Court of Appeal judgment

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GRT100456
Summary
The issue in this case was whether a
charity was entitled to claim zero-
rating for the construction of a
building. The charity claimed that
the building was to be used for a
non-business purpose and that it
was, thus, entitled to zero-rating.
Both the First-tier Tax Tribunal and
the Upper Tribunal agreed with the
charity. In both appeals, the
Tribunals agreed that the activity of
the charity did not amount to an
'economic' activity in a VAT sense.
In a unanimous judgment, the Court
of Appeal has overturned the Upper
Tribunal's judgment and has allowed
HMRC's appeal. The jurisprudence
of the Court of Justice construed
correctly means that the activity of
the charity is an 'economic' activity
for VAT purposes.
05 September 2016
Court of Appeal
Longridge on the Thames is a charity which provides water-sport (kayaking, canoeing etc)
activities in return for a fee payable by those taking part. It constructed a new building
which it claimed should have qualified for VAT zero-rating on the basis that it was a
building which was intended to be used by it (ie as a charity) otherwise than in the course
or furtherance of a business activity.
By contrast, HMRC took the view that the activity undertaken by the charity (the provision
of water-sport activities in return for a fee) from that building was a business activity and
that, as a result, the construction did not qualify for zero-rating. The First-tier Tax Tribunal
(FTT) sided with the charity finding that the activity was not a business activity. The FTT
reached that view despite acknowledging that the activity was 'business-like'. It relied on the
fact that the fees set by the charity for the activities did not cover the cost of providing
them and that the supervision of the various activities was predominantly undertaken by a
corps of volunteers. HMRC appealed to the Upper Tribunal but it found nothing wrong in
the FTT's conclusions and dismissed HMRC's appeal.
HMRC appealed to the Court of Appeal. By a unanimous judgment (3-0), the Court of
Appeal has allowed HMRC's appeal confirming that, in its view, the concept of economic
activity includes the activities carried on by the charity in this case. The issues relied upon
by the FTT (such as the prices charged and the provision of a corps of volunteers) were
irrelevant factors. Economic activity must be assessed objectively without regard to the
purpose or result of the activity. In the circumstances, the charging of fees in return for the
supply of water-sport activities constituted an economic activity and both the FTT and
Upper Tribunals had misdirected themselves. HMRC's appeal was allowed and, as a
consequence, the construction of the new building did not qualify for zero-rating.
Comment – although the result of this appeal will be disappointing for the charity
in question, it is an important judgment. The concept of 'economic' activity is one
based on EU law. The test to determine whether an activity is 'economic' is
whether there is a direct link between the supply made (of goods or services) and
the remuneration received by the person making the supply. By this judgment, it
would seem that it is now irrelevant that any consideration for a supply is below
market value or is to be regarded as some form of concession.
Court of Appeal sinks Longridge on
Thames!
Case Alert
Contact
Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683
Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556