Indirect tax

Indirect tax updates


Welcome to this week’s ITU.

Who would have thought that the construction of a new cricket pavilion would generate so much interest? Readers of last week’s ITU will recall that the Upper Tribunal heard an appeal by Westow Cricket Club on the question of whether the club had a reasonable excuse for issuing an incorrect zero-rating certificate. This week, we report on the unanimous judgment of the Court of Appeal in another cricket pavilion case. This time the club concerned was Eynsham Cricket Club and the issue was whether, as a Community Amateur Sports Club, it qualified as a ‘charity’ for VAT purposes such that the construction of the new pavilion qualified for VAT zero-rating.

The Upper Tribunal has also issued a judgment in another charity case. The Lilias Graham Trust is a charity which, in return for a fee, provides a residential assessment centre where it assesses the parenting capacity of people referred to it by a local authority. The question in this appeal was whether the provision of accommodation was or was not ancillary to the principal supply of welfare services.

Finally, we look at the Supreme Court’s judgment in the case of Uber BV and Ors v Aslam & Ors. Whilst the case concerned workers’ rights, there is concern that the judgment may also have VAT consequences.

Eynsham Cricket Club v HMRC – Court of Appeal

Whether cricket pavilion qualified for zero-rating

The question in this case was whether the construction of a new cricket pavilion by Eynsham Cricket Club (Eynsham CC) qualified for zero-rating for VAT purposes. In general, a building will qualify for zero-rating if it is intended for use as a dwelling or, in other cases, if the building is intended for use for a relevant residential purpose (such as student accommodation etc) or intended for use for a relevant charitable purpose. It was in relation to this final category that Eynsham CC considered that the new cricket pavilion qualified for zero-rating.

Use for a relevant charitable purpose is defined in UK VAT law as “use by a charity otherwise than in the course or furtherance of a business” or, alternatively, “as a village hall or similarly in providing social or recreation facilities for a local community”. The key words in this definition are “use by a charity”. Eynsham CC is a Community Amateur Sports Club (or CASC) and the question that arose for determination by the Court of Appeal was whether the Upper Tribunal was wrong to conclude that, as a CASC, Eynsham CC did not qualify as a charity (with the consequence that the pavilion did not qualify for zero-rating).

The Upper Tribunal ruled, in its judgment issued in October 2019, that the First-tier Tax Tribunal had been correct to rule that the club was not a charity. It held that despite the club being established for charitable purposes only, section 6 of the Charity Act 2011 applied and had the effect that, as a CASC, the club was to be treated as not being established for charitable purposes.

The club considered that the Upper Tribunal had made an error of law on this point. However, the Court of Appeal has, unanimously, dismissed the club’s contentions. The court, in particular, noted that the statutory definition of charity provided by section 1 of the Charity Act 2006 (in force between 1 April 2008 and 13 March 2012) was of general application, and applied for all purposes, including tax and more particularly, VAT purposes. Between 6 April 2002 when the special regime for CASCs came into force, and 1 April 2009 when section 5 Charity Act 2006 came into force, it was possible for a local amateur sports club to be both a CASC and a registered charity. However, from 1 April 2009 section 5(4) Charity Act 2006 came into force. This was the predecessor of section 6 Charity Act 2011, and from then a club registered as a CASC was treated as not being established for a charitable purpose and so could no longer be a charity for any purpose of the law of England and Wales, including for VAT purposes.

The club also argued that denial of zero-rating in these circumstances breached the EU principles of equal treatment and/or fiscal neutrality. It argued that it was clearly established for charitable purposes but that it was prevented from obtaining zero-rating relief because of the statutory regime in the UK Charity Act. The Court of Appeal dismissed those arguments too. A charity choses to submit to the regulatory regime governing charities with the greater burden that imposes, and is accordingly entitled to the VAT relief in question. A CASC by contrast has chosen to operate within the CASC regime. That is a choice made for good administrative and tax reasons, but the consequence of choosing to operate within the CASC regime is that the VAT relief sought is not available. The two regimes are different, both in terms of the burdens and reliefs available, and the difference in treatment between the two types of club is objectively justified by the different regimes they have chosen to operate within.

Comment – the provisions of the Charity Act 2006 make it clear that a CASC does not qualify as a charity. As such, it is precluded from claiming VAT zero-rating for the construction of, in this case, the new cricket pavilion.

Lilias Graham Trust v HMRC – Upper Tribunal

Whether the provision of accommodation was ancillary

The appellant in this case is a charity which provides assessment services to a local authority in return for a fee. At the original hearing of the appeal, the Trust claimed that its services should be liable to VAT but the First-tier Tax Tribunal confirmed that the assessment services provided by the Trust to the local authority were exempt from VAT on the basis that the services constituted welfare services (being directly connected to the care or protection of children).

The Trust did not appeal against that finding but, instead, appealed against the finding of the FTT that the provision of accommodation (to those being assessed) was ancillary to the main supply of welfare services. That finding meant that the supply of accommodation also qualified for VAT exemption.

The Upper Tribunal has issued its judgment and has agreed with the FTT’s conclusions. Using the ordinary meaning of the word ‘ancillary’ in a VAT context, (ie a means of better enjoyment of the principal supply of welfare services) can only lead to the conclusion that the FTT did not make any error of law. On the evidence before it, it was clear that the provision of the accommodation was ancillary to the supply of welfare services and, as such, it should take on the same VAT liability as the principal supply. The appeal was, therefore dismissed.

Comment - the question of whether an element of a supply is ancillary or otherwise derives from a famous VAT case (Card Protection Plan or CPP). The Trust tried to argue that the supply of accommodation was not ancillary to the exempt supply of welfare services and was, thus, taxable at the standard rate. A finding that the supply of accommodation was ancillary (and was itself, therefore, exempt from VAT) meant that the Trust could not reclaim a significant amount of input VAT it had incurred in relation to the accommodation.

Uber BV & Ors v Aslam & Ors – Supreme Court

Workers’ rights – VAT implications

Readers will be aware that, last week, the Supreme Court issued its judgment in the case of Uber BV & Ors v Aslam & Ors. This was not a tax case, but was a case concerning whether Uber drivers were to be regarded as ‘workers’ for such purposes as the national minimum wage, paid annual leave and other workers’ rights. The Supreme Court found that the drivers were workers.

The judgment in this case only concerns the status of drivers under the lens of employment law and it does not necessarily follow that, as a consequence, the income of the drivers should be regarded for VAT purposes as being proper to Uber. Whether or not a driver is acting as an independent contractor for employment law purposes has no bearing on his status for VAT purposes. This is an entirely separate and different issue and the outcome of the debate will centre around the contractual position of each case.

The Supreme Court has already ruled in a previous case (Secret Hotels) that, absent a sham, what matters is the contractual position and obligations of the parties. In cases where the contracts show that the driver is an independent contractor and there is evidence that the customer knows this and engages directly with the driver, the Supreme Court’s ruling in Secret Hotels suggests that it would be difficult for HMRC to overturn those arrangements. That does not mean to say that HMRC will not try but it does mean that the earlier judgment should afford some protection.

Comment - as the Supreme Court states in its opening paragraph of the Uber judgment, “New ways of working organised through digital platforms pose pressing questions about the employment status of the people who do the work involved”. Whilst the Uber case concerned employment rights of drivers, there is understandable alarm that the Court’s finding may ‘read across’ to VAT such that the income generated should be regarded as income of the platform provider. That is a huge leap to make. However, we understand that HMRC has already assessed Uber and it may now turn its attention to other similar platforms.