[2009] UKFTT (TC)

TC00087

Appeal Number: Man/04/0224 
FIRST TIER TRIBUNAL TAX

VAT – ASSESSMENT – Appellants ran a golf club – set up two companies to make golfing supplies – Appellants acted as landlord and manager – companies in voluntary liquidation – Who made the golfing supplies? – the Appellants – Appeal dismissed – no adjudication on alternative dispute (doctrine of abuse)

DECISION NOTICE (WITH FULL REASONS)
Rule 35(2) The Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009 

           MRS PHILLIDA BARNETT AND MRS LARA READ            Appellants
	Trading as
BURGHILL VALLEY GOLF CLUB

	- and -

            THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal: MICHAEL TILDESLEY OBE	                   (Chairman)
				      MARJORIE KOSTICK BA FCA CTA      (Member)	  
					
Sitting in public at Birmingham on 23 and 24 March 2009

Michael Berkley counsel for the Appellants

Nigel Fleming QC assisted by James Puzey counsel instructed by the Solicitor’s office  of HM Revenue & Customs, for HMRC

© CROWN COPYRIGHT 2009

DECISION
The Appeal
1.	The Appellants were appealing against HMRC decision dated 29 March 2004 ruling that the Appellants made supplies of sporting facilities or services which were liable to VAT at the standard rate to members and visitors of the Burghill Valley Golf Club. The Appellants were also appealing against an assessment to VAT and default interest in the sum of £119,344.06 notified on 10 January 2004.
The Dispute
2.	The dispute concerned two issues. The first issue was who made the supply of sporting services? The second issue in the alternative was whether the doctrine of abuse applied to the facts of this case.
3.	The Appellants, Mrs Phillida Barnett and  Mrs Lara Read, who were mother and daughter, owned and ran Burghill Valley Golf Club as a profit making partnership business and until April 2001 accounted for VAT on supplies of sporting services to members and visitors at the Golf Club. The club was not and never has been a public interest organisation. 
4.	In April 2001 the Appellants acting on advice decided to set up a new business structure which involved the incorporation of two new limited Companies, Burghill Valley Members Club Limited (BVMC) and Burghill Valley Visitors Club Limited (BVVC). Under the new structure the Appellants hived off their sporting supplies to the Companies which stood between the Appellants and the members and visitors playing golf. The Appellants leased the land and sporting building/equipment to the Companies, which purportedly sold memberships and provided the sporting services for members and visitors. 
5.	The purpose of the new arrangements was to secure a VAT saving on the fees paid by the members and visitors, which depended upon the Companies meeting certain conditions (non-commercial influence and non-profit-making) so that their supplies qualified for exemption as sporting services under item 3 group 10 schedule 9 of the VAT Act 1994.  To this end the Appellants retained their VAT registration but the Companies were not registered as they were allegedly making exempt supplies.
6.	HMRC challenged the efficacy of the new arrangements. On 29 March 2004 Mr Steve Gould, HMRC Officer, issued a ruling in which his preferred decision was that the supplies in reality continued to be made by the Appellants and were not, therefore, exempt from VAT, despite the creation of two separate entities to provide supplies of sporting facilities to members and visitors. In the alternative, Mr Gould determined that the two Companies were not eligible bodies with the result that their supplies were not exempt from VAT. On 10 June 2004 Mr Gould issued an assessment for unpaid VAT for quarters from 06/01 to 03/04 against the Appellants.  On 12 August 2005 Mr Gould wrote to the Companies advising them that they had not registered for VAT, and that if they did not submit VAT 1 registration form by 26 September 2005 Mr Gould would compulsory register the Companies for VAT with immediate effect. The Companies registered for VAT in September 2005.
7.	In May 2004 the Appellants appealed against HMRC decision of 29 March 2004 on the ground that it did not make any supply of sporting services, members’ subscriptions and green fees belonged to the Companies and did not represent consideration for any supplies made by the Appellants. The Appeal was put behind the hearing of another Appeal involving a different golf club, South Herefordshire Golf Club, (Tribunal decision 19653).  This decision dealt with the issue of whether the Companies were eligible bodies to qualify for making exempt supplies of sporting services. The Tribunal decided they were not eligible bodies. On 30 January 2007 following publication of the South Herefordshire Golf Club decision, the solicitors representing the Companies conceded that whilst making supplies of sporting services they did not qualify for VAT exemption provided by item 3, group 10, schedule 9 of VAT Act 1994. On 3 April 2007 the Companies were put into voluntary liquidation, following which the Appellants resumed making golfing supplies upon which VAT was accounted.  On 16 August 2007 the Appellants submitted an amended Notice of Appeal. 
8.	Thus in respect of the first dispute the Appellants contended that the Companies made the supplies of golfing services to members and visitors during the period covered by the assessment. The Appellants pointed out that the Companies were independent legal entities managed by independent directors and contractually bound to provide golfing services to members and visitors. Appellants’ counsel referred to Tribunal decisions in South Herefordshire Golf Club v HMRC and De Vere Golf and Leisure Limited (LON/01/58) where HMRC accepted that the Companies set up in similar circumstances to this Appeal were the suppliers of sporting services. In counsel’s view HMRC was pursuing the Appellant for the unpaid VAT for none other than opportunistic reasons because of the liquidation of the Companies.
9.	HMRC denied that it was pursuing the Appellants for opportunistic reasons. Mr Gould’s preferred decision in the 29 March ruling was that the Appellants were making the supplies of golfing services.  HMRC counsel submitted that the question of who made the supply was to be determined by looking at all the facts and circumstances. Counsel relied on Reed Personnel Services [1995] STC 588 and the European Court of Justice decision in Belgian State v Temco Europe SA, Case C-284/03 for his contention that even if on a strict contractual analysis the supplies were made by the Companies that was not determinative for the purposes of deciding who made the supplies for VAT purposes. On the facts of this case it was the Appellants who made the supplies of golfing services.
10.	In the alternative, the Appellant argued that the arrangements did not amount to an abuse. Essentially the Appellant contended that no tax advantage accrued in which case the Halifax principles were not engaged. Further the intended tax advantage would have accrued to the Companies and not to the partnership. HMRC countered that the inevitable consequence of the whole scheme was that the VAT would not be recovered. The scheme was designed to remove surpluses from the Companies with the consequence that if they failed in law to qualify as eligible bodies they would not be in a position to pay any assessment. Thus the reality of the scheme was that the Appellants achieved the tax advantage sought.
The Evidence
11.	The Tribunal heard evidence from Mrs Phillida Barnett, one of the partners, and John Keith Thomas Smith, the General Manager of Burghill Valley Golf Club since 1994 for the Appellants. Mrs Lara Read, the other partner, did not give evidence as she had no involvement with the running of the golf club for several years and was effectively a sleeping partner. Mr Steve Gould the HMRC Office who issued the disputed decision gave evidence for HMRC. The Tribunal received a bundle of documents in evidence.
First Dispute: Who made the supplies?
12.	The Appellants relied on the facts that the Companies were separate legal entities which had the wherewithal and authority to make the golfing supplies to members and visitors. The Appellants referred to the documentary framework for the Companies’ existence and operations which supported their proposition that the supplies were made by the Companies. The documentary framework, however, was part of a scheme devised by a firm of tax advisers targeted at proprietary golf clubs for the purpose of securing exemption from VAT on the fees charged to members and visitors. Mrs Barnett and Mr Smith accepted that the potential annual saving of £40,000 in VAT was the principal reason for signing up to the scheme, which cost the Appellants about £10,000. Mrs Barnett and Mr Smith insisted that the savings would be applied to improve the facilities for the golfers, enabling the Appellants to compete on equal footing with membership golf clubs which were not liable to pay VAT on fees.    Although the documentary framework played an important part in the evidence for this case, the critical question was whether the framework reflected the substance and reality of the arrangements for making the supplies of golfing services. This can only be determined by an examination of the whole evidence, and in particular on how the arrangements worked in practice.
13.	The documentary framework comprised the following:
(1)	Agreements under which the Appellants transferred the sporting activities and goodwill of the golf club to BVMC and the sporting activities of non-members and the collection of pay-as-you-play fees to BVVC in return for a consideration of £200 each from the Companies. Under the agreement in the event of the Companies ceasing occupation of the golf course the Appellants held the option of terminating the transfer and requiring the assignment of the sporting activities back to themselves for a consideration of one pound sterling. 
(2)	Each company had properly constituted Memoranda and Articles of association. They were Companies limited by guarantee with an express object of prohibiting distributions of any surplus income. BVMC was established to provide golfing facilities for members who in return would pay an annual membership fee. BVVC promoted golfing facilities to visitors to the club who would pay a daily fee for the use of the facilities. Each of the Companies had a management committee comprising of Companies’ members. The membership of the respective Companies was restricted by the Articles to two members. The management committee was charged by the Articles to run the business of the Companies. The Articles also provided for the holding of Annual General Meetings of the Companies.
(3)	The Appellants initially granted the Companies a Tenancy at Will dated 13 July 2001 permitting the Companies to use the golf course and changing facilities at the clubhouse in return for the greater of an initial rent of £45,000 per annum or a turnover rent which represented 43 per cent of the total turnover for each of the Companies. The Tenancy at Will prohibited the Companies from making alterations or additions to the premises and from assigning possession of the premises. The Tenancy at Will was succeeded by a lease for a term of seven years which permitted the Companies to occupy the golf course and locker rooms.  The clubhouse was not part of the demised premises and remained with the Appellants. The Companies were required to pay the greater of the base rent (£45,000) or the turnover rent (43 per cent of total turnover), and a service charge of £2,000 per annum. The service charge, however, was variable in the Appellants’ discretion without recourse by the Companies. The lease did not permit the Companies to make improvements except with the Appellants’ consent. Also they were prohibited from assigning their interest in the demised premises. The lease could be terminated at one month notice by the Appellants and 12 months notice by the Companies. The lease recited the fact that Oxford County Court had approved an agreement to exclude security of tenure.
(4)	Service agreements under which the Appellants provided the Companies with shop, bar facilities, lounge and restaurant facilities at the club. The agreements required the Companies to appoint the partners as the Manager to assist with the management of the Companies’ activities which included the provision of equipment. Finally the agreements engaged the Appellants to provide agency services to collect membership fees. The Companies in return for the services provided were required to pay a facilities fee (£8,000 per annum), management fee (£8,000 per annum) and agency fee (£3,000 per annum). The agreements could be terminated by one month notice on the part of the Appellants and 12 months notice from the Companies. The Appellants could vary the fees charged on one month notice. There was no equivalent provision for the Companies.  The agreements contained no provision by which the Companies could enforce the obligations of the Appellants under the agreement. The Appellants retained control of all membership information even after termination. 
(5)	Debenture agreements were signed between the Appellants and the respective Companies to secure the debts of the Companies owed to the Appellants against the assets of the Companies.
14.	Mrs Barnett stated that her late husband in 1991 set up the golf club as a hobby which started as a pay and play nine holes course.  The club grew becoming a proprietary members club.  The course was extended to 18 holes with a new clubhouse. When her husband sadly died in 1996, Mrs Barnett felt obliged to carry on with the golf club which became “her baby”. The club was a viable business entity enabling Mrs Barnett to take nominal drawings for such purposes as paying utility bills, maintaining a vehicle and other basic living expenses. Prior to the formation of the Companies, Mrs Barnett managed the golf club with Mr Smith. Mrs Barnett described Mr Smith as the driver of the arrangements for the running of the club. 
15.	Mrs Barnett explained that she took great care in making her decision to form the Companies because it would mean relinquishing her involvement in the running of the golf club which would be a big loss for her. Mrs Barnett insisted that she did not interfere with the provision of golfing services once the Companies were up and running.  
16.	Mrs Barnett acknowledged that she attended every management committee meeting of the Companies from August 2001 to May 2006. Her last attendance at a management committee coincided with the release of the Tribunal decision in South Herefordshire. Mrs Barnett denied that she took an active part in management committee meetings. She attended the meetings at the request of the directors to assist with the bedding-in-process of the Companies. The bedding in process took longer than anticipated because the directors were playing members who had no previous involvement with the running of the club. Mrs Barnett stated that she only volunteered her view at the meetings when requested to do so by the directors.
17.	Mrs Barnett advised club members of the new arrangements involving the Companies at their 2000 Annual General Meeting and by letter dated April 2001.  Mrs Barnett did this so as to reassure the members that they would continue to receive the same standard of service and access to facilities to which they were accustomed and that members would not notice any difference to the club or their use of it following the reorganisation. The Spring 2001 and 2002 editions of Burghill Valley Club Newsletter carried short articles on the business re-organisation. The Spring 2001 edition repeated the information given by Mrs Barnett about providing finance for improvements, and that it would not affect the golfers’ membership of Burghill Valley Golf Club in any way. 
18.	Mrs Barnett’s communications did not signpost members to the directors regarding queries about the golfing supplies. The Appellants adduced no evidence that directors were involved in communicating the changes. The bundle of documents contained a constitution for the golf club which was an unincorporated association for members. The constitution stated that the Companies supplied the golfing services. The Appellants’ evidence did not cover the origin and the distribution of the constitution.  
19.	After the Companies’ formation the members appointed Mrs Barnett as President of the Players’ Committee. Mrs Barnett asserted that the position of President was a figurehead. The Players’ Committee was responsible for deciding the competitions calendar and at all times separate and distinct from the Companies. Mrs Barnett was a keen golf player which meant that she was inevitably seen around the golf course.
20.	Mrs Barnett accepted that she with Mr Smith chose the first two directors of the Companies, Mr Moon and Mrs Williams. Mrs Barnett considered that she had to have persons she could trust occupying the position of directors. Mrs Barnett had known Mr Moon and Mrs Williams for some time and they had contributed much to the golf club. Mr Moon was a Senior Captain and Mrs Williams, the First Lady Captain. Mrs Barnett denied any involvement in the appointments of subsequent directors.
21.	 Mr Smith became General Manager of Burghill Valley Golf Club in 1994. He described his role as being responsible for the day-to-day management of the club. Mr Smith took instructions from Mrs Barnett when the Appellants ran the club. On re-organisation  Mr Perry, the tax adviser responsible for scheme, advised Mr Smith in a letter dated June 2001 that 
“Customs appear to be struggling to find a technical reason as to why VAT exemption should not apply. They accordingly appear to be concentrating on substance issues. Care should therefore be taken to ensure that the independent directors are fully involved with there being full documentation of their involvement”.
22.	Mr Smith continued his employment with the Appellants following the re-organisation. He attended every management committee meeting held by the directors. Mr Smith emphasised that he was an independent person and not a lackey for the Appellants when attending these meetings. Mr Smith said that he took instructions on running the golf course from the directors not Mrs Barnett. According to Mr Smith it was the directors who made the decisions on golfing matters. His role was to make recommendations and implement decisions. Mr Smith gave examples of where his recommendations were not accepted which included a proposal to increase membership and green fees, suggested course improvements and marketing techniques. Mr Smith did not cross-refer his examples to the minutes of management committee meetings. The Tribunal’s assessment of the minutes was that the directors relied upon Mr Smith for information on the financial performance of the companies, staffing matters and course improvements. The Tribunal formed the impression that the directors generally followed Mr Smith’s recommendations.
23.	Mr Smith acknowledged that the management committee minutes did not record the assessment against the Appellants for unpaid VAT. He confirmed that the directors had discussed the matter but Mr Smith could not explain why the discussions were not recorded in the minutes.
24.	As part of the process for setting up the Companies Mr Smith confirmed that he carried out with the assistance of Mr Perry income and expenditure projections for the Companies and the Partnership. The directors were not involved in this exercise. Mr Smith decided upon a percentage of 43 per cent for the turnover rent for each of the new Companies which was contrary to the 25 per cent originally agreed with Mr Perry. Mr Smith made the change because the agreed percentage did not give the partnership sufficient income. On 10 May 2001 Mr Smith informed Mr Miscampbell of Linnells solicitors, of the turnover rent and the Appellants’ management fees for inclusion in the legal documentation relating to the formation of the Companies. Mr Smith stated that he discussed the charges with the directors and the Appellants who had no problems with them.  
25.	On 22 March 2002 Mr Perry advised Mr Smith to have the yield on the capital value generated by the rent independently benchmarked. There was no evidence of Mr Smith taking up Mr Perry’s suggestion. Mr Smith on behalf of the directors did, however, on 17 November 2006 contact Humberts Leisure for an independent review of the rental charged under the terms of the lease with the Companies. On 20 November 2006 Humberts Leisure expressed its opinion that the rental charge was reasonable. The opinion was derived solely from inspection of the lease and the accounts for the Golf Club. The enquiry of Humberts Leisure was prompted by the publication of the South Herefordshire Golf Club decision which commented upon the absence of an independent mechanism for reviewing the rent.
26.	Mr Smith told Ms Jo Bennett, HM Revenue and Customs Office, when she inspected the business on 26 June 2001, that lease agreements contained a clause whereby the Appellants could pull the plug with 24 hours notice, if it got silly. Mr Smith at the hearing considered his purported statement of “pulling the plug” made no sense considering the investment made by the Appellants in the scheme.
27.	The income from the golf course was paid into a single bank account which according to Mr Smith was for administrative convenience. At the end of each year funds would be allocated to the accounts of the individual companies, the funds that remained in the central account belonged to the Appellants. Similarly supplies would be ordered using an invoice in the name of Burghill Valley Golf Club. Once stock had been purchased and paid for out of the central holding account, Mr Smith apportioned the expenditure on a fair and reasonable basis between the Companies and the Appellants.
28.	In at least two years the Appellants reduced the rent charged to the Companies because they did not have sufficient income. In the year ending 31 March 2003 the Appellants waived £16,500 rent for BVMC. In the year ending 31 March 2004 the trading deficit for BVVC was adjusted by a reduced rental charge.
29.	The outcomes of the year end allocations and adjustments to the accounts of the three entities carried out by Mr Smith were that the Companies broke even and the Appellants made a modest net profit.  During the period 2002 to 2006 BVMC achieved an average annual net surplus of £459. BVVC made an average net surplus of £1,788. The Appellants over the same period made an average net profit of £7,953 with the partners taking average total drawings of £15,498. During years 2002 – 2006 BVMC paid the Appellants £624,632 in total which constituted 82 per cent of BVMC’s total gross profit for the five years. BVVC’s total payment to the Appellants over the five year period was £208,879, 75 per cent of the gross profit for BVVC.
30.	Following the re-organisation, the Appellants retained control of the club house from which they ran the bar and catering for  members. The Appellants also provided a golf shop. 
31.	 Mr Smith organised the collection of fees charged to members and visitors. The request for membership fees was made using uniquely coloured invoices in the name of BVMC. Likewise uniquely coloured receipts in the name of BVVC would be issued to visitors to the golf course.
32.	Mr Smith expressed the view that the members and visitors were only interested in dealing with the Golf Club as a leisure entity. According to Mr Smith they just wanted to play golf, change in the changing rooms, drink in the bar and eat in the restaurant.
33.	The existence of the Companies was not advertised to the outside world. The website and newsletter continued to use Burghill Valley Golf Club, the Appellants’ trading name.
34.	The contract of employment for the Green staff was with the Appellants. Following re-organisation, Mr Smith advised the Green staff by letter dated 20 March 2001 that they would be jointly employed by the two Companies and the Appellants but their salary would still be paid by the Appellants.  Mr Smith pointed out in the letter that this did not change their employment rights and they would continue to receive instructions in the same manner as before. Mr Smith confirmed that he was the line manager for the Green staff. The Appellants supplied the equipment and machinery for tending the Greens.
35.	The Companies shared the same two directors. Mrs Barnett and Mr Smith selected the first two directors. The directors received no remuneration for carrying out their duties. Mr Miscampbell of Linnells solicitors advised the two directors of their responsibilities in a letter dated 26 March 2001. When one of the directors resigned, the remaining director introduced another club member to act as director. It appeared that the Companies operated with one director from January 2007. The directors were not accountable to the membership of the Golf Club as a whole. The membership of the Companies was restricted to two members with the result that the directors constituted the Companies. 
36.	The Appellants did not call the directors to give evidence. The Appellants relied on the minutes of the management committee meetings for their assertion that the directors made the decisions relating to golfing supplies. The minutes revealed that the directors’ role was confined to attendance at quarterly meetings when they considered reports from Mr Smith. The Tribunal considered that the Appellants’  assertion on the  directors role was undermined by their failure to call them as witnesses and expose their evidence to cross examination. 
Findings of Fact: Who Made the Supplies?
37.	The Tribunal adopts the framework suggested by Appellant’s counsel for its fact finding. The framework was found in De Voil Indirect Tax, Volume 3.119A, and posed a series of questions derived from the authorities on Who made the supply?
Who is the person assumed to be making the supply from the viewpoint of the customer?
38.	The Appellants placed reliance on the fact that they notified the members of the Golf Club of the changes by Mrs Barnett’s communications and articles in the Golf Club newsletters. Further the Companies issued members and visitors with invoices and receipts in their respective names.  In the Appellants’ view the customers would have been under no illusion that the Companies were providing the golfing supplies. 
39.	The Appellants communicated the changes to members. The Appellants adduced no evidence that the directors of the Companies were involved in the communications. Further none of the communications directed the members to the directors regarding concerns about the golfing supplies. Mrs Barnett portrayed the change as administrative which would not affect the members in any way. The key message was one of preserving the status quo and continuation of service as before. There was no hint that the formation of the Companies represented a fundamental shift in the provision of services. 
40.	Mrs Barnett continued with her visible role in the club by playing regularly and holding the honorary position of the President of the Players’ Committee. The Green staff under the direction of Mr Smith carried on with the preparation of the course. The Appellants controlled the clubhouse and the bar and catering facilities. According to Mr Smith, the members wanted to play golf, change in the changing rooms, drink in the bar and eat in the restaurant. The Tribunal is satisfied that the members would see Mr Smith and Mrs Barnett as ultimately responsible for their golfing experience at the Burghill Valley.
41.	 The Golf Club was advertised to the outside world under the Appellant’s trading name of Burghill Valley Golf Club. The Appellants produced no evidence that a visitor to the Club would have been aware of the existence of BVVC except for the receipt acknowledging payment of fees. 
42.	The Tribunal finds that a customer would conclude that the Appellants were supplying the golfing services.
Who is the Person who sets the price (or is entitled to set the price) for the supply? 
43.	The Companies were entitled to set the membership fees and the charges for the visitors. The minutes of the director’s meeting revealed that it was the directors who proposed and approved the fees. This evidence, however, has to be set against that HMRC did not have the opportunity of cross-examining the directors on their role. Mrs Barnett in her evidence disassociated herself from anything to do with finances, arguing that it was Mr Smith’s territory. Mr Smith denied that he was involved with setting the fees. The Tribunal treated Mr Smith’s denials with circumspection having regard to the significant role he played in organising the finances of the Companies for the benefit of the Appellants. On balance the Appellants have failed to satisfy the Tribunal that it was the directors who set the prices for the supplies of golfing services.
Whose assets are used to make the supply?
44.	The Appellant’s assets of the golf course, club house, machinery and equipment delivered the golfing supplies. The Companies had no effective control over the assets and no freedom to go elsewhere for the assets. They held a seven year lease of the golf course with no security of tenure and limited authority to effect improvements to the course. They held a licence to use the facilities at the Club and a service agreement with the Appellants which could be terminated at one month’s notice. The agreements did not specify rigorous standards of service, essentially leaving it to the Appellants’ best endeavours. 
Is the scale of the Operation such that it is unlikely to be operated in the Manner contended? 
45.	The operation involved the running of two separate businesses with a combined average turnover of £350,000 per annum, a membership of 682 in 2006, the  maintenance and upkeep of an eighteen hole golf course open throughout the year and the promotion and marketing of golfing facilities. The Companies did not have the resources to deliver the operations for the golfing supplies at Burghill Valley Golf Club. The only resources   directly under the control of the Companies were the two unpaid directors who met quarterly. The Companies had no assets and no staff. The contracts of employment of the Green-keepers were with the Appellants. Despite the letter of 20 March 2001 to the Green-keepers advising them that they had three employers, no new contracts were issued. The letter confirmed existing arrangements. The Appellants continued to pay their salaries and the Green staff worked to the direction of Mr Smith, who throughout was in the Appellants’ employment. The Companies were entirely dependent upon the Appellants’ resources. The Tribunal finds that the Companies did not have the wherewithal to deliver the golfing supplies in the manner expected.
To whom are payments made?
46.	 The members and the visitors made their fees payable to BVMC and BVVC. The Appellants paid suppliers of goods and services to golf club. The income received from members and visitors, however, were paid by Mr Smith into the central bank account held by the Appellants and allocated between the three legal entities at year end. The Tribunal finds that the Appellants treated the income from golfing supplies as partnership income.
Who would the customer claim against in the event of a default? 
47.	The contract for the provision of golfing services was between the Companies and the golf players, with the Companies liable for defaulting on the services covered by the contract.
48.	Appellants’ counsel contended that the Companies would be liable for personal injury claims arising from injuries on the golf course. The evidence showed that it was the Appellants who insured this risk with a right of recovery of the costs of the insurance under the service charge provisions in the lease.
How is the arrangement regarded for direct tax purposes?
49.	The Companies accounted for corporation tax on their taxable profits from the income received for golfing supplies. The reality, however, was that the majority of this income was diverted to the Appellants through rental and management charges with the partners subject to income tax on their taxable profits.
What degree of control does one party hold over another?
50.	The Appellants asserted that they could not and did not exercise any control over the Companies.  The Articles and Memoranda of Association defined the role of Companies’ members and directors. The Appellants had no authority to change the Articles and Memoranda. 
51.	The Appellants’ assertion ignored the facts dealing with the Companies’ formation and how they operated in practice. The reality was that it was the Appellants which set up the Companies. The Appellants restricted the size of the membership to two members. Mrs Barnett and Mr Smith chose the first two directors of the Companies. Although Mrs Barnett and Mr Smith denied any involvement with subsequent appointments of directors, the evidence on the selection of subsequent directors was sparse and not supported with direct evidence from the retiring directors who made the nominations. 
52.	Mrs Barnett attended every management committee meeting of the Companies from August 2001 to May 2006. She only stopped after publication of the South Herefordshire Golf Club decision which found under the same scheme that the proprietor operated as a shadow officer of the companies. The Tribunal found it difficult to resolve Mrs Barnett’s attendance at the meetings of the directors with her stated intention that she relinquished her commercial interest in the golfing supplies. Mrs Barnett’s explanation that her presence helped to bed in the new arrangements was implausible, having regard to the fact that she attended for almost five years. Mr Smith was present at all meetings of the management committee. The directors relied upon Mr Smith for information about the services provided and the performance of the companies.
53.	The Appellants contended they had a normal landlord and tenant relationship with the Companies. The terms of the lease belied the accuracy of the contention, which were imposed on the Companies by the Appellants with the result that the terms were weighted heavily in favour of the Appellants’ interests. The same pattern was replicated in the service agreements between the Appellants and the Companies.  The companies had no control over the staff and equipment deployed to deliver the golfing supplies. It was the Appellants who decided the deployment of these resources. Mr Smith’s statement that the partnership could pull the plug on the companies at 24 hours notice was a correct description of their relationship. 
54.	The facts demonstrated that the Appellants exerted considerable control over the Companies and the supplies of the golf at Burghill Valley. The Appellants not only determined the resources available to the Companies but also circumscribed the  Companies’ independence of action through the terms of the various agreements  and by exerting undue influence over the directors. The Appellants could pull the plug at any time if the Companies acted contrary to their interests. 
Who has authority to make changes to the terms of a contract?
55.	According to Appellants’ counsel only the Companies controlled the contractual relationship with members and visitors. Also the relationship between the Companies and the Appellants were regulated by formal agreements which were legally enforceable.
56.	 The Tribunal considers counsel’s observation an over-simplification of the position. The Appellants held considerable influence over the Companies in their contractual relationship with members and visitors. The Appellants’ resources delivered the golfing supplies. The directors depended upon Mr Smith’s advice in fixing membership subscriptions and visitors’ fees. The Appellants held the upper hand in their agreements with the Companies. They could terminate the agreements on one month notice, whereas the Companies had to give 12 months notice. The Appellants under the service agreement were able to vary the fees by giving one month notice subject to the Companies referring the variation for arbitration if they disputed it. There was no corresponding power given to the Companies to vary the fees. 
Reasons: Who Made the Supplies?
57.	The fact that the Companies had a contractual relationship with the members and visitors for the golfing supplies was just the starting point for the enquiry about who supplied the golfing services. Both parties agreed that the contractual position was not determinative of the correct VAT analysis of a transaction (see HMCE v Reed Personnel Services Ltd [1995] STC 598 at 591 and 595 and WHA Ltd and another v HMCE [2004] EWCA Civ 599 at paragraph 29). In order to determine the identity of the supplier for VAT purposes all the facts should be examined to ascertain whether the contract reflected the true supply position (see Tesco PLC v CCE [2003] EWCA Civ 1367 at paragraph 159 and CCE v First Choice Holidays [2004] STC 1419 at paras 32 and 33).
58.	The opinion of the Advocate General in Belgian State v Temco Europe SA, Case C-284/03 was also relevant in determining the Tribunal’s approach to the disputed question in this Appeal. The Advocate General stated that
“The national courts are obliged to be more even more rigorous when confronted with ingenious legal manoeuvres devised with the intent of evading the application of a provision and must enforce the neutrality rule which governs the common system of VAT”.
59.	In this Appeal the Appellants accepted that the new business arrangements involving the Companies was a  planning scheme which had been sold to them by tax advisers in anticipation that they would reduce the VAT liability for the Golf Club by about £40,000 per annum. There was no suggestion that the Appellants had acted fraudulently in implementing the scheme. The Appellants were entitled to make a commercial decision to arrange their tax affairs so as to minimise their tax liability provided it did not offend the abuse doctrine. The fact that it was a planning scheme, however, meant that the arrangements should be scrutinised rigorously so as to ensure that they were not artificial but truly reflected the commercial reality of the disputed transactions. Thus the question to be asked was:  as a matter of substance and reality who made the supplies of golfing services?
60.	Appellants’ counsel sought to persuade the Tribunal that it was the Companies which made the golfing supplies. He submitted that Mrs Barnett and Mr Smith were credible witnesses. Their evidence clearly showed that they had distanced themselves from the decision making of the Companies, and that there was no reason why they should jeopardise the new arrangements. The Tribunal’s assessment of Mrs Barnett’s and Mr Smith’s evidence was somewhat different. The Tribunal found that Mrs Barnett did not relinquish control of the golf club to the Companies. She chose the first two directors of the Companies, attended every management committee meeting until 2006, and was the visible face of the Golf Club to the membership. The Tribunal decided that Mr Smith controlled the supplies of golfing services. Mr Smith was accountable to the Appellants under his contract of employment. Under the service agreement with the Companies he determined the services provided. Mr Smith organised the finances of the Golf Club to protect the interests of the Appellants. He directed the staff who tended the greens and handled all aspects associated with membership of the Club. Mr Smith exerted influence over the directors who were totally reliant upon his advice on the running of the Golf Club.  In contrast there was no evidence that the directors played a prominent role in the delivery of golfing services. The minutes of the management committee meetings portrayed their role in largely passive terms of responding to Mr Smith’s reports. On the evidence presented the directors were anonymous to the membership. 
61.	Appellant’s counsel pointed out that the Companies were separate legal entities which had exclusive possession of the golf course under a lease granted for a term of seven years and legally enforceable agreements with the Appellants dealing with the provision of staffing resources, facilities and equipment. The Tribunal found that there was no substance to counsel’s submission. They were all one-way in the Appellants’ favour, and provided the vehicles through which the Appellants controlled the Companies. As Mr Smith correctly observed the Appellants could pull the plug at 24 hours notice if the Companies got silly. The reality was that the Companies were incapable of providing golfing services to members and visitors without the Appellants. The Companies held no security of tenure over the golf course.  They had no independent resources of their own to keep the course in good condition. The Companies had no authority to direct staff to tend the greens and collect the fees. They were entirely captive to the Appellants and unable to look elsewhere for the necessary resources to run a golf course The Appellants, on the other hand, were the only persons that had the wherewithal to supply a fully functional golf course at Burghill Valley.
62.	Appellant’s counsel referred to the Tribunal decisions Lumar Developments [2006] UK VAT V 19729 and The Atrium Club Limited [2009] LON/ 2005/0485 in support of his argument that the Companies made the golfing supplies. The Higher Courts have cautioned Tribunals against elaborate analyses of other Tribunal decisions particularly as they are fact sensitive and not precedents (see C & E Commissioners v Ferrero UK Limited [1997] STC 881). Counsel observation on  Lumar Developments was that essentially the facts of this Appeal were not as blatant as in Lumar, which in the Tribunal’s view did not advance his argument. 
63.	The facts and decision of The Atrium Club, however, were more relevant to counsel’s submissions. Essentially in Atrium Club the arrangements were similar to the facts of this Appeal in that the owners who had provided sporting services in the form of a health and fitness club set up a non-profit making company to make the sporting services in order to gain the benefit of the sporting exemption. The Tribunal decided on the facts that it was the non-profit making company that made the supplies. The Tribunal decided at paragraph 34:
“With those points in mind I am satisfied that Atrium Health and not Atrium was providing the services of Club membership to the members and their guests. The consideration for such services was received for the benefit of Atrium Health. Atrium Health had its own staff, equipment and premises from which to make the supplies. Atrium Health had its own employment liability, public liability and business interruption insurance cover. Atrium Health had the right to use the name the Atrium Health Club to enable it to carry on business making the supplies to members and their guests. I cannot conclude from the evidence that Atrium Health traded as either agent, trustee or nominee for Atrium. The contractual provider of the supplies of sporting services to members was at all times Atrium Health. The real nature of the supplies is in line with the contractual position. I am satisfied therefore that Atrium Health and not Atrium made the sporting supplies during the period December 1996 until the end of February 2000”.
64.	The Tribunal does not intend to carry out an exhaustive factual comparison between this Appeal and Atrium. Suffice it to say, this Tribunal considers that the facts of this Appeal were significantly different from those in Atrium. Companies did not have its own staff and equipment. The Tribunal found that the contract of employment of the staff remained with the Appellants despite the contents of Mr Smith’s letter of 20 March 2001. Whatever the legal effect of the 20 March letter, it did not alter the existing arrangements that staff worked to the direction of Mr Smith who was in the Appellants’ employment throughout. There was no agreement in existence for licensing of the Club name to the Companies. The Tribunal in Atrium placed emphasis on the Notice informing members about the change in the supplier of services which had the effect of  novating the members’ existing contracts  and made them parties to contracts with the new supplier. In this Appeal the Tribunal focussed on the actual messages in the communications to members, which in the Tribunal’s view emphasised continuation of the status quo. The Tribunal concluded from those messages that the members would see Mr Smith and Mrs Barnett as ultimately responsible for their golfing experience at the Burghill Valley.
65.	 HMRC counsel considered the dispute from a different perspective by examining what had changed in respect of the golfing supplies following incorporation of the Companies. Counsel concluded that there had been no change. The Appellants’ trading name of Burghill Valley Golf Club continued to be used to promote the golfing supplies. The Appellants’ staff carried on with the provision of golf, whilst the equipment owned by the Appellants was deployed to maintain the golf course. The membership and visitors fees were paid into the Appellants’ bank account, whilst the Appellants met the bills of the Golf Club. Mrs Barnett remained the dominant force in the Golf Club. The Tribunal agrees with counsel’s analysis.
66.	The Tribunal, therefore, concludes for the reasons given above that as a matter of reality and substance the Appellants continued to supply the golfing services to members of and visitors to Burghill Valley Golf Club after incorporation of the two Companies. 
The Second Dispute: Abuse 
67.	In view of the Tribunal’s finding that it was the Appellants who made the supplies of golfing services after incorporation of the two Companies, it was unnecessary for the Tribunal to determine the alternative dispute that the arrangements amounted to an abuse of the VAT system.
68.	 The Tribunal did not consider it appropriate to make detailed findings of fact on the alternative dispute because the abuse doctrine starts with the proposition that the Companies technically made the supplies of sporting services which was contrary to the Tribunal’s findings of fact under the first dispute.
69.	The parties’ arguments on the second dispute concentrated on whether the Tribunal in Atrium had correctly applied Higher Courts guidance on abusive practices. This Tribunal understands that HMRC has appealed against the decision in Atrium, the outcome of which will hopefully shed light on the technical matters raised by Atrium.
70.	In relation to this Appeal the Tribunal considers that it would be helpful to make one finding of fact relevant to the Abuse dispute if in the event there is an Appeal against this decision. The Tribunal agrees with Appellants’ counsel that there was no deliberate ploy on the Appellants’ part to set up a scheme that, if it failed could be dealt with by dissolution of the Companies. The evidence showed that the Appellants genuinely believed that the scheme would be successful. The issue of dissolution of companies was first aired by their tax advisor after publication of the South Herefordshire decision. 
Decision
71.	The Tribunal decides that the Appellants made supplies of sporting services which were liable to VAT at the standard rate to members and visitors of the Burghill Valley Golf Club after formation of the two companies. Further the Appellants are liable to meet the assessment for unpaid VAT notified 10 January 2004. The Tribunal, therefore, dismisses the Appeal.
72.	The Tribunal heard no evidence on the quantum of the assessment. If the quantum cannot be agreed between the parties, this Tribunal grants leave to either party to refer the matter back to the Tribunal for determination.
73.	The Tribunal makes no order for costs. 

MICHAEL TILDESLEY OBE
TRIBUNAL JUDGE
   RELEASE DATE: 2 June 2009

Notes
74.	The Tribunal directed that the costs regime which operated prior to 1 April 2009 applied to this Appeal. 
75.	A party wishing to Appeal this decision to the Upper Tribunal must seek permission by making   an application in writing to the Tribunal within 56 days of being provided with full written reasons for the decision. An application for permission must identify the alleged error(s) in the decision and state the result the party making the application is seeking.