“(1) Where a taxable person supplies goods or services and supply is zero-rated, then, whether or not VAT would be chargeable on the supply apart from this section – (a) no VAT shall be charged on the supply; but 8 (b) it shall in all other respects be treated as taxable supply; and accordingly the rate at which VAT is treated as charged on the supply shall be nil. (2) A supply of goods or services is zero-rated by virtue of this subsection if the goods or services are of a description for the time being specified in Schedule 8 or the supply is of a description for the time being so specified.”
“In this context the plain purpose of sub-para (b) was my judgment to extend the relief in sub-para (a) to the case where a local community is the final consumer in respect of the supply of the services, including the reconstruction of a building, in the sense that the local community is a user of the services (through a body of trustees or a management committee acting on its behalf) and in which the only economic activity is one in which they participate directly; the obvious examples are the bring-and-buy or jumble sale, the performance of a play by local players and the like. On a strict construction any economic activity carried on by someone outside the local community even to raise money for the maintenance of a village hall (by, for example, letting the village hall under commercial rate) would be outside sub-para (b). Similarly, hospital which provides free medical care and which carries on the business of selling flowers and books to visitors is outside sub-para (a). Mr Kent explained that the Commissioners exercise a reasonable administrative discretion and disregards 11 such incidental use if it is modest in its scope.” (Emphasis added)
“Be that as it may, the real question is whether, having regard to the scale of the commercial activities carried on at the Jubilee Hall to subsidise and promote the charitable objects, it can properly be said that the works were carried out to a building to be used solely for a relevant charitable purpose; in this context use by the centre solely in providing social or recreational facilities for a local community in a similar way to the use made of a village hall. The introduction of the concept of the village hall seems to me to have been intended to eq uate the activities with the kind of use ordinarily made of a village hall and thus to introduce considerations of scale and locality. For my part I think the scale of Jubilee Hall’s commercial activities went well beyond the normal activities of a village hall, though from time to time village halls are used to raise money by commercial activities. Further, the beneficiaries of the zero rate are clearly not solely those who benefit from the charitable purposes.” [32] Note 6 has been considered by the Upper Tribunal and High Court in a number of cases including Commissioner of Customs and Excise v Yarburgh Children’s Trust[2002] STC 207 , New Deer Community Association v HMRC[2015] UKUT 604 (TCC) and HMRC v Caithness Rugby Football Club[2016] UKUT 354 (TCC) . Ms Barnes, counsel for HMRC, submitted that the legal principles which can be derived from these cases and with which I agree, are as follows: (a) Member States are only entitled to apply zero-rating where it is “for the benefit of the final consumer” or where the supply is “sufficiently close to the consumer to be of advantage to him” (Article 17 of the Directive and EC Commission v UK at [17]. (b) For the purposes of Article 17, the final consumer is the person who uses exempted services for personal use as opposed to in the course of an economic activity (EC Commission v UK at [17]). (c) Note 6(a) exempts supplies which benefit the ‘final consumer’ because it only relates to buildings intended solely for use otherwise and in the course or furtherance of a business. (d) Note 6(b) which preserves zero-rating for village halls or other buildings used for a similar purpose was ‘needed because the operation of such buildings might be thought to constitute or involve some form of business or economic activity’, see Yarburgh Children’s Trust at [38]. 12 (e) The purpose of Note 6(b) was therefore to extend the relief in Note 6(a) 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’ (see Jubilee Hall at page 390). (f) For the purposes of Note 6(b) the issue is whether the intended use of a building is similar to use of a building as a village hall, rather than whether the building itself is similar to a village hall (see New Deer at [27]). (g) It is not enough that the building be intended for use solely to provide social or recreational facilities to a local community. The intended use of the building must be similar to the type of social or recreational activities that one would expect to be conducted in a village hall for the benefit of the local community (see New Deer at [18]). (h) In determining whether the economic activity is consistent with that undertaking within village halls, the scale of the activity is a relevant feature (see Jubilee Hall at page 396). (i) The absence of control over the building by the local community does not necessarily mean that the building was not intended to be used in a manner similar to a village hall. It is a relevant factor but not a decisive factor (see Caithness Rugby at [34]. GROUND 1 [33] HMRC challenged the decision of the FTT on the basis of an error of law because of the failure on the part of the FTT to give adequate reasons for its finding that the intended use of the clubhouse was use by a charity “as a village hall or similarly …”. [34] In HMRC v SDM European Transport Limited[2013] UKUT 0251 (TTC) the Upper Tribunal stated at paragraph 73: “Rule 35 of theTribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 requires the FTT to give full written findings and reasons in any decision upon which an application for permission to appeal may be based. The failure to give such reasons may therefore be an error of law. The failure to give reasons may thus be an error on a point of law which was involved in the making of the decision. Indeed, failure to give reasons or adequate reasons for findings in material matters was one of the items noted in paragraph 9 of the judgment of Brooke LJ in R (Iran) v Home Secretary[2005] EWCA Civ 982 in relation to similar rights of appeal from the Immigration Tribunal, as an error of law.”
“Where permission is granted to appeal on the grounds that the judgment does not contain adequate reasons, the appellate court should first review the judgment, in the context of the material evidence and submissions at the trial, in order to determine whether, when all of these are considered, it is apparent why the judge reached the decision that he did. If satisfied that the reason is apparent and that it is a valid basis for the judgment, the appeal will be dismissed.” [37] In that case at paragraph 19 the Court of Appeal made it clear that the judgment at first instance should enable the Appellate Court to understand why the judge reached his decision. Lord Phillips MR said: “This does not mean that every factor which weighed with the judge in his appraisal of the evidence has to be identified and explained. But the issues the resolution of which were vital to the judge’s conclusion should be identified and the manner in which he resolved them explained. It is not possible to provide a template for this process. It need not involve a lengthy judgment. It does require the judge to identify and record those matters which were critical to his decision. If the critical issue 14 was one of fact, it may be enough to say that one witness was preferred to another because the one manifestly had a clearer recollection of the material facts or the other gave answers which demonstrated that his recollection could not be relied upon.” [38] Of course, this Tribunal should be cautious in concluding that the FTT misdirected itself. In R (Jones) v First-tier Tribunal (Social Entitlement Chamber)[2013] 2 AC 48 at para [25], Lord Hope said: “The appellate court should not assume too readily that the Tribunal misdirected itself just because every step in its reasoning is not fully set out in it.” [39] Finally, the Upper Tribunal in Synective Ltd v HMRC[2017] UKUT 99 (TCC) at para [21] offered advice as to the proper approach to be adopted by an appellate court or Tribunal, namely “to review the judgment in the context of the material evidence and submissions at the hearing in order to determine whether, when all these are considered, it is apparent why the Lower Tribunal reached the decision that it did.”
“Sub-paragraph (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, purposes. The village hall is the model or paradigm of that case.” [42] Modest incidental use of the facility by other than members of the local community may be acceptable. However, it is no answer to say that it was used by members of the local community because the clubhouse was being used by members of GFC who were from that community. This is because the important issue is the capacity in which they were they using the facilities. If they were using the facilities as GFC members, junior members, affiliated members, associate members, playing members, its supporters, its parents etc (hereinafter called “GFC users”), then they were not doing so as members of the local community (see Jubilee Hall at 394(f). [43] In HMRC v Caithness Rugby Football Club[2016] UKUT 354 (TCC) Lord Doherty said at paragraph 28: “In my opinion the judgments in Jubilee Hall support the proposition that the existence or non-existence of direction or control over the use of a building is a relevant circumstance, but not necessarily a decisive one (Sir John Vinelott at p. 390b; Beldam LJ at p. 397c; Thorpe LJ at p. 394j). It is one of several factors which may be pertinent. The judgments - particularly that of Beldam LJ - also suggest that in determining whether the requirements of note 6(b) are satisfied an important focus will be the intended uses of the building at the time goods or services were supplied; and that examination of actual uses which have ensued may often provide assistance in identifying the uses of the building which were intended at the time of the supply.” [44] In the judgment of the FTT there is no finding about how the use of the building is split between the local community and GFC. It is obviously used by the local community in all sorts of ways and these are set out in the judgment. It is also used by GFC users. But there is no attempt to assess: (a) What was the intended use by the local community of the clubhouse? (b) What was the intended use of the clubhouse by the GFC users? (c) What has been the actual use of the clubhouse by the local community? (d) What has been the actual use of the clubhouse by the GFC users? [45] Although the FTT records that both the local community and GFC use the clubhouse, it makes no attempt to try and quantify or analyze the nature of their respective uses. I do note that in a letter dated7 November 2014 to HMRC which appears to have been written by Mr Munn, who the FTT found so credible, he says in respect of the clubhouse that ; 16 “We estimate the facilities will be used by the football teams at most 20% of the available time, mostly on a Saturday, and not exclusively at any one time”
“In Caithness Lord Doherty sitting in the Upper Tribunal dismissed HMRC’s suggestion and interpretation of Note 6(b) that there had to be local community direction or control of the use of the building. The First-tier Tribunal had found that the intended use of their building was “use as a village hall or similarly”
“On a proper construction of the provision (Note 6(b)) it does not require that a local community has direction over, or control of, the use of the building within which the relevant facilities are provided. In any particular case the existence or absence of direction or control will be a relevant factor, but not necessarily a decisive one. In my opinion the use of a building may be intended to be at the disposal of a local community even though the community is not the body directing or controlling its use.” [51] This does not mean that the FTT can ignore who controls the clubhouse. Rather, it remains a factor which the FTT should have taken into account, and which it would appear it did not, in assessing whether or not the intended use of the clubhouse was similar to that of a village hall. I would have expected a decision with adequate reasons to say what weight, if any, was given to this evidence about the management committee by the FTT in reaching its decision. [52] Finally, the conclusion of the FTT that it is “satisfied that the GFC uses the clubhouse in a manner similar to a village hall as the local community makes extensive use of the facilities” is not the test. It is the intended use that is important although as Beldam LJ said in Jubilee Hall actual use can shine light on this issue. The Tribunal must go on to consider the intended and actual use GFC makes of the clubhouse and whether that use is consistent with a use similar to that of a village hall. In this case there has been an apparent failure on the part of the FTT to analyse either the intended or actual use of the clubhouse and whether its intended use or actual use was similar to that of a village hall . [53] I am satisfied that the FTT has not offered adequate reasons to explain its conclusion that the requirements of Note 6(b) are met and that GFC was correct to consider the works to be zero rated and to issue a zero rated certificate to the builder. 18 GROUND 2 [54] It is uncontroversial that zero rating for the construction of a building in general, and a clubhouse in particular, can be achieved if the construction of the building is intended for use solely for a “relevant charitable purpose”
“(6) Use for a relevant charitable purpose means use by a charity in either or both the following ways, namely: (a) otherwise and in the course or furtherance of business; (b) as a village hall or similarly in providing social or recreational facilities for a local community.” [55] Both parties are agreed that zero rating applies: (i) for use by a charity otherwise in the course of or furtherance of a business; and (ii) use as a village hall or similarly in providing social or recreational facilities for a local community. [56] In this case the FTT found that GFC, a charity, was using “the clubhouse otherwise than in the course of a business”
“48. The Tribunal finds that GFC is not operating a business at the clubhouse. Actual income from the members is in the low hundreds of pounds. The income from the junior members and from the hire of facilities is required to meet the costs of running the clubhouse, purchasing equipment, paying for the hire of the other three pitches used for training and other associated expenditure. Mr Munn keeps the GFC’s records in his own home where he considers them to be safer. Only emergency contact details are kept at the clubhouse.” [57] No one has been able to divine what relevance to any issue in this case is the fact that Mr Munn, the Secretary kept GFC’s records in his own home or that emergency contact details are kept at the clubhouse. [58] But more importantly, nowhere in the decision does the FTT explain why it has seen fit to ignore the deeming provision of Section 94(2) of the Act which states at sub-section (2): “(2) Without prejudice the generality of anything else in this Act, the following are deemed to be the carrying on of business – (a) the provision by a club, association or organisation (for a subscription or other consideration) the facilities or advantages available to its members.” 19 [59] There is no dispute that in this case the club does provide facilities for a subscription from members who are over 18 or for a consideration to junior, associate or affiliated members. This provision appears to be entirely overlooked by the FTT. [60] The FTT does not appear to have applied its mind to what actually constitutes a business. The Act defines a business as including “any trade, profession or vocation”
“(i) where the activity is a serious undertaking earnestly pursued; or a serious occupation not necessarily confined to a commercial or profit making undertaking; (ii) whether the activity is an occupation or function actively pursued with reasonable or recognisable continuity; (iii) whether the activity is a certain measure of substance as measured by the quarterly or annual value of taxable supplies made; (iv) whether the activity was conducted in a regular manner and on sound and recognised business principles; (v) whether the activity is predominantly concerned with the making of taxable supplies to consumers for a consideration; (vi) whether the taxable supplies are of a kind which, subject to differences of detail, are commonly made by those who seek to profit from them.” (See Revenue Law, Principles and Practice (22nd Edition) at 32.28. [62] These indicia were approved by the House of Lords in Institute of Chartered Accountants in England and Wales v Customs and Excise Commissioners[1999] STC 398 and in particular at page 404 in the speech of Lord Slynn of Hadley. It is also important to note the comments of Patten J in Customs and Excise Commissioners v Yarburgh Children’s Trust[2002] STC 207 at para [21]. [63] Mr Brown on behalf of GFC said the issue of whether or not this was a business was a question of fact. He is right, but the issue of what comprises a business is a question of law. If the FTT do not ask itself the right question, it is never going to obtain the right answer. This may explain why in the judgment there is no detailed discussion of: 20 (a) The substantial income in respect of dues from junior members for use of the clubhouse and for defraying other expenses. (b) The After School’s Club which generates£10,000 per annum, that is approximately£200 per week and presumably represents a rent or licence fee. (c) A tuck shop selling goods which realise an income of£4,000 per annum. [64] The conclusion that GFC is not operating a business is not one that in the light of Section 94(2)(a) that the FTT properly instructed as to the relevant law could have reached. Indeed, it is difficult to understand how the FTT could have reached a conclusion that this was not a business even in the absence of the deeming provision. But no serious attempt was made by the FTT to define what was a business under the Act and whether or not what was taking place at the clubhouse constituted a business. I am satisfied that the FTT erred in law in concluding that GFC is not operating a business at the clubhouse or did not intend to operate a business at the clubhouse. GROUND 3 [65] HMRC submit that the FTT erred in law in concluding that GFC had a reasonable excuse because the decision of the FTT was irrational/Wednesbury unreasonable and no adequate reason has been provided for that conclusion. [66] The FTT concluded in the alternative that GFC had a reasonable excuse for incorrectly issuing the certificate if they were wrong on the issue of whether or not GFC was entitled to issue a zero rated certificate. [67] It is important to appreciate that FTT did give reasons for the conclusion they reached. They believed Mr Munn. He was in their view a “totally credible witness”