The New Deer Community Association v Revenue & Customs [2014] UKFTT 1028 (TC)
[84]In the Jubilee Hall Recreation Centre Limited case, Jubilee Hall was a charity which ran a sports and fitness centre in Covent Garden, London. It included a state-of-the-art gym, a hall, café, studios, changing rooms, sauna, showers and sunbeds. Numerous classes, such as yoga, aerobics and acrobatics were run. Treatments such as osteopathy, massage, shiatsu, treatment of sports injuries and reflexology were available. The centre sold a very large range of health products and a range of clothing. The centre was run on a commercial basis by full time paid staff and directors. It was held that the use of the centre was not similar to the use of a village hall. The Court of Appeal held that the purpose of the exemption was to extend relief to cases where the local community was the final consumer in respect of the supply of services, in the sense that the local community is the user of the services (through a body of trustees or a management committee acting on its behalf). The Court of Appeal upheld the decision of the original tribunal in that case (and overturned that of Lightman J. in the High Court). The tribunal had held that whereas the relief was available for village halls which provided some economic activity, particularly that in which the community participated directly, the relief did not extend to something run predominantly as a commercial venture.[85]Sir John Vinelott on p389 of the Decision concluded "subparagraph (b) is intended to cover economic activities which are an ordinary incident of the use of a building by a local community for social, including recreational, instances. The village hall is the model or paradigm of that case". He further concluded on p389 "I feel considerable doubt whether the persons for whom the facilities are said to be primarily intended, namely the community of Covent Garden and its neighbourhood can aptly be described as a local community. The neighbourhood, if taken by the centre, is including W1, SW1, WC1 and EC4 … The charity counts amongst the local community students attending places of education as distinct and disparate as the St Martin's School of Art, Kings College London, the London School of Economics and the Inns of Court School of Law.(b) "
[86]In the associated case of St Dunstan's Educational Foundation , the Court of Appeal considered the case of the Foundation which had built a sports hall, incorporating an existing swimming pool. It was to be used principally by a local fee paying school. It was also to be hired out to organised groups recommended by the local authority. The Court of Appeal found against the Foundation on the grounds that one could not treat pupils at the fee paying school as part of the local community. Sir John Vinelott concluded at p394 "the sports centre was constructed primarily for use as one of the facilities of a fee paying school. Use for community purposes, at the direction of the Council, was secondary. Insofar as the pupils at the school benefited from that facility, they did so, not as members of the local community, but as pupils on whose behalf fees were paid to the school. The sports centre could not therefore be said to have been intended for use solely for the purpose of ‘providing social or recreational facilities for a local community’."[87]The case of Ormiston Charitable Trust concerned a sports centre built by the Ormiston Charitable Trust to provide sports and out-of-school activities for children and their families. The Ormiston Charitable Trust was the operational arm of the Ormiston Trust, which described itself as East Anglia's own children and families' charity. It had a network of facilities for families in East Anglia offering support through family centres, prison visitor centres, and an out-of-school community project which was the centre in question. The Appellant failed because the centre was not owned, organised and administered by the community. It was run by the Trust which carried out projects across several counties, therefore the requirement that the use must be similar to the use of a village hall was not satisfied. The tribunal also suggested that the requirement that the facilities must be provided for a local community might not be satisfied, as the aims of the Trust seemed to extend to catering for children from a large number of surrounding towns and villages.[88]The tribunal rejected the submission of the Commissioners that it was necessary for the building to carry on the same sorts of activities as would a village hall. It also rejected the submission of the Commissioners that the building should physically resemble a village hall. The chairman concluded "a mix of social and recreational activities of the kind commonly associated with a village hall is not essential and the relief extends to buildings, like the cricket pavilions and changing rooms mentioned in the Commissioners' leaflet, providing recreational facilities rather than social facilities".[89]In the Bennachie Leisure Centre case, the appeal concerned a leisure centre. It consisted of a main central area for badminton. In addition, there were changing rooms, a crèche and club room, an office, a kitchen, a tea room, craft shop, thrift shop, fitness room and equipment store. The kitchen, tea room and thrift shop was to be operated by another local charity with overlapping membership and any surplus ploughed back into the community. It was intended that staff would be employed and fitness equipment acquired and supervised. The various parishes from which the members were drawn were expected to be within a six mile radius. The appeal succeeded. It was held that the building was intended solely for use for both social and recreational facilities. It was also held that the community that would use it was a "local community". On the question of whether the use was similar to the use of a village hall, the tribunal held that it was a question of fact. The chairman suggested that the tribunal in the Ormiston case had been wrong in requiring the building to be owned by the community when the exemption clearly contemplated ownership by a charity. The chairman in the Bennachie case concluded "since, however, the explicit purpose of the building, its management committee and the association which is to run it is to provide facilities, social and recreational, for the stated wide, local membership, we have no hesitation in finding on the facts of this case that the appeal succeeds and that the building is entitled to zero-rating".[90]The chairman stated "… what qualifies as a local community in an urban setting may be very different from what would qualify as such in a rural setting. What is the appropriate provision of facilities for that community again may differ on the facts of each case".[91]The South Molton Swimming Pool Trustees case concerned the construction of a swimming pool. The pool building originally contained, as well as the pool, changing rooms, a first-aid room, and showers. A sauna was later added. At the entrance was a reception area and cafeteria. Sports clothes and sports goods were sold. In fact, the trustees derived 20 per cent of their income from the sale of sports clothes and sports goods. There were three full-time employees, a manager, deputy manager and assistant manager. There was one part-time employee, a swimming teacher. 30 volunteers acted as life guards and looked after the reception area. The Appellant did not succeed. First it was held that it was not used in a manner equivalent to a village hall. This was mainly because the activities taking place in the pool building were not organised by the community. They were all run by the Trustees. The purpose of the pool was the provision of activities by the Trustees and not letting to groups in the community for their own purposes as one might expect with a village hall. Further, the pool was a well organised commercial operation. The scale of supplies of sports clothes, sports goods and refreshments was not similar to the use of a village hall. Secondly, the pool was not provided for a local community. The community using the pool extended to those living 23 miles a way. That was not such a local community as would use the facilities of a village hall or something similar to a village hall. The tribunal recorded that it accepted two points made by the Trustees. First, the legislation only required the provision of social or recreational facilities. There did not have to be both. Secondly, it was irrelevant that the pool did not look like a village hall.[92]The Ledbury Amateur Dramatics Society case related to the construction of a new theatre. The chairman concluded that there was no requirement that the building and the activities should be identical to the building and the activities of a village hall. The chairman found that the Trustees did not come within the normal meaning of the final consumer, however, the supplies had by virtue of an agreement, to be for the benefit of the local community. The Trustees were not acting with a view to making a profit, they were acting in order to provide a benefit to the community. The chairman concluded "whilst the Trustees are not representing the interests of everyone in the local community, nonetheless, anyone in the local community was able to be a Trustee, just as anyone in a village might apply to be on the village hall committee. Mr Graham, on behalf of the Appellant quite properly accepted that there was a difference between the way in which the building was operated and the way in which a village hall would be operated, nonetheless he was able to point to a very large number of areas in which there was not just a similarity, but a close similarity. The tribunal does not consider that those areas where there are differences are fatal to this appeal. I accept the submission on behalf of the Appellant that the building in the present case and the way it is run is much closer to a village hall operation than in any of the cited cases where the court or tribunal has found against zero-rating, and accept the basis on which he distinguished those cases. In all the circumstances, this appeal is allowed.134. The reference in paragraph 133 to the Ormiston Charitable Trust case is to Ormiston Charitable Trust (VAT Tribunal decision No. 13187). The reference to the South Molton Swimming Pool Trustees case is to The South Molton Swimming Pool Trustees (VAT Tribunal decision No. 16495).135. Sport in Desford allowed zero rating VAT relief and the Tribunal found that “sporting activities fall within the definition of social or recreational activities” and went on to say that “a high degree of sporting usage did not make the use dissimilar to that of a village hall”.136. The clubhouse building in Sport in Desford comprised a clubhouse comprising a fitness room, squash court, two kitchens, a clubroom, a function room, a bar, a changing room, showers, store and a dance studio. The dance studio and clubrooms are also used for other community based recreational activities, including an old time dance club for senior citizens, a line dancing group, an old folks club, meetings of local political groups, bonfire night parties, jazz nights and quiz nights. The club also held dog shows and a village show.137. In this case, the area available for non sports or dance activities amounted to less than 25% of the total area of the club.138. There was an existing village hall in Desford which provided a single kitchen and room. It provided “very limited facilities and is used by table tennis players, for craft fairs and, possibly, by the Women’s Institute and, possibly, mothers and babies groups”.139. In the Jeanfield Swifts Football Club ( VAT Tribunal decision No. 20689 ) case, the appeal was allowed in respect of a new pavilion. This Tribunal had some difficulty in establishing the reason for the decision in relation to whether the construction was a “village hall or similar”, other than that the Tribunal chairman believed that the location in a city did not detract from the proposition that it could be similar to a village hall and his surprise that the matter had ever got as far as it had.140. The Tribunal was also referred to the Co-work Camphill Ltd ( VAT tribunal decision No. 17636 ) case which considered whether a Community Hall was a village Hall. The case was decided on its particular facts and this Tribunal derived little assistance from it. Decision141. The Tribunal considered that four tests were appropriate. 1) Were the facilities provided for the local community? 2) Was the facility owned, organised and administered by the local community, 3) Were social or recreational facilities provided or reasonably capable of being provided, and 4) Was the use similar to the use of a village hall?142. The Tribunal considered that the facilities were provided by NDC, which was a charity and that the local community were the final consumers. The facilities provided for the local community were mainly sporting activities but, nonetheless, social or recreational facilities.143. The Tribunal considered that the local community test was met as it did believe that any facility would meet a test of being available for the whole community. It was, on the evidence, to be used by school children, teenagers and adults and a wide variety of organisations other than football clubs expressed interest in using the facility. HMRC’s Notices 708, both May 2014, and August 2014, accept that “sports pavilions” can be seen “as similar to village halls” as long as the characteristics (specified in the Notice) are present.144. The facility was owned by NDC and administered by HY on behalf of NDC.145. In evidence, it was established HY kept the bookings on a first come, first served basis which the Tribunal accepted might mean a school could not use the facility during the day if another booking had been made even although the intent was to allow schools preferred use during school days. The Tribunal considered this to be logical at least on week days and during school terms when many others of the local community would be at work.146. The football club were then delegated to clean and maintain the facility which the Tribunal considered was indicative of the more realistic use and mirrored what was reasonably capable in terms of use of such a facility. It was the football club, not the hockey club, not anyone using it for a birthday party, or anyone playing pool, who was responsible for cleaning and maintaining the facility.147. Accordingly, this test was only met in part and indicated why use was not similar to use as a village hall where either each user would be responsible for cleaning and where maintenance would be met by the local community as a whole or more usually through a local community association.148. In relation to whether social or recreational facilities were provided, or reasonably capable of being provided given the requirement to specify future rather than actual use at the time of requesting zero rating, the Tribunal also took account whether use was similar to a village hall.149. There was no doubt that sporting facilities were more than reasonably capable of being supported by the facility although the Tribunal chairman in Bennachie Leisure indicated that if the building was in that case “to service the adjacent tennis court, it would be difficult to see how it would be afforded an exemption”.150. The Tribunal consider that this interpretation was too narrow, particularly in light of other First Tribunal cases which had been unchallenged by HMRC or taxpayers, and considered that other social or recreational uses would be ancillary. Undoubtedly, four people could play cards, seated at the table in the kitchen/committee room, if they choose to do, and they could meet there in limited numbers but the Tribunal did not consider it was conducive or reasonably practical that the changing rooms could be used for the purposes NDC described for the reasons put forward by HMRC.151. There was no evidence put to the Tribunal at the October hearing that pool/billiards or table tennis had been played in those rooms which had been completed some four to five months before and HY was able to provide little detail on what use the building had been put to by Brownies and Guides who were still meeting in the local school but who might use this building in conjunction with an all weather sports pitch.152. In Jubilee Hall , being the only Court of Appeal authority, Lord Justice Vinelott, indicated that “the words village hall or similarly must mean something more limited than simply the words benefitting the local community, as otherwise all meaning would be removed from the words”.153. In Ormiston , the Tribunal stated that “the use of the adverb similarly as here is both limiting or qualifying the scope of the provision and indicating that there is a model against which that whatever it is that is sought to bring within the provision is to be examined”. The Tribunal continued “It is not enough that by using the building the charity provides (say) recreational facilities and these are for the benefit of the community: something more is required unless the word similarly is to be deprived of all content”.154. In reviewing the cases where the appeal was successful, the Tribunal noted that the buildings, other than Jeanfield Swifts where no description was given, were clearly capable of multiple use even where they bore little resemblance to a traditional village hall, whereas in the present case the Tribunal had difficulty in accepting that multiple use was practical or feasible.155. The building in the Bennachie case was reasonably substantial and the fact that it bore little resemblance to a traditional highland village hall was deemed to be irrelevant.156. In the Ledbury Amateur Dramatics case, this concerned an area, the front area of which was designed to be suitable for as many uses as possible. These uses included rehearsals, meetings, coffee mornings, receptions, sales of work, a small performing space, a foyer and a variety of other rooms. Stacking chairs and simple square tables were stored.157. The chairman stated “a wide range of activities is carried on in the building in the present case although its primary purpose is for arts use or even used as a theatre, the building is designed so that it can be designed for many other purposes including inter alia dances and dinners and it is so used. The swimming pool in the South Molton has no such flexibility”. “There is no requirement that the building activities therein should be identical to the buildings and activities of a village hall. Nor is ‘similarly’ simply a term thrown in so that the buildings carrying on similar activities to a village hall; but, nonetheless, sited in a town, should be encompassed by the provision. However, there is clearly a requirement that either the nature of the building itself or the nature of the activities conducting in the building should bear some similarity to the building and to the activities carried on in the village hall”.158. The Tribunal considered that the previous decisions in relation to the words village hall or similarly in providing social or recreational facilities for a local community could be distinguished on the facts and considered that the use of the building was essential and a matter of fact to be determined on the evidence.159. The issue was what use was or will be and here the Tribunal looked at what use could reasonably be carried out within the facility, given its design and construction, that would take it into the description of use as a village hall, or similarly, in providing sporting or recreational activities for the local community.160. As was made clear during the hearing by NDC, an application for zero rating has to be made prior to the completion of the construction of the building with the consequence that it is the proposed use of the building that needs to be considered. NDC say this is one of the defects in the legislation as NDC have to prove the proposed uses before the building is actually used whereas HMRC can retrospectively review any zero rating to see whether it has been put to the proposed uses. NDC, understandably, state that this may conflict with their ability to obtain funding where grants may be awarded on restricted grounds which they cannot ignore even although those particular grounds may not be fully determinative of the final use of a building.161. Although the cases correctly state that the use should not be connected to an architectural test, it cannot be ignored in its entirety, as clearly how a building is designed dictates to a large extent its use and what uses are reasonably practicable in light of that design.162. In this particular case, the building was quite clearly built as a replacement sports pavilion, primarily to replace the changing room facilities but also to provide a useful store for sporting equipment which is why the storage area has only external access, with referee rooms with their own showers and sufficient changing rooms so that these would be available for two sets of teams and for male and female participants. The small committee room situated in the kitchen with the outdoor hatch could have multiple use but so too could any room.163. Other than a small committee room which could seat, possibly up to eight people, the other larger open space was the entrance and foyer which, in the original specification, it was said was designed to allow parents to watch their children playing football. The Tribunal could not accept that the entrance and foyer could be used as a space similar to a village hall. It has three doors opening on to it, two from WCs, and is also a passage way and access to the changing rooms and showers and referees’ rooms. The changing rooms themselves have open but not closed shower areas and the building itself has clearly very limited internal storage.164. Consequently, the Tribunal did not accept that the facility was used or could be used in a way that was similar to the use of a village hall as it did not believe the changing rooms were, as HMRC put it, conducive to being put to other uses, especially with open shower units within them.165. No evidence was given as to where tables and chairs or equipment could be held for other types of meetings and although the hall had been completed in May 2014, in October 2014, it was stated that HY still stored the pool table and table tennis table at her home.166. The fact that there was a reasonably substantial village hall already in existence was also significant. In Sport in Desford, where that appeal was successful in relation to a large clubhouse, including a dance studio, the existing village hall only comprised of a single room and kitchen. To a large extent, the exact opposite prevailed at New Deer where there was a traditional village hall with a different type or types of room that would normally be expected to be present.167. The Tribunal were persuaded by HMRC’s argument that the new facility was designed as changing rooms, a storage area and showers with all the necessary facilities to support the proposed phase 2 all weather centre and, on the evidence before the Tribunal, it appeared to fulfil that role particularly well.168. The Tribunal were of the view that when the issue of zero rating VAT relief was looked at more closely by NDC, there was a change in the emphasis of the proposed use.169. The Tribunal took the view that, as stated in the Ormiston case, that the inclusion of the words village hall must have some purpose and it would be extending the definition of “as a village hall or “similarly” to an unacceptable length to suggest that any room could be used for social or recreational activities in such a way. To use the words of Lord Justice Vinelott, “to do so, all meaning would be removed from the words”. The Tribunal agreed with the terms of HMRC’s revised Notice that to meet the legislation test a principal feature would be a large multipurpose hall where members of different households could meet to undertake shared activities. The NDC facility had no such hall or space capable of use as such. Such a hall did exist at New Deer and was within the existing village hall.170. The Tribunal considered the statement in the letter by Mr Edwards, Head of Charities at HMRC to Mr Salmond (paragraph 53 of this Judgement) where he suggested that part of the building might qualify to be zero rated but that the remainder would be standard rated.171. Similarly, HMRC Notice 708, May 2004 version, states “any part of the building which cannot be used for a variety of social or recreational activities cannot be seen as being used as village hall” (paragraph 61 of this Judgement).172. Note 2 of Group 5 of Schedule 8 should be read together with Note 10(b)(iii).173. The Tribunal consider that only the meeting room/kitchen was capable for use by the whole community for social or recreational facilities, such use being similar to a village hall.174. Accordingly relief is granted to the area represented by that room/kitchen which represents 4.4% or 12.92 square metres of a total of 295 square metres. The remainder of the building costs should, accordingly, be taxed at the standard rate. The appeal is allowed in part.175. The Tribunal in allowing the appeal in part considers NDC’s claim for an order for expenses in terms of Rule 10(1)(b) of the Tribunal Rules (S1 273/2009) on the grounds that HMRC have acted unreasonably in bringing and conducting the proceedings,. The Tribunal do not accept that HMRC acted unreasonably and, accordingly, no order is made.176. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. RUTHVEN GEMMELL TRIBUNAL JUDGE RELEASE DATE: 18 November 2014 Amended pursuant to Rule 37 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 on 14 November 2014.
Cited in 3 later judgments