19729                                                                                                                      
VAT – EXEMPT SUPPLIES – SPORTING SERVICES – The Appellant ran a golf club which purported to transfer the supplies of golfing services to a new company limited by guarantee with a non-profit making aim – the Appellant granted the new company a licence to occupy the golf course in return the Appellant received 95% of the Appellant’s income – the changes introduced were matters of form rather than substance – the new company did not have the resources and the means to provide the golfing supplies – satisfied that the Appellant continued to supply the golfing services – Appeal dismissed – findings of fact made on disputed issues of eligibility and abuse of law but no decision required as they were alternatives to the first disputed issue of who made the supply.
VAT – ASSESSMENT AND MISDECLARATION PENALTY – Appellant assessed for output tax on the supplies of golfing services following the incorporation of the new company – Appeal dismissed
MANCHESTER TRIBUNAL CENTRE

                    LUMAR DEVELOPMENTS LIMITED                  Appellant

	- and -

	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal:	MICHAEL TILDESLEY OBE             (Chairman)
				            MARJORIE KOSTICK BA FCA CTA (Member)

Sitting in public in Birmingham on 18, 19 May and 3 July 2006 

Nicola Preston, Counsel instructed by Glyn Edwards Senior VAT Consultant CCH for the Appellant

Owain Thomas, Counsel instructed by the Acting Solicitor for HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

The Appeal
1.	The Appellant was appealing against:
(1)	An assessment for output tax in the sum of £91,721 in respect of VAT periods 01/01 to 07/03 notified on 27 January 2004.
(2)	An assessment for output tax in the sum of £16,460 in respect of VAT periods 08/03 to 12/03 notified on 11 March 2004.
(3)	A misdeclaration penalty in the sum of £11,423 imposed on 24 February  2005 which was mitigated by 50 per cent on 25 August 2005 leaving a balance of £5,711.
The Grounds of Appeal
2.	The Appellant’s Notice of Appeal stated that
“An assessment has been made against the Appellant but the supplies concerned (membership fees of a golf club) were made by a separate legal entity”.
The Issues in Dispute
3.	In 1992 the Appellant constructed a golf course at Waterbridge Farm. The Appellant under the name of “Banbury Golf Centre” supplied standard VAT rated golfing services to members and non-members. On 29 December 1999 the Appellant granted a licence to Banbury Golf (Members) Limited1, a newly incorporated company limited by guarantee, for occupation of the golf course at Waterbridge Farm, in return for a licence fee representing 95 per cent of the Golf Club’s turnover.
4.	The purported effect of the arrangements from 29 December 1999 was that
(1)	The Appellant supplied services in connection with the licence to Banbury Golf Club which were treated as exempt for VAT.
(2)	Banbury Golf (Members) Limited supplied golfing services to members and non-members which were treated as exempt for VAT.
5.	Item 3 of Group 10 of Schedule 9 of the VAT Act 1994 exempts from VAT services closely related with and essential to sport or physical education provided an eligible body supplies them. The 1994 Act defines an eligible body as a non-profit making body not subject to commercial influence. The services closely related to the playing of golf at Banbury Golf Centre were closely linked and essential to sport. The Appellant, however, was not an eligible body, and obliged to account for VAT at the standard rate when it supplied golfing services prior to 29 December 1999.
6.	 The Respondents contended that after 29 December 1999 the Appellant was continuing to supply golfing services to members and non members having regard to the commercial reality of the arrangements with Banbury Golf (Members) Limited. Thus the Appellant would have to account for the golfing services at standard rated VAT. In the first alternative the Respondents submitted that Banbury Golf (Members) Limited was not an eligible body to qualify for exempt status in respect of the supplies of golfing services. In the second alternative the Respondents contended that the purported transaction between the Appellant and Banbury Golf (Members) Limited amounted to an abuse of law, and, therefore, could be disregarded in determining the VAT status of the supplies of golfing services.
7.	The Appellant countered by arguing that in substance and reality Banbury Golf (Members) Limited was making the supplies of golfing services, in which case the assessment for output tax against the Appellant must fail. The Appellant made no representations on the first alternative because Banbury Golf (Members) Limited was not a party to the Appeal. On the second alternative the Appellant contended that there was no abuse of law since it had not gained a tax advantage wrongfully.
8.	The issues in dispute were:
(1)	Who made the supplies of golfing services: the Appellant or Banbury Golf (Members) Limited?
(2)	If Banbury Golf (Members) Limited made the supplies, was it an eligible body to gain exemption from VAT for its supplies of golfing services?2 
(3)	If Banbury Golf (Members) Limited was an eligible body, did the transaction between the Appellant and Banbury Golf (Members) Limited amount to an abuse of law?
The Evidence
9.	We heard evidence upon oath or affirmation from
(1)	Mike Reed, director of the Appellant company, holding a majority of the voting shares; 
(2)	Angela Mary Prestidge, director of Banbury Golf (Members) Limited;
(3)	Barrie Keith Fowler, director of Banbury Golf (Members) Limited;
(4)	Karen Betts, Office of HM Revenue and Customs who raised the disputed assessment.
10.	We received an agreed bundle of documents and skeleton arguments from each of the parties.
The Facts
The Appellant
11.	The Appellant was incorporated and VAT registered on 30 May 1973. As at 30 September 2003 Mr Reed was the sole director of the Appellant company, holding the voting shares of the company. Members of Mr Reed’s family held the non-voting shares.
12.	The Director’s Report for year ended 30 September 2003 described the principal activities of the Appellant as:
“continued to be management of a golf club, operation of a golf clubhouse and provision of administration and management services”.
13.	The operating profit for the Appellant company for the years ended 30 September 2002 and 30 September 2003 was £96,000 and £180,000 respectively.
Banbury Golf (Members) Limited
14.	Banbury Golf (Members) Limited was incorporated on 29 December 1999. The company was limited by guarantee and did not have share capital. Its first Memorandum of Association contained a detailed objects clause which essentially was about acting as operators and proprietors of golf, sporting and general leisure clubs. 
15.	Clause 6 of the Memorandum specified that the income and property of the company shall be applied solely towards the promotion of its objects and that no portion shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise to members of the company. The Memorandum, however, permitted reasonable and proper remuneration to any member or servant of the company and to pay a reasonable and proper rent for premises demised or let by any member of the company.  There appeared to be no explicit clause in the Memorandum that permitted the payment of rent for premises let by a person who was not a member of the company.
16.	The profit and loss account for the year ended 30 September 2003 revealed that the company’s turnover for 2002 and 2003 were £244,300 and £268,000 respectively with gross profit of £12,200 and £13,400. Administrative expenses for the years were £15,300 and £12,900 leaving a loss of £3,000 for 2002 and a profit of £540 for 2003. 
17.	When the company was formed Mr Colin Loughran and Ms Sarah Jarrett were appointed directors with Ms Jarrett as company secretary. Mr Loughran and Ms Jarrett were respectively the Golf Club Steward and Golf Professional. On 7 January 2000 Mrs Angela Prestidge replaced Ms Jarrett. Mr Loughran resigned on 31 August 2000. Mr Barrie Fowler was appointed as director on 17 November 2000. The Respondents raised no issue about the validity of the directors’ appointments.
18.	The minutes for the period 1 January 2000 and 11 June 2002 revealed that the directors' meetings for Banbury Golf (Members) Limited were perfunctory dealing with appointments, rates and Mrs Prestidge’s remuneration. The minutes did not record discussions or decisions about the supply of golfing services to members.
19.	Banbury Golf (Members) Limited and the Appellant shared the same registered office of 29 Waterloo Place, Leamington Spa but held separate bank accounts.
20.	Banbury Golf (Members) Limited changed its name to Banbury Golf Club Limited and its Memorandum of Association in connection with its application for charitable status which was granted by the Charity Commissioners on 14 April 2004.
The Members
21.	When members joined the Golf Club they were required to abide with the Club rules which included the Memorandum and Articles of Association for Banbury Golf (Members) Limited. The members held an Annual General Meeting of the Golf Club where they received reports from the various Captains, Treasurer, and Mr Reed. The members elected the officers of the Golf Club at the Annual General Meeting but not the directors of Banbury Golf (Members) Limited. The Treasurer’s report dealt with a small fund comprised of monies collected from the members. The Treasurer had no control over the income of Banbury Golf (Members) Limited.
The History of the Golf Course 
22.	The Appellant acquired Waterbridge farm in 1989. In 1992 the Appellant decided to cease farming and availed itself of the Government’s “Set Aside Scheme” intended to reduce arable production and encourage farm diversification. Mr Reed together with a friend designed a golf course on the land for which Mr Reed received financial assistance from the Forestry Commission. 
23.	The Appellant opened the golf course in September 1992 and supplied golfing services under the name of Banbury Golf Centre to members and non-members until 29 December 1999. During this time Mr Reed was President of the Golf Club. From 1993 the Appellant charged an annual subscription of £500 to members which remained constant until March 2001 when it was increased to £550. In 1995 the Club affiliated with the English Golf Union so that it could offer official handicaps to its members. Mr Reed secured the affiliation by joining the local County Union. This  required the introduction of club rules based on the model rules supplied by the Secretary to the County Union, and for the course to meet the technical standards laid down by the English Golfing Union.
The Formation of Banbury Golf (Members) Limited
24.	In December 1999 a separate company, Banbury Golf (Members) Limited, was set up to provide the golfing services to members. Mr Reed stated in evidence that he decided that the incorporation of a separate company for members was the appropriate way forward. SH Landes & Co, Chartered Accountants stated in a letter dated 6 November 2003 that a Golf Club committee decided to form Banbury Golf (Members) Limited. This committee comprised Mr Reed, Mr Loughran, Club Steward and Ms Jarrett, Club Professional.
25.	Mr Reed informed the Golf Club members of the formation of Banbury Golf (Members) Limited by means of a notice on the headed notepaper of “Banbury Golf Centre” affixed to the members’ notice board. The notice informed the members that on 1 January 2000 HM Customs and Excise implemented the VAT sports Order 1999 which enabled a non-profit making body to exempt its playing subscriptions from VAT. The notice explained the creation of Banbury Golf (Members) Limited and that the Appellant had entered into a licence agreement with the new company allowing it to use the golf course and clubhouse.  The notice stated that there had to be a total disconnection between the Appellant and the new company as a result of which Mr Reed resigned his position as President of the Golf Club. The notice emphasised that the change had no financial implications for the members except that subscriptions now had to be paid to the new company.
26.	 Mr Reed said that the date of 1 January 2000 carried no real significance in determining when Banbury Golf (Members) Limited was formed. According to Mr Reed the formation of Banbury Golf (Members) Limited was prompted by:
(1)	He discovered through his involvement with the Association of Golf Course Owners that only members’ golf clubs could be affiliated with the English Golf Union, which excluded proprietary clubs, such as Banbury Golf Centre. Mr Reed considered that if he set up a separate company run by the members, it would enable the golf club to keep its affiliation with the English Golfing Union.
(2)	The formation of a member’s company would enable the golf club to benefit from mandatory rate relief.
(3)	Whilst preparing for the formation of a separate company the Respondents issued new guidance on the VAT exemption of sporting services which followed the amendment to the 1994 Act by the Value Added Tax (Sport, Sports Competitions and Physical Education) Order 1999 SI 1999/1994. The new members’ company would be able to take advantage of the change and supply golfing services to members exempt from VAT. 
(4)	The golf club would be able to compete on a more equal footing with private members’ golf clubs which enjoyed taxation and other benefits over proprietary clubs. Mr Reed considered that the market for golfing services was distorted in favour of the large private members’ club, which operated exclusive membership lists. Mr Reed specifically set up the golf club for golfers drawn from a wide cross-section of the community.
27.	On 5 December 2000 by means of a letter to Mr Simmons of The Association of Golf Course Owners and a flyer Mr Reed offered to sell details of their VAT exemption scheme for £750 plus VAT to Association members. In the letter Mr Reed stated that
“We offer to show clubs what has worked for us. Between 1 January and 30 September 2000 the scheme has saved us £30K in output tax on member subscriptions and former green fee income.
Our fee for the “Blue Print” pack is £750 plus VAT….. These fees equate to about ten per cent of the fees charged by Deloitte Touche or WJB Chiltern Group”. 
28.	The flyer which was in the name of “Reed Recreation Limited”  recited:
“SAVE £30,000 to £80,000 PER YEAR
IN VAT OUTPUT TAX ON
MEMBER SUBSCRIPTIONS AND VISITOR GREEN FEES
CLUBS EMPLOYING EXEMPTION SCHEMES INCLUDE
BANBURY GOLF CENTRE
……….
ALL YOU NEED TO KNOW TO JOIN THE VAT EXEMPT CLUB
IS CONTAINED IN THE BLUE PRINT PACK AT A COST
OF £750 PLUS VAT. A VISIT TO SEE THE BANBURY G C SCHEME IN
OPERATION IS £150 + VAT. Mike Reed Banbury Golf Centre”.
29.	Mr Reed accepted that he wanted to take advantage of the scheme by selling the “Blue Print”. He considered, however, that he was offering a service to the small operators which would normally cost them £10,000. He also considered that the scheme would tackle the inequity and distortion in the market which favoured the private members’ clubs. He agreed that the flyer made no mention of rate relief.
The Licence
30.	On the same date as the incorporation of Banbury Golf (Members) Limited the Appellant granted a licence to the new company for the occupation of the golf course premises, access ways and parking, and for the right to trade under the name Banbury Golf Club.  The licence fee paid to the Appellant was 95 per cent of the company’s monthly turnover, net of VAT.
31.	The licence granted Banbury Golf (Members) Limited an exclusive right3 to occupy the golf course from which the company was entitled to promote and carry on the business in such manner as it saw fit. The business was defined in the licence as:
“….the Appellant’s business of a golf club or similar activities as to be carried on at the premises under the name or style ‘BANBURY GOLF CENTRE’”.
32.	The licence prohibited the company from disposing of any of its rights and interests in the business whether by charge, sale or transfer. Further the company could not grant any right or interest in the premises other than a sub licence which required the prior approval of the Appellant. The company was not allowed to make any alterations to the premises.
33.	The Appellant was entitled to terminate the licence at any time by giving 28 days to the company. The company could terminate the licence on 1 February 2001 on 28 days notice. If it did not the licence would continue on the same terms.
34.	Mr Reed accepted that the licence did not specify which part of the Appellant’s golf business was transferred to Banbury Golf (Members) Limited.
35.	Mr Reed stated that he negotiated the licence fee with the first two directors of Banbury Golf (Members) Limited. He accepted that 95 per cent turnover fee was not based on independent valuation reports or profit forecasts. According to Mr Reed  the prime consideration for fixing the fee at 95 per cent was to protect the Appellant’s interests. In his opinion the income from the golfing business was low. The Appellant had to recover its costs. Mr Reed would have preferred the fee to be at 100 per cent of turnover but accepted that 95 per cent was the highest figure that could be demanded by the Appellant which left five per cent for the administration OF Banbury Golf (Members) Limited. Mr Reed confirmed in evidence that the 95 per cent fee was non-negotiable, if lower the Appellant would have lost money.
36.	Mr Reed explained that the licence fee was fixed to turnover to ensure that any expenditure increases incurred by the Appellant arising from increasing membership numbers would be met from the corresponding increase in subscriptions.
37.	SH Landes & Co in their letter dated 6 November 2003 to Mrs Betts explained that as with any landlord and tenant arrangement it was the landlord that sets the rent. The turnover rent in the licence agreement between the Appellant and Banbury Golf (Members) Limited  was the most appropriate method of calculating a fair rent for the use of the course because the costs of running the course were directly related to its use. In this instance Banbury Golf (Members) Limited was in a weak negotiating position. Its best position was to agree to pay over its income received less a small amount for administration.
38.	From 1 April 2004 the licence fee was reduced from 95 per cent to 75 per cent of turnover. Mr Reed agreed to the change because he considered that 75 per cent was sufficient to cover the Appellant’s costs of providing a golf course.
Subscriptions
39.	At the Annual General Meeting of the Golf Club members held on 24 November 2000 Mr Reed presented the “Proprietor’s Report” where he reported that from 1 April 2001 the annual subscription for five day membership would be £400. Mr Reed explained that Mrs Prestidge requested him to include the annual subscription in his report. In the “Landlord’s Report” for the subsequent Annual General Meeting held on 23 November 2001 Mr Reed reported that subscriptions remained as at present in 2002. According to Mrs Prestidge the inclusion of the subscription rates in the “Landlord’s Report” was a mistake. 
40.	Mr Reed said that an ordinary club member compiled the minutes of the Annual General Meetings from his notes. The club member was not a professional and would not be conversant with the subtleties of the relationship between the Appellant and Banbury Golf (Members) Limited. In respect of the 2000 minutes Mr Reed speculated that the member probably retained the format from previous years which resulted in the minutes inaccurately recording Mr Reed as the proprietor of the Golf Club.
41.	Mr Reed denied that the Appellant fixed the subscription rate for members of the Golf Club which according to Mr Reed was the sole responsibility of Banbury Golf (Members) Limited. Mrs Prestidge explained that she carried out a regular survey of the subscriptions rates for competing golf clubs which informed the decision of the directors of Banbury Golf (Members) Limited when setting the level of membership subscriptions. 
42.	Mrs Prestidge and Mr Fowler were adamant that they took the decision about subscription rates. Mrs Prestidge informed Mr Reed as a courtesy of the directors’ intentions for future subscriptions. Mr Fowler cited one example where they turned down Mr Reed’s request for an increase in the amount of subscriptions. Mr Fowler, however, accepted that the Appellant had an interest in the subscription rates because its income was dependent upon the level of subscriptions. Mr Reed stated that the directors had complete freedom to choose the subscription rate but if they decided upon an unrealistic rate the directors would take the consequences.
43.	Mr Reed considered that he had to exercise control over Banbury Golf (Members) Limited because he would not get his money back. He did this through the licence fee of 95% of turnover and the clause in the licence which allowed him to terminate it with notice of 28 days.
44.	Banbury Golf (Members) Limited did not pass the benefit of the VAT exemption to its members. The membership subscription rates remained the same. Mrs Prestidge stated that the membership fees charged by Banbury Golf (Members) Limited were considerably lower than fees for other golf clubs. Also Banbury Golf (Members) Limited did not charge a joining fee unlike the practice in other clubs. Her evidence, however, conflicted with the contents of her letter to members dated 8 March 2001.  She reported that the £550 annual membership placed the club in the same position as Rye Hill and Cherwell Edge except for the monthly or quarterly payment facility which was not offered by the neighbouring golf clubs.
Trading Name
45.	The licence allowed Banbury Golf (Members) Limited to trade under the name of “Banbury Golf Club”. Mrs Prestidge, however, acknowledged that on occasions the golf club still used the Appellant’s trading name of “Banbury Golf Centre” to encourage newcomers to the sport because it was less formal than the word “club” and more welcoming to strangers.
46.	As at 1 October 2002 the website for the golf club was still under the name of “Banbury Golf Centre”. The web page named Mr Reed as the proprietor and gave his e mail address. Mrs Prestidge explained that the website was an oversight and had not been updated to reflect the change to Banbury Golf (Members) Limited. She stated that it was a slow process to secure acceptance of the name change to Banbury Golf Club. People still continued to refer to the club as Banbury Golf Centre.
The Club Rules and Affiliation with English Golfing Union  
47.	Following the formation of Banbury Golf (Members) Limited the club rules under the Appellant’s regime were reproduced in identical terms except for 
(1)	the change of name to Banbury Golf (Members) Limited; 
(2)	the inclusion of the Appellant as the body through which Banbury Golf (Members) Limited would arrange the supply of refreshments and all things incidental to the playing of golf;
(3)	 the creation of a new membership category to replace the green fees previously paid by non-members. 
48.	The club rules specified that Banbury Golf (Members) Limited was the proprietor of a proprietary club. Mr Reed’s original understanding was that a proprietary golf club could be affiliated to the English Golfing Union. The original golf club ran by the Appellant became affiliated in June 1994 by virtue of its membership with the local County union. However, around 1998 or 1999 he had a conversation with a leading member of the Association of Golf Owners who informed him that affiliation was denied to proprietary golf clubs. Mr Reed considered that the formation of Banbury Golf (Members) Limited would overcome the problem with affiliation because the company had nothing to do with him as the proprietor of the golf course and was effectively a members’ club. 
49.	In May 2005 Mr Reed contacted the English Golfing Union  to clarify the position of Banbury Golf (Members) Limited and received the following reply:
“Any club, be it a traditional private members club, a members club playing over a municipal course, an artisans club playing over its “parent” course or a members club playing over a proprietary course, so long as they meet the requirements for affiliation laid down by the English Golfing Union and the respective County Union is eligible to apply for and be accepted by those bodies as affiliated members”.
50.	Mr Reed interpreted the reply from the English Golfing Union in terms that  Banbury Golf (Members) Limited was not eligible for affiliation because it was not a true members club.
Rating
51.	Mr Reed was not aware of the availability of discretionary rate relief for golf clubs until he became a member of the Association of Golf Owners in 1999. 
52.	On the 13 January 2000 Mrs Prestidge on behalf of Banbury Golf (Members) Limited applied for discretionary rate relief on the basis that it was non-profit making and providing valuable services to community. As at 31 October 2005 the District Council had still not made a decision on the application for the financial years between April 2000 and March 2004.
53.	Banbury Golf (Members) Limited secured 80 per cent mandatory rate relief from 1 April 2004 in view of its charitable status. 
Organisation of the Golfing Supplies
54.	The purported transfer of the Appellant’s golfing business to Banbury Golf (Members) Limited did not affect Mr Reed’s role as Head Green-Keeper which he continued to perform, spending about 40 hours weekly assisted by four to five green-keepers. The Appellant continued to provide the catering and bar services in the club. According to Mr Reed, Banbury Golf (Members) Limited would lose its charitable status, if it supplied catering and bar services.
55.	The minutes of the Annual General meeting of meeting held on 24 November 2002 recorded that
“the members who played in the challenge match …… would like to thank Mike (Mr Reed) for giving us the use of the course”.
56.	Mr Reed listed the services supplied by the Appellant in connection with the golf club following the purported transfer to Banbury Golf (Members) Limited which included: the premises, production of a working golf course, staff, machinery, fertilisers, sand, flags, agronomist, competition trophies and catering.
57.	Mr Reed stated that Banbury Golf (Members) Limited was responsible for the inflow of annual subscriptions, collection of daily subscriptions, issue of membership cards, receiving visitors from other clubs and the use of the golf course including the club house.
58.	Banbury Golf (Members) Limited held no capital and owned no assets. The Appellant owned the requisite machinery to maintain the golf course. 
59.	Banbury Golf (Members) Limited employed its director, Mrs Prestidge, to keep the books of the company. The company had no other employees. In 1999 the Appellant engaged Mrs Prestidge on a self employed basis as a book-keeper for Banbury Golf Centre. She continued to work for the Appellant in addition to her duties with Banbury Golf Members Limited.
60.	Mr Fowler, the other director for Banbury Golf (Members) Limited, worked full-time and was not involved in the daily operations of the golf club which he left to Mrs Prestidge. In turn Mrs Prestidge would not deal with golfing issues which would be handled by Mr Fowler speaking to Mr Reed. If a member had a query with the green she would direct them to the green keeper. Mrs Prestidge did not attend the Annual General Meeting of  members. Mr Fowler could only cite one example where monies collected by Banbury Golf (Members) Limited had been applied to improve the golfing supplies, which was the provision of ball washers at each of the holes at a cost of £40 each. 
Facts Found
61.	The Appellant was a profit making company whose principal business was the management and operation of a golf club and clubhouse at Waterbridge farm, trading under the name of “Banbury Golf Centre”. In the years ended 30 September 2002 and 30 September 2003 the Appellant’s operating profits were £96,000 and £180,000 respectively.
62.	Mr Reed queried the description of the Appellant’s principal activities in the Director’s Report for year ended 30 September 2003 as “management of a golf club, operation of a golf clubhouse and provision of administration and management services”. Accountants who had been involved with the Appellant’s business for some time prepared the report. Also they were the Accountants for Banbury Golf (Members) Limited. Mr Reed signed the report. We are satisfied that the description was accurate, which was confirmed by the evidence of the continuing involvement of the Appellant with the provision of golfing services at Banbury Golf Club.
63.	 The Appellant was the legal owner of the golf course and clubhouse. From September 1992 to 29 December 1999 the Appellant supplied the golfing services direct to members and non-members, accounting for VAT at standard rate on those supplies. Following the formation of Banbury Golf (Members) Limited the Appellant continued to maintain and upgrade the golf course and clubhouse for the benefit of the members. The Appellant supplied the catering and bar services. The Appellant used its own staff and equipment to provide the various services to the golfers. In return the Appellant received 95 per cent of the income from the golfing supplies for Banbury Golf Club. 
64.	Mr Reed was the sole director and owned the voting shares of the Appellant company. On the incorporation of Banbury Golf (Members) Limited he resigned his position as President of the Golf Club and was not appointed a director or officer of the new company. However, he continued to be actively involved in the golfing affairs of the club.  Mr Reed carried on in his role as Head Green-Keeper spending on average 40 hours per week at the club. He was the principal contact point for the members on golfing matters. Mr Reed presented a report to the Annual General meeting of the club. In 2002 members thanked Mr Reed for the use of the golf course for a challenge match.
65.	We accept Mr Reed’s evidence that he exercised control over Banbury Golf (Members) Limited through the licence fee of 95% of turnover and the clause in the licence which allowed him to terminate it with notice of 28 days.
66.	Banbury Golf (Members) Limited was a company limited by guarantee. The Memorandum of Association required its income and property to be applied solely towards the promotion of its objects, namely, the operation of sports and leisure clubs. The Memorandum prohibited the payment of dividends, bonuses or otherwise to members of the company. The company held a separate bank account from the Appellant.
67.	Banbury Golf (Members) Limited held no capital, owned no assets and employed one member of staff as a book-keeper. The company enjoyed no security of tenure in the golf course and clubhouse and was prohibited from carrying out alterations to the property. The company paid 95 per cent of its income to the Appellant with the remaining five per cent allocated to salaries and administrative expenses. There was no income left   which could be applied towards the promotion of its objects.
68.	Banbury Golf (Members) Limited took the subscriptions and issued the membership cards.  The Appellant supplied the golfers with the premises, a working golf course, staff, machinery, fertilisers, sand, flags, agronomist, competition trophies and catering. Banbury Golf (Members) Limited could not control or influence the Appellant’s supplies to the golfers. Banbury Golf (Members) Limited did not have a service agreement or contract with the Appellant for their supplies. The licence was silent on this. 
69.	Mrs Prestidge, the member of staff and company director for Banbury Golf (Members) Limited, was unable to deal with golfing queries from members which she referred to Mr Reed. The other director, Mr Fowler, was in full time employment and generally left the running of the company to Mrs Prestidge. The directors did not present a report to the Annual General meeting of members and their directors’ meetings were brief affairs.
70.	We find no evidence to support the submission made on behalf of the Appellant that the licence of 29 December 1999 was an arms length agreement. The Appellant produced no evidence that the company received independent advice on the terms of the licence. Mr Reed accepted that the 95 per cent turnover rent was not based on an independent valuation or profit forecast. Mr Reed stated that the 95 per cent rate was non-negotiable. Mr Loughran the director who signed the licence for Banbury Golf (Members) Limited was also at the time the Steward for the Golf Club. We are satisfied that Mr Reed dictated the terms of the licence which resulted in the emasculation of Banbury Golf (Members) Limited to protect the Appellant’s interests. We find that the turnover rent was the means by which Banbury Golf (Members) Limited distributed profits  to the Appellant.
71.	The Appellant’s representative relied on clause 6.3 of the Memorandum of Association for Banbury Golf (Members) Limited for giving the company the power to pay rent to the Appellant under the licence. Clause 6.3, however, restricted payments of rent to premises let by any member of the company, which would not include the Appellant. There appeared to be no specific power in the Memorandum which authorised the payment of rent by Banbury Golf (Members) Limited to the Appellant, which reinforced the finding that the turnover rent was simply a device for channelling the company’s profits to the Appellant.  
72.	The Appellant contended that the Respondents provided no evidence that suppliers or even members of the club used the trading names of “Banbury Golfing Centre” and “Banbury Golf Club” interchangeably. The occasions when “Banbury Golf Centre” was used instead of “Banbury Golf Club” were down to human error. The failure to update the website was an oversight. 
73.	Mrs Prestidge, however, stated that the trading names were used interchangeably. “Banbury Golf Centre” gave a welcoming and non-exclusive image of the club which was attractive to prospective members. Mrs Prestidge also agreed that people still referred to the club as “Banbury Golf Centre”. 
74.	We consider the use of the name “Banbury Golf Centre” in the “VAT Saving Flyer” and the issue of the Notice to Committee and Members under the headed notepaper of  “Banbury Golf Centre” were not isolated lapses on the part of Mr Reed. In our view they reflected the reality of the arrangements that the Appellant through Mr Reed was running the golf club.
75.	We do not accept that the updating of the website was an oversight. The website under the name of “Banbury Golf Centre” was still in existence almost three years after the formation of Banbury Golf (Members) Limited. Mr Reed’s e mail address was prominent on the website. He must have known from his e mails that the website still existed and was giving a conflicting message about the identity of the supplier of golfing services. 
76.	We are satisfied that members and suppliers continued to identify with “Banbury Golf Centre” as the supplier of golfing services at Banbury Golf Club even after the formation of Banbury Golf (Members) Limited. 
77.	The claims made by Mrs Prestidge and Mr Fowler that Mr Reed was not involved with the setting of subscriptions were not supported by the evidence. Mrs Prestidge accepted that she kept Mr Reed informed about potential changes in subscriptions. Mr Reed acknowledged that the Appellant’s income was dependent upon the golf club subscriptions. Mr Reed and Mrs Prestidge agreed under cross examination that Banbury Golf (Members) Limited did not have complete freedom to determine the subscription rate. The reality of the financial arrangements was that only the Appellant had a vested interest in the subscriptions, being entitled to 95 per cent of the subscription income.  We are satisfied that the Appellant was the driving force when it came to fixing the membership subscription rate for the golf club.
78.	Mr Reed contended that the tax advantage from the sporting exemption was not the prime motivation for the formation of Banbury Golf (Members) Limited. According to Mr Reed the new company was created in order to provide a level playing field with the large private member golf clubs which enjoyed a number of tax advantages and, thereby, minimise the distortion in the market.  In addition the formation of Banbury Golf (Members) Limited enabled the golf club to meet the eligibility requirements of the English Golfing Union and to gain a reduction in business rates.
79.	We were not convinced by Mr Reed’s reasons for the creation of a separate company to supply golfing services. The essential feature of members’ clubs was that  they were run by the  members for the members. The income generated by members’ clubs would be applied in furtherance of members’ interests. In this case the members of Banbury Golf Club did not reap the benefit of the VAT exemption. There was no reduction in membership fees. The Appellant adduced no evidence that the additional money secured from the VAT exemption was invested in improving the golfing facilities for members. The members had no say in how the additional income was spent. The Appellant was the sole beneficiary of the income generated from the VAT exemption which was realised in increased profits in the years ended September 2002 and 2003 respectively.
80.	 Mr Reed’s explanation about the eligibility requirements for the English Golf Union did not hold water. The Appellant’s ownership of and running the club prior to the formation of Banbury Golf (Members) Limited did not prevent the golf club from obtaining affiliation status in 1994.  It was Mr Reed who raised the issue about whether the club met the eligibility requirements not the English Golfing Union.  There was no evidence that the affiliation of the golf club was under threat at the time of the creation of the new company. 
81.	The formation of Banbury Golf (Members) Limited did not give rise to an automatic reduction in business rates. The evidence indicated that as at 31 October 2005 the District Council was still considering the position. The company only achieved the mandatory relief when it obtained charitable status in April 2004 which was some three years and more from when the company was formed. Mr Reed did not mention the option of rating relief in his “blueprint pack” advertised to the members of the Association of Golf Course Owners in December 2000.  We are satisfied from  the facts that rating relief did not feature as a motivating force in the setting up of the new company.
82.	We consider that the sole reason for the creation of a separate company to supply golfing services was to obtain the tax advantage from the sporting exemption for the benefit of the Appellant. The formation of Banbury Golf (Members) Limited was Mr Reed’s idea. The ordinary golfing members were not involved at all with the genesis of the new company. Mr Reed included the Club Steward and the Club Professional in his plans to create the new company but those persons were not ordinary golfing members their livelihood depended upon the good offices of Mr Reed. The timing of the change coincided with the bringing into force of  the Value Added Tax (Sport, Sports Competitions and Physical Education) Order 1999 SI 1999/1994 on 1 January 2000. In December 2000 Mr Reed marketed the creation of the new company as a VAT exemption scheme to the members of the Association of Golf Course Owners. The structuring of the relationship between the Appellant and the new company was designed in such a way to ensure that the Appellant maximised the tax advantage secured from the new arrangements.
83.	We have considered the facts that appertained to the period of the assessment which was from January 2001 to December 2003. The change in the licence fee from 95 per cent to 75 per cent and the assumption of charitable status by Banbury Golf (Members) Limited occurred in April 2004 which was outside the facts relating to this Appeal. Whether these two changes constituted a fresh set of circumstances would be a matter for the parties to decide and if need be the Appellant would have a fresh right of Appeal to the Tribunal in relation to the changed circumstances.
 Reasons for Our Decision
Who Made the Supply?
84.	The Respondents’ preferred decision was that as a matter of substance and reality supplies of sporting facilities continued to be made by the Appellant under the direction of Mr Reed despite the incorporation of Banbury Golf (Members) Limited and the execution of the licence agreement.
85.	Respondents’ counsel relied on two streams of cases to support the preferred decision of the Respondents. The first stream of cases was cited to establish the proposition that the VAT analysis of any particular transaction need not follow the contractual analysis and was best summed up by Laws J in Customs and Excise Commissioners v Reed Personnel Services Ltd [1995] STC 588 at page 594:
“First, as I have already said, the concept of supply for the purposes of VAT is not identical with that of contractual obligation. Secondly, in consequence, it is perfectly possible that although the parties in any given situation may conclude their contractual arrangements in writing so as to define all their mutual rights and obligations arising in private law, their agreement may nevertheless leave open the question, what is the nature of the supplies made by A to B for the purposes of A’s assessment of VAT. In many situations, of  course, the contract will on the facts conclude any VAT issue, as where there is a simple agreement for the supply of goods or services with no third parties involved. In cases of that kind there is no space between the issue of supply for VAT purposes and the nature of the private law contractual obligation. But, that is a circumstance not a rule. There may be cases, generally (perhaps always) where three or more parties are concerned, in which the contract’s definition (however exhaustive) of the parties’ private law obligations nevertheless neither caters for nor concludes the statutory question, what supplies are made by whom to whom. Nor should this be a matter of surprise: in principle the incidence of VAT is obviously not by definition regulated by private agreement. Whether and to what extent the tax falls to be exacted depends, as with every tax, on the application of the taxing statute to the particular facts. Within those facts, the terms of contracts entered into by the taxpayer may or may not determine the right tax result. They do not necessarily do so. They will not do so where the contract, though it tells all the parties everything that they must or must not do, does not categorise any individual party’s obligations in a way which inevitably leads to the conclusion that he makes certain defined supplies to another. In principle, the nature of a VAT supply is to be ascertained from the whole facts of the case. It may be a consequence, but it is not a function, of the contracts entered into by the relevant parties”.
86.	Appellant’s counsel agreed with the legal proposition that the contractual analysis was not determinative of the question of who made the supplies for the purposes of  VAT.
87.	The Respondents’ second stream of cases which included amongst others Matrix Securities Ltd v IRC [1994] STC 272 and Belgian State v Temco Europe SA Case C-284/03 was relied upon to establish the proposition that where the arrangements comprised a high degree of artificiality designed with the aim of tax avoidance, the Tribunal should approach the interpretation of the transaction with particular care with an emphasis on commercial reality.
88.	Appellant’s counsel expressed the view that the exemptions from VAT provided for in Article 13A1 of the Sixth Directive (77/388/EEC) have their own independent meaning and were to be interpreted strictly. Exemption was not a matter of discretion, either a supply fell within the exemption or it did not. It was not relevant whether or not the exempt status provided any advantage to the taxpayer.
89.	Although we found as fact that the motivation for the incorporation of  Banbury Golf (Members) Limited was to secure the tax advantage from the VAT exemption for sporting services, we are inclined to agree with Appellants’ counsel on the relevance of this issue for determining who made the supply. 
90.	We consider that Respondents’ counsel subsumed his contentions regarding “Abuse of Law” into the first disputed issue of “Who made the Supply”. We are of the view that the correct approach in determining who made the supply was to proceed on the basis that a taxpayer was entitled to make a commercial decision to arrange his tax affairs in such a way as to bring a particular supply within the terms of a statutory exemption and decide whether the taxpayer has been successful in fulfilling the requirements for the statutory exemption. 
91.	Thus in this Appeal we first decide “Who makes the supply”? If Banbury Golf (Members) Limited made the supplies of golfing services, we move onto the second disputed issue about whether the company was an eligible body. Finally if we decide that Banbury Golf (Members) Limited met the conditions for an eligible body, we then consider whether those arrangements amounted to an abuse of law, which is where we would attach weight to our findings on the tax avoidance motivation for the incorporation of Banbury Golf (Members) Limited.
92.	Our approach, therefore, in respect of the first disputed issue of who made the supply was to examine all the relevant facts and decide whether as a matter of substance and reality the supplies of golfing services continued to be made by the Appellant after the incorporation of Banbury Golf (Members) Limited. In considering the first disputed issue we followed the legal proposition established by the authorities that the contractual analysis, although relevant, was not determinative of the disputed issue. Further we decided not to place weight on our finding of the tax avoidance motivation for the setting up of the new company.
93.	The Appellant contended that as a matter of substance and reality Banbury Golf (Members) Limited supplied the golfing services from 29 December 1999. There was no connection or association between the Appellant and the new company. They were separate legal entities, each with their own accounts. The new company was a registered charity. The members’ contract was with Banbury Golf (Members) Limited  not with the Appellant. 
94.	In our view the Appellant’s arguments concentrated on the formal nature of the arrangements rather than their substance.
95.	We consider that the starting point for our analysis of the substantive nature of the golfing supplies to Banbury Golf Club members was to examine what was involved in the supply of golfing services. Appellant’s counsel in response to our question provided a helpful definition which was:
“A supply of a fully functional golf course to members of the golf club which involved a supply of land with the course kept in a condition so that members can play golf on it”.
96.	Banbury Golf (Members) Limited did not have the resources nor the means to supply a fully functional golf course to the members of the golf club. We found that the company held no capital, owned no assets and employed one member of staff as a book-keeper. It enjoyed no security of tenure in the golf course and clubhouse and was prohibited from carrying out alterations to the property. 95 per cent of its income was paid over to the Appellant with no income left to further the needs of the members. The company had no service agreement with the Appellant, so it could not control and influence the activities of the Appellant with respect to the maintenance of the golf course. In short Banbury Golf (Members) Limited was incapable of supplying the golfing services to the members. The Appellant, on the other hand, continued to supply the golfers with the premises, a working golf course, staff, machinery, fertilisers, sand, flags, agronomist, competition trophies and catering. The Appellant did not supply the membership cards but on the facts found it controlled the rate of membership subscriptions.
97.	We also examined the question of who made the supply from the perspective of what changed in respect of the golfing supplies following the incorporation of Banbury Golf (Members) Limited:
(1)	 Mr Reed continued to act as Head Green-keeper and as the principal point of contact for members on golfing matters. 
(2)	Mr Reed still presented reports to the Annual General Meeting of golfers, albeit the name changed from “Proprietor” to “Landlord” at the second and subsequent Annual General Meetings after the incorporation. 
(3)	The Appellant retained virtually all the income derived from the golfing supplies.  The five per cent which it did not retain went on administrative expenses which would have been the Appellant’s responsibility prior to the creation of Banbury Golf (Members) Limited. 
(4)	The Appellant maintained in the Director’s Report for year ended 30 September 2003 that its principal activities were “management of a golf club and operation of a golf clubhouse”. 
(5)	The Appellant retained the ownership and control of the golf course and machinery.
(6)	Mrs Prestidge’s role did not alter fundamentally. She carried on doing the books of the golf club business and dealing with membership queries, as she did when the Appellant supplied the golfing services prior to 29 December 1999. The only change to her role was that she assumed the title of company director which was not onerous as demonstrated by the perfunctory directors’ meetings. 
(7)	Although Banbury Golf (Members) Limited adopted a new trading name of “Banbury Golf Club”. Mrs Prestidge accepted that the Appellant’s trading name of “Banbury Golf Centre” was used interchangeably with the new trading name to promote the golf club.
(8)	The members and suppliers of the golf club continued to identify with “Banbury Golf Centre” as the supplier of golfing services.
(9)	The club rules did not alter materially after the incorporation of the new company.
98.	 The changes introduced from 29 December 1999 were cosmetic and did not alter the substantive nature of the transaction between the Appellant and the golf members with the Appellant continuing to supply the golfing services. Although Banbury Golf (Members) Limited was a separate legal entity from the Appellant, it was incapable of supplying the golf services and operating independently from the Appellant. The company did not have the means and the resources to supply those services.   Mr Reed resigned as Club President but the Appellant retained and exercised control of the golf club through the terms of the licence agreement. The members looked to Mr Reed for the supplies of golfing services, even thanking him for use of the golf course despite the contract of those services being between the individual member and Banbury Golf (Members) Limited. The membership fees in reality were paid to the Appellant.   Banbury Golf (Members) Limited had no say on the expenditure of the membership income.  
99.	We, therefore, conclude that the Appellant continued to supply the golfing services to members of Banbury Golf Club after the incorporation of Banbury Golf (Members) Limited. As a matter of reality and substance the incorporation made no change to the substantive nature of the transaction between the Appellant and the members, which was reinforced by the fact that Banbury Golf (Members) Limited was incapable of making the golfing supplies.
100.	In view of our decision that it was the Appellant who made the supplies of golfing services and not Banbury Golf (Members) Limited, we are not obliged to determine the disputed issues of eligible body and abuse of law. We, however, made findings of fact on both those issues which may become relevant if our decision is taken on Appeal and the Respondents wish to challenge the Appeal on the three separate arguments put forward. We add the rider to the second argument of eligible body that Banbury Golf (Members) Limited was not a party to the Appeal. Findings of fact on that issue must be tempered by the knowledge that we heard no representations from Banbury Golf (Members) Limited, although our findings were based on the evidence of Mr Reed and the two company directors. 
Decision
101.	We, therefore, dismiss the Appeal on the ground that the supplies of golfing services continued to be made by the Appellant under the direction of Mr Reed despite the incorporation of Banbury Golf (Members) Limited and the execution of the licence agreement.
102.	We uphold:
(1)	The assessment for output tax in the sum of £91,721 in respect of VAT periods 01/01 to 07/03 notified on 27 January 2004.
(2)	The assessment for output tax in the sum of £16,460 in respect of VAT periods 08/03 to 12/03 notified on 11 March 2004.
(3)	The misdeclaration penalty in the sum of £11,423 imposed on 24 February 2005 which was mitigated by 50 per cent on 25 August 2005 leaving a balance of £5,711.
103.	 The Respondents applied for costs on the basis that the arrangements established by the Appellant were nothing more than a tax avoidance scheme. The Appellant opposed the application for costs. 
104.	The general rule in VAT Tribunal cases is that costs should not be awarded against an unsuccessful Appellant unless:
(1)	The Appeal was exceptional in terms of its complexity and involved large sums of money.
(2)	The Appeal dealt with an important point of law.
(3)	The Appellant misused Tribunal Procedure, for example, bringing a frivolous or vexatious case or failing to appear or not disclosing relevant evidence until the Appeal hearing.
105.	We do not consider that any of the three categories identified above apply to this Appeal. We, therefore, make no order for costs.
106.	The Appellant made several submissions at the beginning of the hearing. Essentially the submissions were about the reception of specific documents into evidence and that the Respondents had given no notice of its argument on abuse of law. We decided to admit the documents on the basis that we were not bound by  strict rules of evidence and entitled to attach what weight we saw fit to the documents. We offered the Appellant an adjournment in respect of the late notice of the abuse of law argument, which was declined. The Appellant acknowledged that it was not substantially prejudiced by the late notice of the abuse of law argument. 

MICHAEL TILDESLEY

CHAIRMAN
RELEASE DATE: 23 August 2006

MAN/