Tag Archives: Court-of-Appeal

A CASC is not a charity for VAT – The Eynsham Cricket Club case

By   2 March 2021
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In the Court of Appeal (CoA) case of Eynsham Cricket Club (ECC) the issue is whether a Community Amateur Sport Club (CASC) is able to take advantage of VAT reliefs in the same way as a charity.

Background

The question was whether supplies of construction services of building a new cricket pavilion for a CASC qualify for zero-rating via The VAT Act 1994, Schedule 8. Group 5, item 2 (a) “The supply in the course of the construction of a building designed as a dwelling or number of dwellings or intended for use solely for a relevant residential purpose or a relevant charitable purpose…”Emphasis added.

The outcome depended on whether ECC was a charity. That in turn depends on whether:

  • ECC was “established for charitable purposes only” pursuant to Schedule 6 to the Finance Act 2010
  • Section 6 of the Charities Act 2011 applied and had the effect of preventing ECC from being treated as “established for charitable purposes”
  • ECC satisfied the other conditions, and in particular, the “registration condition”

Decision

It was determined that CASCs cannot be treated as charities for VAT purposes as the above criteria were not met. Therefore, the construction of ECC’s new pavilion did not qualify for zero-rating and was standard rated. It was noted that becoming a CASC meant that certain charitable benefits were forgone in return for relief for certain administrative and management chores.

Commentary

It appears that ECC had the opportunity to register as a charity, but apparently, unlike a near neighbour cricket club, decided not to.

“Charity” is not defined in VAT legislation, so this case is a reminder that it should not be assumed that every entity which may have charitable objectives, or generally exist in order to benefit a section of the community qualifies as a charity for the tax.

VAT – Zipvit Court of Appeal decision

By   18 July 2018
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The Zipvit Court of Appeal (CA) case here

Background

A full background of this long running case may be found here

In summary: It was previously decided that certain supplies made by Royal Mail (RM) to its customers were taxable. This was on the basis of the TNT CJEU case. RM had treated them as exempt. HMRC was out of time to collect output tax, but claims made by recipients of RM’s services made retrospective claims. These claims were predicated on the basis that the amount paid to RM included VAT at the appropriate rate (it was embedded in the charge) and that UK VAT legislation stipulates that the “taxable amount” for any supply, is the amount paid by the customer including any VAT included in the price. HMRC maintained that the absence of a VAT invoice showing that VAT was charged to Zipvit by RM, and giving details of the rate of tax and the amount charged, was fatal to Zipvit’s claim to recover input tax.

The decisions in the First Tier Tribunal (FTT) and the Upper Tribunal (UT) went against Zipvit so the appeal went to the CA.

Decision

The CA upheld the decisions in the previous courts. The appellant failed to demonstrate that the relevant VAT had been “due or paid” on the supplies received from RM. It further appeared that evidence which was not present at earlier hearings showed that the amounts paid were exclusive of VAT which meant that VAT was not embedded in the consideration paid.

Importance

In the words of the judge Lord Justice Henderson the appeal raised some important questions of principle in the law of VAT. They arise when supplies of goods or services, which were wrongly assumed by the parties to the relevant transactions and by HMR to be exempt from VAT at the time of supply, are later discovered to have been subject to the standard rate of tax when they were made, following a decision to that effect by the Court of Justice of the European Union. Where the recipient of those goods or services was itself a registered trader which made taxable supplies on which it accounted for output tax, the basic question is whether, once the true position has become known, the recipient is in principle entitled to recover as an input tax credit the tax element of the consideration which it paid for the original supplies. If so, does it make any difference if the supplier has failed to pay the tax which should have been paid on the original supplies, and if the recipient is in consequence unable to produce a tax invoice from the supplier showing the amount of the input tax which it seeks to recover?

So a fundamental tenet of VAT was considered, as well as the matter of this being the lead case behind which many others were stood. I understand that the quantum of claims submitted is circa £1 billion in total so there was a lot riding on this decision.

Commentary

In my view, this is an important case for the above technical reasons and the whole decision bears reading in order to understand some of the intricacies of a business claiming input tax.







Beyblades – a Customs Duty case

By   17 July 2018
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In the Court of Appeal (CA) case of Hasbro European Trading BV (Hasbro) the issue was whether Customs Duty (CD) was due on the import of Beyblades. If they fall within the definition of a toy CD is payable at 4.7%. However, if they are more accurately classified as a game they are treated as duty free – so a significant difference in import cost dependent on what, superficially, appears to be a somewhat question of semantics.

Beyblades 

For the purposes of the case, it is important to understand what a Beyblade is and how it is used.

Beyblade is the brand name for a line of spinning tops originally developed and manufactured by Tomy in Japan. The main novelty is that they are a series of items which are customisable, with interchangeable parts. A Beyblade is set in motion by means of a rip-cord powered launcher.

A “game” is played with two players. Each player is allowed  a number of Beyblades to choose from during a match. Players may use any parts available to them to make their Beyblades), but may not switch parts once a match has started. The first player to reach seven points wins. Points are awarded to the player based on how their Beyblade knocks out the opponent’s

  • One point is awarded if the opponent’s Beyblade stops spinning
  • One point is awarded if the opponent’s Beyblade is knocked out of the stadium or into a pocket on the edge of the ring
  • Two points are awarded if the opponent’s Beyblade breaks during a game

The Arguments

The case concerned the classification of Beyblades’. The appellant, Hasbro contended that Beyblades are correctly classified as “articles for … table or parlour games” under heading 9504 of the Combined Nomenclature. In contrast, HMRC maintained that Beyblades should be classified as “other toys” under heading 9503,  The First-tier Tribunal FTT and the Upper Tribunal (U’) both previously agreed with HMRC’s analysis.

Classification

There are “explanatory notes” to the Harmonised System (HSENNs). The CA ruled that the classification rule which prefers the most specific description does not apply at the level of the HSENs: they are an important guide to interpretation, but do not have force of law.

The Decision

The CA allowed the appeal and went against the decisions in the FTT and UT. The judge concluded that “In the circumstances, it seems to me to fall to us to decide which of the alternative headings provides the more specific description. In my view, it is heading 9504. As I see it, “articles for … parlour games” encompasses a more limited range of goods than “toys” and “more clearly identifies Beyblades”, particularly since, as I say, “articles for … parlour games” reflects the fact that Beyblades are meant to be used in games…”. The fact that Beyblades are used in a competitive scenario seems to have swung the decision which knocked out HMRC. Consequently, there was no CD payable as they fell to be duty free.

Commentary

It does beg the question; why did this issue need to get to the CA for the appellant to finally win (but of course, this isn’t the first case which has raised that question). Perseverance was clearly the key word here. If you are convinced that HMRC is wrong on ay matter, it really does pay to challenge any ruling.







VAT: Wakefield College – Court of Appeal case

By   1 June 2018
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Further to my article on the Wakefield College case here the Court of Appeal (CA) has dismissed the college’s appeal that certain of its activities were non-business.

Background 

The detailed background was set out in the above linked article, but to recap: In order for certain building works supplied to the appellant to be zero rated the resultant building has to be used for a “relevant charitable purpose” – that is; not for business purposes. This is the case even if there is a small amount of business activity in the building (as long as these can be shown to be insignificant; which is taken to be less than 5% of the activities in the whole building).

The issue

The issue here was whether the education provided by the college could be deemed non-business because, although the majority was grant funded, students were also required to make a contribution to their education. This is dependent upon whether the provision of courses by the college to students paying subsidised fees was, an economic activity carried on by it for the purposes of article 9 of the VAT Directive and consequently, a “business” within Note (6)  of Group 5 in Schedule 8 to the VAT Act 1994.

The 1994 Act provides, at group 5 of schedule 8, for the zero-rating of various supplies made in the course of construction of certain buildings including:

“The supply in the course of construction of

(a) a building … intended solely for use for … a relevant charitable purpose…

of any services related to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity”.

Note (6) to group 5 provides:

“Use for a relevant charitable purpose means use by a charity… –

(a) otherwise than in the course or furtherance of a business.”

Decision

The CA found that the fact that the students paid for education (an exempt supply) meant that it was a business activity as consideration flowed in both directions. The proportion of the costs paid by the student amounted to between 25% and 30% of the total cost and could therefore not be deemed insignificant.

Commentary

It is worth reconsidering comments made by the judge in his summing up in the Upper Tribunal hearing.

 “We cannot leave this appeal without expressing some disquiet that it should have reached us at all. It is common ground that the College is a charity, and that the bulk of its income is derived from public funds. Because that public funding does not cover all of its costs it is compelled to seek income from other sources; but its doing so does not alter the fact that it remains a charity providing education for young people. If, by careful management or good fortune, it can earn its further income in one way rather than another, or can keep the extent of the income earned in particular ways below an arbitrary threshold, it can escape a tax burden on the construction of a building intended for its charitable purpose, but if it is unable to do so, even to a trivial extent, it is compelled to suffer not some but all of that tax burden. We think it unlikely that Parliament intended such a capricious system. We consider it unlikely, too, that Parliament would consider it a sensible use of public money for the parties to litigate this dispute twice before the FTT and now twice before this tribunal. We do not blame the parties; the College is obliged to maximise the resources available to it for the pursuit of its charitable activities, just as HMRC are obliged to collect tax which is due. Rather, we think the legislation should be reconsidered. It cannot be impossible to relieve 16 charities of an unintended tax burden while at the same time protecting commercial organisations from unfair competition and preventing abuse”.

So, although the result may be seen as “unfair” on the college, the strict letter of the VAT legislation does not provide the courts with any alternative but to impose a VAT charge on the construction works – a charge which the college will have to bear as it is unable to recover it as input tax due to the partial exemption rules.

This illustrates the complexity with both the concept of business/non-business and property and construction issues. When the two technical areas collide, as in this case, matters can get very complicated and proper advice is vital. This is especially important with charities as they benefit from very few VAT reliefs and it is important to ensure that those available are correctly taken advantage of.