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A ST J PRICE FCA explains how gaining an understanding of the relevant industry helped him win a case before the VAT tribunal.
'TO ADVISE ON value added tax properly, you have to know the nature of the business in question', I said. 'When I was a finance director in industry, I never dreamt I would end up as a tax consultant. This, however, being my fate, it is the need to understand the businesses with which I deal, which is a key reason I stay interested after 25 years.'
'Surely, to get the tax right, you just need the facts', rejoined the Busy Practitioner.
A ST J PRICE FCA explains how gaining an understanding of the relevant industry helped him win a case before the VAT tribunal.
'TO ADVISE ON value added tax properly, you have to know the nature of the business in question', I said. 'When I was a finance director in industry, I never dreamt I would end up as a tax consultant. This, however, being my fate, it is the need to understand the businesses with which I deal, which is a key reason I stay interested after 25 years.'
'Surely, to get the tax right, you just need the facts', rejoined the Busy Practitioner.
'Well, take my recent tribunal case, The Permanent Way Institution (17746). The Permanent Way Institution had thought for many years that its membership subscriptions were exempt as those of a professional association. Unfortunately, under Group 9 of Schedule 9 to the VAT Act 1994, the exemption for a professional association is restricted to bodies whose members are qualified and to their students. That rules out many organisations, like the Permanent Way Institution, because they are not examining bodies.
'However, Item 1(c) of Group 9 covers "an association, the primary purpose of which is the advancement of a particular branch of knowledge or the fostering of professional expertise, connected with the past or present professions or employments of its members". At first sight, that seems to apply in many cases.'
'Is not the problem that, to foster professional expertise, you still need a professional qualification?'
'Yes, various tribunals in the past have held that bodies did not qualify because there was no single professional qualification relevant to the occupations of the members. I argued in The Permanent Way Institution that this did not matter because around 35 per cent of the members were qualified as engineers, whether civil, electrical, structural or mechanical. I said this was enough to demonstrate that maintaining the permanent way of the railway involved significant professional expertise, and that it was irrelevant that there were several professions.'
'Surely the advancement of a branch of knowledge was your best bet? That does not require a professional element.'
'Yes, but in past cases tribunals have tended to interpret the phrase rather narrowly in the way that a university professor might. Admittedly, in British Organic Farmers (2700) the tribunal had held that advancing the understanding of organic farming qualified, partly because it was taught at a couple of colleges. However, my problem was to demonstrate that the management and maintenance of the permanent way involved a branch of knowledge, and one which needed advancing.'
'Mmm, surely it is primarily a matter of checking for broken rails, coping with the odd landslide, keeping kids off it - oh! and watching for the leaves and that kind of snow?'
'You demonstrate the problem. People, who have not worked on the railway, have no perception of the extent and sophistication of the problems of running it. I realised that I had to understand the subject myself; then I must get it across to the tribunal because, if it did not appreciate that complexity, it was unlikely that it would decide that it was sufficient of a branch of knowledge in its own right for The Permanent Way Institution to be able to advance it.
'One problem was that, as with any technical subject, articles about it, published in the institution's journal and as papers for its conferences, tended to be obscure to a layman because of the trade jargon. I only began to understand them after I had read a fair number and studied large parts of the leading manual, British Railway Track, published by the Permanent Way Institution.
'Although this case was unusual, it illustrates how understanding the business can be crucial to winning a VAT argument. I produced a 22-page Layman's Guide, which set out to explain what the body of knowledge was, which the institution was advancing.'
'So, did you advance the knowledge of the tribunal?'
'The chairman does mention the Guide in his decision, but not its significance one way or the other.
'I also suggested that the institution qualified for exemption under Item 1(e) as a body, "which has objects ... of a ... philanthropic ... nature". I argued that it was philanthropic to try to improve standards of maintenance of the permanent way in the interests of the safety of those who worked on it and those of the travelling public. I also suggested that the objectives were civic in nature because it was in the interests of the entire country to achieve an efficient and safe rail transport system.
'I lost on the professional expertise, philanthropic and civic points. However, the institution was accepted as advancing a branch of knowledge. It is always satisfying to win, especially when it is on behalf of such a worthwhile body: the only one in the rail industry, which brings together people, who work in it at all levels and which promotes the exchange of experience, ideas and expertise. It was also satisfying to learn something about our rail system. I now have a much greater respect for those who work on it based on an understanding of the problems they face.'
A St J Price FCA is a VAT consultant in Gloucestershire and author of VAT in the Tolley's Tax Essentials series. He may be contacted on tel: 01285 851888, fax: 01285 851889, e-mail: asjprice@aol.com.
