Caithness Rugby Football Club v Revenue & Customs (VAT - ZERO-RATING : Building work) [2015] UKFTT 378 (TC)
FTT-Tax
Caithness Rugby Football Club v Revenue & Customs (VAT - ZERO-RATING : Building work)
[2015] UKFTT 378 (TC) · 2015-06-25
[29]Whether the facilities provided by the Centre are provided for the benefit of a local community … is … certainly not clearly established. The children, who are the primary object of the Centre’s activities are in small part drawn from those nearby and pupils from the schools on the same site, but the greater part come from the previous area and some from other parts of Colchester. 42. Thus, the decision in that case appeared to turn on the conclusion that the body of persons who used the facilities in question came from too broad a geographic area to be characterised as a local community. 43. In Jubilee Hall Recreation Centre Ltd v Customs and Excise Commissioners [1999] STC 381, the Tribunal found that two different buildings each failed to fall within the wording of Paragraph 6. 44. In that case, Sir John Vinelott (with whom the other members of the Court of Appeal agreed) considered that Paragraph 6(b) applies to “the case where a local community is the final consumer in respect of the supply of the services … in the sense that the local community is the user of the services … and in which the only economic activity is one in which they participate directly”. He considered that it is insufficient simply that members of the local community benefit in some way, for instance in a case where the building is let out for a profit to persons outside the local community and the profits are applied for the benefit of the local community (at 389-390). 45. Sir John Vinelott was critical of the submission by counsel for the Revenue in that case that the words apply only to “something which is owned, organised and administered by the community”. He considered that this formulation “adds a gloss to the words used which may be too restrictive”. He considered that the words were “intended to cover economic activities which are an ordinary incident of the use of a building by a local community for social, including recreational, purposes” (at 390). 46. Sir John Vinelott also suggested (but did not decide) that social or recreational facilities could not be said to be provided to a “local community” if the users of the facility are drawn from too broad an area. (He suggested that a “neighbourhood” in London comprising W1, SW1, WC1 and EC4 would not qualify as a “local community”). (At 390.) He also suggested that facilities might not be said to be provided to a “local community” if they were provided not merely to those who lived locally, but also to “the daily influx on working days into an area of the people to staff its offices and shops and to attend its colleges” (at 391). 47. Sir John Vinelott further concluded that the wording did not apply to a sports centre constructed primarily for use as one of the facilities of a fee-paying school, with secondary use for community purposes. He considered that pupils at the school benefitted “not as members of the local community, but as pupils on whose behalf fees were paid to the school”, and that the sports facility was therefore not “intended for use solely for the purpose of ‘ providing social or recreational facilities for a local community ’”. (At 394). 48. Beldam LJ (with whom Thorpe LJ agreed) also said that the concept of the “village hall” was “intended to equate the activities with the kind of use ordinarily made of a village hall and thus to introduce considerations of scale and locality” (at 396). 49. In South Molton Swimming Pool Trustees v Commissioners of Customs and Excise [2000] (VAT decision 16495), a charitable trust had been formed to build a swimming pool in a town of some 11,000 inhabitants. A pool run by the district council had closed some years earlier, and the district council was unable or unwilling to build a new pool. The Tribunal found that the pool did not fall within the wording of Paragraph 6(b). 50. The Tribunal said at [32]: Although a village hall may be owned by trustees the activities which take place in it are normally organised by the community. In the present appeal all the activities are organised by the Trustees. Further, a village hall is usually available for letting to groups in the community for their own purposes; although that is also possible with the swimming pool such use is ancillary to the main use which is the provision of activities by the Trustees. In addition we find that the swimming pool was ‘a well-organised commercial operation’ and was run according to a business plan. … This scale of activity is not similar to the use of a village hall”. 51. The Tribunal also said at [39] that the words “local community” meant something on the scale of a village. It considered that the community using the swimming pool in this case extended to Barnstaple, some 23 miles away, which could not be characterised as a “local community”. 52. The Tribunal further expressed the view that Paragraph 6(b) does not require both “social” and “recreational” activities to be provided, and that one or the other would be sufficient (at [34]). The Tribunal considered it irrelevant that a swimming pool does not look like a village hall (at [41]-[43]). 53. In Sport In Desford v Customs and Excise [2005] UKVAT V18914 , the Tribunal found that the construction of a clubhouse on grounds containing various sporting facilities did fall within Paragraph 6(b). The Tribunal considered the issue to be one of fact, such that other cases were of limited precedential value (at [78] and [93]). However, the Tribunal did articulate the following legal principles:(1) The test of similarity to a village hall does not relate to the physical description of the building (at [104]).(2) Only “social or recreational” facilities need be provided (at [105]).(3) To be provided for a “local community”, the benefit must be to members of that community as such, in their capacity as such. The persons who are able to benefit must not be too narrow a section of that community. The persons who benefit must not inhabit or work in an area too large and populous to be sensibly described as a local community. In a rural area, there is no difficulty in regarding various parishes within a six mile radius as a local community. (At [105].) 54. The Tribunal concluded at [104]: It is not necessary for the activities to encompass the same mix of activities as one would expect to find in a village hall. The essence of the test of similarity is to distinguish between, on the one hand, community buildings where the supply in reality is to the community as such, and, on the other hand, buildings which are commercial operations. This is ultimately a question of fact. We find that the key factors point to the fact that the Clubhouse is a community building where the supply is really to the community as such, with a high degree of community and voluntary involvement in the running of the building, a desire to promote the use of the facilities by members of the community, a great emphasis on the needs of and benefits to the participants and not aimed at commercial profits . 55. The main considerations leading the Tribunal to its conclusion were: (1) A high degree of sporting use does not make the use dissimilar to the use of a village hall (at [98]). (2) Membership was not restricted to playing members of the various sports. Some 10 per cent of members were non-playing. There was a substantial club room available for non-sporting activities. (At [99].) (3) Some 95 per cent of the users lived within the radius of six miles from the clubhouse, and the management of the Clubhouse was carried out by residents of the village, and there was a substantial degree of involvement by the local community in the planning and construction (at [100]).(4) The degree of community involvement in running the building was high and the clubhouse was not run as a commercial venture and had never sought to make a profit from the provision of the facilities (at [101]).(5) The leases to the club were from the local council at peppercorn rents (at [102]).(6) The sporting facilities were provided at low cost, and there was a very high level of volunteer activity in the running and management of the club (at [103]).(7) Membership was open to all sections of the community (at [103]). 56. In Hanbury Charity v Revenue & Customs [2007] UKVAT V20126 , the Tribunal found that the construction by a charity of a community hall in a village did fall within Paragraph 6(b). HMRC advanced a number of arguments that Paragraph 6(b) did not apply, all of which were rejected by the Tribunal. 57. First, the Tribunal rejected an argument by HMRC that the actual use of the facility must be relevant to the charitable purpose of the charity providing the facilities (at [36]). The Tribunal considered that the charitable purpose of the charity was not material to the question whether, in fact, the requirements of Paragraph 6(b) were satisfied. 58. Second, the Tribunal rejected an argument by HMRC that Paragraph 6(b) was restricted to small scale charities that organise and administer a hall (at [37]-[38]). 59. Third, the Tribunal rejected an argument by HMRC based on EU law (at [39]-[42]). 60. Fourth, the Tribunal rejected an argument by HMRC that the charity itself did not intend to use the hall as a village hall (at [43]-[45]). 61. Fifth, the Tribunal rejected an argument by HMRC that as the Appellant retained ownership of the hall, it could terminate at any time the use of the hall by the local community (at [46]-[48]). 62. In Jeanfield Swifts Football Club v Revenue & Customs [2008] UKVAT V20689 , the Tribunal found that Paragraph 6(b) applied to the construction by a non-profit football club of a new pavilion on an area of ground leased from a local authority for the purposes of a football pitch. The club in that case let pitches out to other teams and allowed other various community associations to use the clubhouse from time to time. HMRC argued in that case that the building was there to provide football facilities, that the additional space for other members of the community was a secondary object, and that “A single issue football club was not a body which fell within the statutory definition”. The reasoning of the Tribunal was brief, but it had no hesitation in finding that Paragraph 6 applied, and indeed, the Tribunal expressed “surprise that this matter should ever have got as far as it has”. 63. In The New Deer Community Association v Revenue & Customs [2014] UKFTT 1028 (TC) , the question was whether Paragraph 6(b) applied to the construction of a new pavilion, new car park and pitch at a park. The grounds previously already contained a village hall with a small committee room, a large committee room, and kitchen facilities used for coffee mornings, meetings and clubs (at [24]). The new pavilion comprised changing rooms with adjoining shower areas, referee rooms with showers, an entrance and foyer area, toilets, a meeting and kitchen room that could seat 6-8 people, and adjacent storage/garage areas to which there was no internal access (at [23]). The Tribunal in that case ultimately found that only the meeting and kitchen room in the new pavilion, comprising some 4.4% of the surface area of the new pavilion, fell within Paragraph 6, and that the remainder fell to be taxed at the standard rate (at [174]). 64. In terms of applicable legal principles, the Tribunal in that case (at [141]) considered that there were four questions to be addressed, namely: (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? (4) Was the use similar to the use of a village hall? 65. The Tribunal in New Deer answered the first question affirmatively in relation to the whole of the new facilities (at [142]-[143]). The fact that the facilities were provided mainly for sporting activities was not material, as was confirmed by HMRC guidance. The facilities were available for the whole community and a wide variety of clubs other than football clubs had expressed interest in using them. 66. The Tribunal in New Deer answered the second question affirmatively in part in relation to the whole of the new facilities (at [144]-[147]). Bookings were on a first come first serve basis, but the football club alone was responsible for cleaning and maintenance. The Tribunal in that case considered that in the case of use like a village hall, each user would be responsible for cleaning and the community as a whole would be responsible for maintenance. 67. The Tribunal in New Deer considered the third and fourth questions together (see [148]). The Tribunal in that case appeared to consider that the answer to these questions was one of fact, and that previous cases could be distinguished on the facts (at [158]). It considered that although there is no architectural test as such, architecture cannot be ignored as the design of a building may dictate the kinds of uses to which it can reasonably be put (at [161]). The Tribunal in that case also appeared to consider that in order for these questions to be answered affirmatively, it was necessary that the facilities be capable of multiple uses (at [162], [164], [169]). The Tribunal in that case also considered that it was relevant that there was in that case already a previously existing village hall which more closely served the functions of a village hall (at [166]). The Tribunal in that case dismissed the appeal in relation to parts of the new pavilion other than the meeting and kitchen room, apparently on the basis that the other parts were not suitable for any purpose other than their designed purpose of changing room, storage area and showers (at [167]). 68. The Tribunal was advised that New Deer is subject to a pending appeal. The Tribunal’s findings 69. One of the requirements of Paragraph 6 is that there must be use by “a charity” of the building in question. It is uncontentious that the Appellant is a charity. 70. The Appellant does not rely on sub-paragraph (a) of Paragraph 6, so that the only issue is whether Paragraph 6(b) is satisfied. Paragraph 6(b), read together with Item 2 in Group 5 of Schedule 8 VATA, requires that the building be “intended for use solely … as a village hall or similarly in providing social or recreational facilities for a local community”. 71. The words “intended for use” refer to the intention at the time of construction of the building. 72. Much of the evidence in the case concerns the use to which the building has been put since it was constructed. HMRC contend that the actual use of a building following its construction may not necessarily be the use that was intended at the time of construction. The Tribunal accepts that this is so. However, the subsequent use of a building may nevertheless be a factor to be considered when determining the intention at the time of construction. In particular, where a building has been used in a certain way from the time it was built, this may lead to a strong inference that this was the intended use at the time of construction, absent evidence pointing to the contrary. 73. HMRC contend that in this case there is evidence to the contrary, namely the Appellant’s applications for funding for the project. HMRC argue that these documents are contemporaneous evidence of the intention at the time of construction, and therefore the best evidence of that intention. HMRC also argue, and the Tribunal accepts, that the fact that the person who prepared these documents did not give evidence at the hearing should not prejudice HMRC or alter the fact that the Appellant bears the burden of proof. The Tribunal has given due weight to the contents of the funding applications, but still needs to consider these together with all of the other evidence in the case. 74. The Tribunal found Mr Stephen to be a credible witness and in general accepts his evidence. According to him, some 90% of the usage of the hall is by clubs or groups other than the Appellant club. A document has been put in evidence showing details of usage by other clubs. Mr Stephen acknowledged that the extent of use by non-sporting clubs was not foreseen, but he said that it was always intended that the clubhouse would be available for use by other clubs. That general intention is in fact supported by the funding applications (paragraphs 28 and 29 above), and appears consistent with the club’s constitution (paragraph 27 above). Mr Stephen’s evidence was that as early as January 2014, the clubhouse was being advertised as a “community venture” available for use by “any groups or individuals” (see paragraph 16 above). 75. When any building is constructed with an intended use of “village hall or similar”, it will often be impossible to know in advance exactly which groups will use it to what extent, especially over the long term future. At the time of construction there will commonly be no more than a general intention that the building will be available for use by unspecified groups in the community who may wish to use it. 76. The funding applications give percentage figures for envisaged use of the clubhouse by different users and for different purposes. HMRC argue that according to these figures, at the time of construction intended usage by groups other than the Appellant was minimal. However, on its consideration of the evidence as a whole, the Tribunal is satisfied that the funding applications do not demonstrate an intention at the time of construction to limit the use of the clubhouse by other groups, or to reserve the principal usage of the clubhouse to the Appellant’s own activities. The Tribunal is satisfied on the evidence as a whole that the actual usage of the clubhouse following its construction is consistent with what was intended at the time of construction, even if the actual amount of usage by other groups was not foreseeable in all its detail and may have significantly exceeded expectations. 77. The question is whether this intended use meets all of the requirements of Paragraph 6(b). This is ultimately a question of fact. Although previously decided cases may be of some assistance in identifying general approaches that have been taken in applying Paragraph 6(b), the decision in each case will depend on its own particular combination of circumstances. The burden of proof is on the Appellant to establish, on a balance of probability, that each of the separate requirements of Paragraph 6(b) is satisfied. 78. One requirement of Paragraph 6(b) is that the building must be used in providing “social or recreational facilities”. To meet this requirement, it is sufficient that either “social” or “recreational” facilities are provided. A sporting facility is a “recreational” facility. Thus, even if the clubhouse were used for nothing other than rugby playing, it would still satisfy the definition of “social or recreational facilities”. However, on the evidence, the clubhouse is in fact also used for a wide variety of other sporting, recreational and social activities. 79. A second requirement of Paragraph 6(b) is that the facilities must be provided to a “local community”. The Tribunal accepts that where facilities are provided to people over too large an area, it will not be possible to say that they are provided to a “local community”. However, in a rural area the geographic size of a “local community” may be significantly larger than in an urban area. In a very remote and sparsely populated area, it may be larger still. The evidence of Mr Stephen was that although the membership of the Appellant club itself is spread across the whole of Caithness, when other users of the clubhouse are taken into account, approximately 85% of the usage of the clubhouse is by residents of Thurso or the immediate surrounding area. His evidence was that some rugby teams travel long distance to use the clubhouse facilities, but presumably in some cases this would be in order to play against a team local to Thurso. The extent to which the clubhouse is used for matches between two teams, both of which have travelled from afar to play against each other in Thurso, was not explored in the evidence. In any event, the Tribunal also considers that minor usage of facilities by persons from outside the local community will not of itself prevent the “local community” requirement from being satisfied. 80. Having regard to the geography of Caithness and the circumstances as a whole, the Tribunal is satisfied that the facilities in this case are provided to a “local community”. 81. The remaining requirement of Paragraph 6(b) is that the facilities must be used as a “village hall or similarly”. This is a separate requirement that must be met in addition to the two discussed above. In determining whether it is met, the Tribunal has taken into account in particular the following considerations. (1) The clubhouse is used by a significant number of diverse community groups. The clubhouse is advertised as a “community venture” available for use by “any groups or individuals” (see paragraphs 16 and 74 above). (2) The clubhouse was constructed by and is managed by a members’ club on a non-commercial basis. The clubhouse is let out to other groups for modest rates, on the basis that users are responsible for their own cleaning. (3) At the time of construction, the town hall in Thurso had recently ceased to be available for use as such, and the Appellant’s clubhouse has played a role in filling that gap (compare paragraph 67 above). (4) The clubhouse is located on council-owned land, which has been rented to the Appellant club for a peppercorn rent, on the basis that this will save the council the cost of maintaining the grounds, while ensuring that the grounds continue to be available for the Highland Games, charity, gala and other events unconnected to the Appellant club. Thus, even before the clubhouse was constructed, the Appellant club played a role in maintaining the publicly owned land on which the clubhouse is located for community use. (5) A sporting pavilion or clubhouse is capable of being used as a “ village hall or similarly ” (see paragraphs 53 and 62 above). (6) The Tribunal does not consider it decisive that the clubhouse is managed by one of the groups that use it, or that only members of the Appellant club can be elected to its executive committee, which is ultimately responsible for management of the clubhouse. HMRC argue that a “village hall” must be “at the direction of the local community”, whereas in this case the Appellant club can as it chooses grant or deny others access to the clubhouse. However, the Court of Appeal has rejected the suggestion that a “village hall” must be “owned, organised and administered by the local community” (see paragraph 45 above). Any charity managing a “village hall”-type building will normally have the legal right to admit or exclude others, but that is not determinative. (7) However, the Tribunal takes into account that the Appellant club also uses the clubhouse for its own activities, and that its own needs were the motivation for building the clubhouse in the first place. Furthermore, the Appellant club gives priority to its own needs, in that bookings are made for rugby matches as soon as the fixtures for a season are published and others cannot book the clubhouse for those times. The Tribunal does consider this to be a material consideration weighing against the characterisation of the clubhouse as a “village hall or similar”. However, this needs to be weighed together with all other considerations. The Tribunal takes into account that the needs of all users have been accommodated in practice. The Tribunal also takes into account that in practice bookings once made by others are honoured, even where they conflict with subsequent needs of the Appellant club.(8) Given that 90% of the usage of the hall is by clubs or groups other than the Appellant club , it cannot be said that the majority of activities at the clubhouse are organised by the Appellant club itself (compare paragraph 50 above), or that use by groups other than the Appellant are merely secondary or ancillary (compare paragraphs 47 and 50 above). The direct users of the clubhouse are people (individuals and groups) from the local community.(9) HMRC argue that the Appellant does not pay itself for its own use of the clubhouse, but charges others, with the consequence that the others are financially supporting the Appellant rather than vice versa . The Tribunal does not accept that argument. The Appellant club is not making a commercial profit from letting out the clubhouse. The Appellant club itself is ultimately financially responsible for all of the expenses of operating the clubhouse, and paid a significant part of the costs of construction. Those costs are defrayed to a degree by the amounts paid by others. There is no evidence that the others contribute an amount that is disproportionate to their use of the facility. Members of the Appellant club when letting the clubhouse for private purposes get no preferential rate.(10) HMRC submit that the clubhouse has been let to a commercial company for an event. This may be a reference to the evidence that an Institute of Engineers used the clubhouse on one occasion when a local hotel was not available, and is interested in using the hall again. Presumably this was for a business event, rather than for a social or recreational event, although the evidence is not clear about this. The document listing individuals and groups who have used the hall also indicates that on a few occasions a plumbing supplier has held “trade nights” at the clubhouse. The Tribunal considers that any village hall may on occasion be let to a commercial or professional entity for an event. This fact of itself does not alter its character.(11) The Tribunal does not consider that there is any basis for reaching a different conclusion in relation to the changing room areas of the clubhouse. The Tribunal rejects the HMRC argument that changing rooms cannot be considered part of a “recreational facility”. Furthermore, these are inherently capable of use by sporting clubs other than the Appellant club, for any kind of sport. The evidence is that one changing room is also used by a non-sporting group, and that one changing room is used mainly for storage. The fact that some parts of a village hall are hardly used, or even not used at all, would not of itself mean that they must be treated as not part of the village hall for purposes of Paragraph 6(b). 82. On the basis of the considerations above, the Tribunal finds that the facilities are used, and were at the time of construction intended to be used, as a “village hall or similarly”. 83. The Tribunal therefore finds that all of the requirements of Paragraph 6(b) are satisfied in this case. Conclusion 84. For the reasons above, this appeal is allowed. 85. 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. DR CHRISTOPHER STAKER TRIBUNAL JUDGE RELEASE DATE: 05 AUGUST 2015