The Upper Tribunal has dismissed the college's appeal on whether two subsidiaries were 'eligible' bodies for VAT purposes

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GRT100456
Summary
The taxpayer appealed from the
First-tier Tax Tribunal's (FTT) 2015
decision that two subsidiary
companies were not 'eligible bodies'
within the meaning of UK VAT
law.
The FTT had decided that as both
companies' articles and
memorandum of associations did
not expressly prevent a distribution
of profits to other than another
'non-profit organisation', neither
company could be regarded as an
eligible body for VAT purposes.
The Upper Tribunal has confirmed
that view. To be an 'eligible body' a
company must clearly state in its
objects that it cannot distribute
profits other than to another eligible
body.
08 November 2016
Upper Tribunal
The issue in this case was whether sports services provided by two subsidiary companies of
St Andrews College Bradfield should have been exempt from VAT. UK VAT law allows
exemption in circumstances where the supplier is an 'eligible body' and the question to
resolve was whether the companies had acquired that status.
During the period covered by the appeal, the two companies were wholly owned
subsidiaries of the college which was itself an eligible body. An eligible body is defined in
the UK VAT law as a non-profit making body which is precluded from distributing any
profit it makes, or is allowed to distribute any such profits by means only of a distribution
to a non-profit making body. The appellants contended that under the group structure it
had established, any profits were covenanted to the college which was a non-profit making
body and that, as a result, its supplies of sporting services should qualify for exemption
from VAT.
The FTT dismissed the initial appeal. It considered that the question of whether a body is a
non-profit making body can only be decided by reference to the aims, objectives and
constitution of the body. In this case, the Tribunal found that the articles and
memorandum of association were silent on the point and, as such, there was no restriction
in place in relation to the distribution of the subsidiaries profits. Consequently, neither
subsidiary were eligible bodies for the purposes of the VAT exemption for sports services.
The Upper Tribunal has dismissed the appellant's appeal from the FTT. On the basis of
the facts found and on the evidence available, the FTT committed no error of law. During
the period under review, neither subsidiary was precluded from distributing its profits
Comment – It is clear from this case that it is not sufficient simply to establish a
structure where any profits of the subsidiary are simply covenanted to the parent
body. To obtain eligible body status, the court considers that it is necessary to have
express terms in the memorandum and articles of association or other
constitutional document which precludes the distribution of profits save to another
non-profit making body.
St Andrew's College Bradfield v HMRC
Case Alert
Contact
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Vinny.mccullagh@uk.gt.com (0)20 7383 5100