Indirect Tax Update for week ending 21 August 2015

1. © 2015 Grant Thornton UK LLP. All rights reserved.
ITU
Summary
The Court of Justice continues
its summer vacation and the UK
Courts are also very quiet too.
However, despite the summer
holidays, the First-tier Tribunal
has issued a flurry of decisions
some of which are of interest.
In Caithness Rugby Club, the
issue was whether the
construction of a clubhouse
could be zero-rated as a 'village
hall or similar'.
In Royal Liverpool Golf Club
(Hoylake), the question to resolve
was whether the club could lodge
an appeal out of time (4 years
late).
Finally, in Copthorne Holdings
Ltd, the issue was whether
HMRC had acted reasonably
when it refused to add two
companies to the Copthorne
VAT Group.
26 August 2015
First-tier Tribunal
The issue in this case is a familiar one. Can the construction of a building qualify for
VAT zero-rating as a relevant charitable building? The taxpayer in this case was
Caithness Rugby Football Club – a charitable member's club. The building in question
was a sports clubhouse and the main issue to be decided was whether or not the
clubhouse was intended to be used as a 'village hall' or similarly providing social or
recreational facilities for the local community. HMRC considered that, in the
circumstances, the building was not intended for such use and gave a ruling that the
construction of the building did not qualify for zero-rating.
HMRC had argued that, what matters, in these cases, is the intention of use at the time
of constructing the building. The documentary evidence in this case did not indicate
such an intention of use (for a broader community use a village hall) at the time that
the funding applications were made. According to HMRC, such wider use by the
community was something that was not envisaged at that time but was something that
materialised after the construction had been completed. Moreover, HMRC argued that
to be used as a village hall, it was necessary for the building to be, in some sense, at the
disposal of the local community and its used governed and controlled by the
community rather than, as here, by an independent Rugby club.
The Club argued that the clubhouse was never intended to be used solely by the Rugby
club and that there was always an intention that others from the local community
would use the clubhouse. The fact that it was the predominant user did not preclude
the use by others as being 'use as a village hall or similar'.
The Tribunal has ruled in favour of the Rugby Club. In its decision, the Tribunal
accepted HMRC's contention that whilst the intention of use should be that at the time
of construction, subsequent use can lead to a strong inference that such use was
intended all along (absent any evidence to the contrary). In the circumstances and
based on the evidence presented to it, the Tribunal considered that the intended use of
the building at the time it was constructed was a qualifying use and, as a result, the
construction of it should have been zero-rated.
Comment – a good result for the Rugby club. It is not known yet whether HMRC will
seek leave to appeal.
Issue25/2015
Nice Try! – Rugby club gets zero-rating
for its clubhouse
Indirect Tax Update

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GRT100456
First-tier Tribunal
Hoylake's 'green-fees' appeal out of time!
As many other golf clubs have done, Royal Liverpool Golf Club (a.k.a. Hoylake) submitted a claim to
HMRC for overpaid VAT on its green fee income. That claim was rejected by HMRC in April 2009
and, on the basis that the golf club disagreed with that rejection, under Tribunal regulations, Hoylake
had 30 days to lodge an appeal. Unfortunately, no such appeal was made and, having realised this, the
golf club sought to submit its appeal some four years late.
Not surprisingly, HMRC objected to the appeal and made an application to the First-tier Tribunal for
the appeal to be 'struck out'. It did not accept that the claim rejection letter had not been received by
the golf club but, even if it that was the case, the club was, nevertheless, aware that the claim had
been rejected as a result of correspondence between the parties in October 2010. Despite this, the
club had raised no further questions about progress of its claim.
In the circumstances, the Tribunal was satisfied that the club must have received the claim rejection
letter. The time limits for lodging appeals are intended to provide finality and equality of treatment
between taxpayers. In this case, the reason that the club had missed the appeal deadline was due to its
own failure to properly pursue its claim. Striking out the appeal closes off the club's opportunity to
make its claim for a VAT refund but the Tribunal considered that it was not in the interest of justice
to allow the appeal to proceed.
Comment
Missing deadlines can
be very costly as
demonstrated here.
Given the prestigious
'Open Championship'
venue, one can only
speculate as to the size
of the potential green
fee claim that will not
now be paid.
A lesson for all
taxpayers and advisors!
Only in exceptional
circumstances will a
Tribunal allow an
application to submit a
late appeal.
First-tier Tribunal
Comment
Of course, HMRC can
argue that the mistakes
made were down to the
incompetence of the
taxpayer's accounting
system and VAT
controls. However, the
group is a fully taxable
house builder and, as
such, HMRC's refusal
to include the two
companies in the VAT
group effectively
created a £2million
penalty that would not
otherwise exist.
It will be interesting to
see if HMRC changes
its view in this case.
VAT Groups and HMRC's discretion
In the case of Copthorne Holdings Ltd, the question to be resolved was whether HMRC's refusal to
retrospectively include two companies in the Copthorne VAT group was reasonably made.
The problem here was that, due to various reasons such as staff turnover and lack of organisation,
certain transactions in land were dealt with as if the two subsidiary companies were current members
of the Copthorne VAT Group. As such, the transactions were ignored. It transpired that neither
subsidiary had been included in the VAT group and, as a consequence, VAT in the region of £2
Million had been incorrectly accounted for. One way of resolving this problem was for both
companies to have been retrospectively included in the VAT group. However, HMRC refused to do
so.
This was the second time that the Tribunal had heard the arguments in this case. The first time, the
judge referred the matter back to HMRC for it to reconsider its decision. Whilst the HMRC policy
relating to retrospective inclusion of companies in VAT groups changed as a result, the Tribunal was
still not satisfied that HMRC's discretion had been exercised correctly. In the end, reluctant as it was
to continue to play 'ping pong' with HMRC, the Tribunal decided to refer the matter back and ask
HMRC to give further consideration to its policy. Whilst HMRC's arguments are technically correct,
it nevertheless has discretion to allow retrospective inclusion of the two companies and it should
consider the European principles of neutrality and proportionality when doing so.
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
Andrea Sofield London & South East andrea.sofield@uk.gt.com (0)20 7728 3311