20689

ZERO RATING – whether Appellant constructing a new building was a charity;  meaning of charitable purpose in Scotland;  whether building a village hall or similar;  whether predominant purpose of the Appellant was provision of taxable supplies; VATA 1994 Schedule 8 Group 5 item 2; section 94(2)

EDINBURGH TRIBUNAL CENTRE

	JEANFIELD SWIFTS FOOTBALL CLUB	Appellant(s)

	- and -

	THE COMMISSIONERS FOR 
	HER MAJESTY’S REVENUE & CUSTOMS	       Respondents

			Tribunal:  (Chairman):  T GORDON COUTTS, QC
			Tribunal:  (Member):     S A RAE, LLB., WS

Sitting in Edinburgh on Monday the 19th May 2008.

for the Appellant(s)		Julian Ghosh, QC., 
					 Elizabeth Wilson, Barrister

for the Respondents		Julie Strachan, Shepherd+Wedderburn, WS

© CROWN COPYRIGHT 2008.

DECISION

INTRODUCTORY
	The Appellant which is not registered for VAT has appealed against a Decision by the Respondents that construction work on a new pavilion sited on an area of ground they leased from the Local Authority for the purposes of a football pitch, car park and the said construction could not be zero-rated.

THE CLUB
By its constitution the objects of the Appellant were set out 	thus, as 
(a)	are the promotion of football as sport and recreation in 		the Perth and district local community,
(b)	the provision of facilities and coaching for the sport of 			the Club,
(c)	the encouragement of participation in playing football at 		all levels regardless of ability,
(d)	the promotion of Club teams of various sexes, ages and 		abilities which shall play under the name of Jeanfield 			Swifts.

It  also provided that the Appellant should conduct its operation in accordance with the requirements for a community amateur sports club, that it should be operated on a strictly non-profit making basis with any surplus being retained for use by the Club.  No distributions to members or third parties would be made.     Membership was open to all.  There was provision for an annual membership fee, which has hitherto not been levied.   The administration of the Club is vested in a Committee consisting of the office bearers and three elected members.  No Committee member is to receive payment for attendance and no player receives any cash payment, signing on fee or transfer fee.

THE EVIDENCE
The Tribunal heard evidence from the Treasurer, Mr John Soutar, whose evidence they accept in its entirety.   He said that at the moment there was no membership fee fixed but that the Club received gate charges at the level laid down by the Scottish Junior Football Association providing an average gate of about £80 from which the referee and linesmen require to be paid.    The Appellant has a tea hut which operates when games take place.   They may let pitches out to other teams and they allow by arrangement with their landlords, the Local Authority, for a nominal fee, various community associations to use the Clubhouse from time to time.   These are all either charitable bodies or sport bodies such as the St Johnstone Ladies Football Club, the Muirton Park Community Support Network which provides community support for persons in need such as parents with children with attention deficit disorder.   A charge of £5 is levied for the use of the hall and £7.50 if the kitchen is also used.   

The Club does not try to make a profit.  Mr Soutar said it would be nice if it could break even .

The Club itself is located in a deprived area of Perth with few facilities having transferred there from a pitch more centrally located which they could and did sell.    The Appellant has received the enthusiastic support of the local authority for its efforts for recreation and the community.

It was in the light of that background that the Respondents saw fit to refuse the request to allow zero-rating of the construction of the pavilion.

GROUNDS OF REFUSAL
From the correspondence it appears that the refusal was based upon the following matters.
1.	It was contended that the Appellant was not a charity
2.	It was contended that the Appellant did not operate to a 		relevant charitable purpose.  That it was not a village 			hall or similar and that it conducted business activities.

Each and all of these views were contested by the Appellant.

THE STATUTORY PROVISIONS
Zero-rating is provided for in Group 5 of Schedule 8 VATA 1994 and in particular item 2(a) a building intended for use solely for a relevant charitable purpose.   Note 6 provides that use for a relevant charitable purpose means use by a charity in either or both the following ways namely –
(a)	otherwise than in the course or furtherance of a 	business;
(b)	as a village hall or similarly in providing social or 	recreational facilities for a local community.	

In the principal Act by Section 94 business is defined at 94 (1) 	and (2):-
(1)	In this Act “business” includes any trade, profession or 	vocation.
(2)	Without prejudice to the generality of anything else in 	this Act, the following are deemed to be the carrying on of a 	business –
(a) the provision by a club, association or organisation (for a 	subscription or other consideration) of the facilities or 	advantages available to its members;  and
(b) the admission, for a consideration, of persons to any 	premises.

The Tribunal were also referred by the Respondents to the Charities and Trustee Investment (Scotland) Act 2005 as having some bearing upon the decision they had to make.   

The Appellant is not registered as a charity under the 2005 Act, it operates in relation to the matter under consideration and is affected by the Recreational Charities Act 1958 and is registered under the Community Amateur Sports Club Scheme.   That registration does not confer charitable status but neither does it deprive a body of charitable status if not registered.

THE APPLICABLE LAW
A discussion took place about the meaning of charity and charitable status in Scotland.    Such discussion in the view of the Tribunal is foreclosed by the observations of Lord Keith in Guild v Inland Revenue Commissioners [1992] STC 162 where he said, under reference to Special Commissioners of Income Tax v Pemsel [1891-94] All ER Rep 28 and IRC v City of Glasgow Police Athletic Association [1953] AC 80 that “for tax purposes, and for them alone, the English law of charity is to be regarded as part of the law of Scotland.   That was the far reaching result of a majority, 3 to 2, decision of the House of Lords in Pemsel.

From Pemsel it is made clear by Lord Macnaghten who said “”Charity” in its legal sense comprises four principal divisions:  trusts for the relief of poverty;  trusts for the advancement of education;  trusts for the advancement of religion;  and trusts for other purposes beneficial to the community, not falling under any of the preceding heads.”

It was under the heading “other purposes beneficial to the community” that Counsel for the Appellant argued that the Appellant qualified as a charity.

We note that Counsel for the Appellant sought to argue that because in Pemsel one of the reasons for holding that the English law of charity should apply was that the Special Commissioners, the body under whose jurisdiction exemptions were placed operated in England.  He sought to argue that because the decision on review on the present matter was made in Essex that that was a further reason for concluding that the English law should apply.   Anything this Tribunal might say on that matter would be obiter standing Guild but we would not have been persuaded by that argument alone that a VAT decision affecting property in Scotland and the tax consequences thereof was bound to indicate English law.   But such discussion is and was unnecessary.

We accept the argument of the Appellant that the 2005 Act is of no assistance in the definition of charity.   It is a regulatory Act dealing with the supervision of charities in Scotland and has nothing to do with charitable status for the purposes of this question even if, as we understand it, for convenience,  the regulatory authority, OSCR registers a body as a charity the Respondents will accept that.

ARGUMENT ON THE PARTICULAR MATTER OF WHETHER 	ZERO-RATING CAN BE GIVEN.
The Respondents contention was that the Appellant did not fall within Note 6 of the said Schedule.   The Appellant operated in the course or furtherance of business.   Four strands of income were asserted all of which fulfilled the test of economic activity, membership fees, gate charges, tea hut and third party payments for facilities in the Club.   Each of these would be enough to make a business purpose.   In support the Respondents cited Customs and Excise Commissioners v Morrisons Academy Boarding Houses Association [1978] STC 1, Customs and Excise Commissioners v Lord Fisher [1981] STC 238, Customs and Excise Commissioners v Yarburgh Children’s Trust [2002] STC 207 and Jubilee Hall Recreation Centre Ltd v Customs and Excise Commissioners [1999] STC 381.    The gate money and the tea hut money were all fund raising activities it was said.

In response to the assertion by the Appellant that the use of the building was a village hall or similar the argument was that it was there to provide football facilities but the additional space for other members of the community was a secondary object.  A single issue football club was not a body which fell within the statutory definition.

ARGUED FOR THE APPELLANT
A purpose beneficial to the community includes sport see Guild and Roy Meadows, Decision 11817.  It was of no relevance whether or not the Appellant was registered under the 2005 Act.

The Appellant did not in any meaningful sense conduct a business.   In order to conduct a business the predominant concern must be to make supplies for a consideration.    The predominant concern test originated in the Opinion of Lord Cameron in Morrisons Academy and has been followed and adopted ever since in cases such as Lord Fisher and recently in Scotland in Donaldsons College 2005 No 19258 and Quarriers 2008 No 20660.

This Tribunal has considered the decision and reasoning of the Tribunal in Quarriers .    They could neither fault it nor improve upon it and although the facts in the present situation are slightly different the tests are the same as those ably set out therein on a wide ranging discussion of authority, with which we agree.

To determine whether the construction was a “village hall or similar” one requires to regard the use of the premises.  That is whether it was social or recreational, whether it provided a facility for a local community which was an ordinary incident of its use and was sufficiently so defined.

DECISION
On the facts in the present case the Tribunal has no hesitation in accepting that the Appellant performs and operates for purposes beneficial to the community.  It is open to all.   It is not, contrary to the argument advanced earlier in the progress of the dispute by the Respondents, solely confined to the single issue of football, although even if it were the Tribunal doubts that that would in the circumstances be fatal to the Appellant’s argument.

There is no predominant business purpose in the Appellant’s activities.  At present they do not even collect a membership fee, the gate money laid down by the SJFA is principally for admission to the field and not the Clubhouse.   A tea hut which can operate to  sell pies when a match is being played could scarcely be described as an economic activity by any reasonable person.  Such other revenue as the club collects is minimal and insufficient to constitute a business.   Of course running at a loss does not mean that a business is not carried on but applying the “predominant purpose” test in the present circumstances there can be no doubt whatsoever that the Appellants do not carry on a business.

In answer to the question of whether they are a Village Hall or similar the Tribunal again, recognising the development of the law in this matter from the picture of a corrugated iron hut in a rural location to a community sports complex such as existed in Inch, Aberdeenshire in  Bennachie Leisure Centre Association 1996 No 14276.  The fact that the construction is located within the City of Perth does not detract from the proposition that it can be similar to a village hall. It is entirely different to the situation in Jubilee Hall Recreation Centre Ltd 1999 STC 381.

We conclude by noting our surprise that this matter should ever have got so far as it has.  From the correspondence the points which have been successful before us were ably argued long before the appearance in front the Tribunal.    The matters founded on by the Respondents to deny zero-rating were trivial.   They could never in the circumstances amount to a business purpose.   Instead what has been provided is a commendable and desirable facility designed not for trading but for the benefit of the local community in a deprived area in which it provides virtually the only community facility available.

We find accordingly that the Appellant has successfully made good its case for zero-rating.

EXPENSES
	The Appellant moved for expenses in the event of success.   It has been successful.    It is therefore entitled to its expenses on the Court of Session scale which, failing agreement, will be remitted to the Auditor of Court for Taxation in terms of the Rules.

T GORDON COUTTS, QC

CHAIRMAN

RELEASE:  22 MAY 2008.

EDN/07/104