St Andrew’s College, Bradfield
This Upper Tribunal case demonstrates the importance of getting the structure right. Full case here
Overview
Exemption exists for an eligible body making certain supplies of sporting services.
Background
St Andrew’s College is a boarding school and a registered charity. It is the representative member of a VAT group which also included two subsidiary companies. The companies provided facilities for playing sport and the group intended to treat these as exempt supplies. HMRC challenged the intended treatment on the basis that the subsidiaries did not qualify as eligible bodies via VAT Act 1994, Schedule 9, Group 10 (exemption related to sport, sports competitions and physical education). It was agreed that all of the other criteria were met, so the case turned on the definition of an eligible body. It was common ground that the College, as an educational charity, was itself an eligible body. Even though, as the representative member of the VAT group, the College was treated as making all supplies actually made by the subsidiaries, that did not mean that the supplies were exempt.
Decision
In order to be regarded as an eligible body the subsidiaries were required to be a non-profit making body. What was relevant here was whether the subsidiaries (themselves) had specific restrictions on their ability to distribute any profit that they made. The UT formed the view that there was no specific restriction and that although profits were only covenanted up to the College this was insufficient to meet the test in Group 10 Note (2A). It was also found that the deeds of covenant did not, of themselves, establish that the subsidiaries could make distributions only to non-profit making bodies.
Consequently, the subsidiaries failed to qualify for exemption and that the First Tier Tribunal correctly found that output tax was due on the income from provision of sporting facilities.
Commentary
This case highlights the importance of putting in place a correct structure and to ensure that it reflects the intention of the supplier. One may see that in this scenario it would have been relatively simple to arrange matters to accurately reflect the aims of the group. Care would have been required in drafting documentation etc as matters stood, or rearranging the supply chain.
It should also be noted that there are specific anti-avoidance provisions in place for certain suppliers of sporting services (although not in issue here). Advice should be taken at an early stage in planning to ensure that if exemption is desired, that it is achieved if possible.