreational facilities for a local community’ and therefore the construction services were zero-rated.
HMRC argued that the clubhouse was not used as ‘a village hall or similarly’ as it was not owned, organised and administered by the local community in the sense of providing equitable access and participation. Only full members of CRFC can be elected to the executive committee that is responsible for managing the clubhouse, CRFC owns the lease and can deny access as it chooses.
The First Tier Tribunal considered the following points relevant to whether the use of the clubhouse was as ‘a village hall or similarly’:
- CRFC is a charity recorded on the Charity Commission register.
- Even if the clubhouse was used solely for rugby playing it would still satisfy the ‘social or recreational facilities’ requirement (a sporting facility is a recreational facility). On the evidence submitted, the clubhouse is in fact used for a variety of other sporting, recreational and social activities.
- Minor usage of facilities by persons outside the local community will not prevent the ‘local community’ requirement from being satisfied.
- The Tribunal did not consider it decisive that the clubhouse is managed by one of the groups that use it. In the case of Jubilee Hall Recreation Centre Ltd the Court of Appeal rejected the suggestion that a village hall must be ‘owned, organised and administered by the local community’.
The Tribunal took into account that the needs of all users were accommodated. In practice, bookings once made by others are honored, even where they conflict with subsequent needs of CRFC. 90% of the usage of the clubhouse is by clubs or groups other than CRFC; therefore, the Tribunal’s view was that it could not be said the majority of activities at the clubhouse are organised by CRFC or use by other groups is secondary or ancillary.
On the basis of its considerations (including, but not limited to, those outlined above), the Tribunal found that the facilities are used, and were at the time of construction intended to be used, as a ‘village hall or similarly’. Therefore, the zero-rate did apply to the construction services supplied in the course of construction of the clubhouse. The appeal was allowed.
More test cases to follow
This decision by the First Tier Tribunal is only binding on the parties involved and does not necessarily set a wider precedent, but, we hope this is an indication of the direction the Courts will take going forward. Each case will depend on its own particular combination of circumstances. We understand that HMRC has other cases it is seeking to have heard at Tribunal as further ‘test’ cases. Some organisations which are not recorded on the charity register as a Community Amateur Sports Club (CASC) or as a Community Interest Company (CIC) may not have charitable status agreed with HMRC.
Quick reflexes required
This case also illustrates the pressures (time, financial and other resources) placed on voluntary
organisations in these situations. This appeal arose out of decisions dated 17 December 2013 and April 2014 given by HMRC in response to a letter dated July 2013. This case was heard on 25 June 2015 and the decision released to the parties on 5 August 2015. If you are intending to appeal VAT assessments and/or penalties be aware that strict time limits apply.
If your sports club is planning to undertake a project or has received a decision from HMRC that construction services received do not qualify for zero-rating, please contact Elizabeth Irvine for help and advice.