VAT Tribunals

VAT Tribunals

VAT Tribunals

RICHARD CURTIS reviews VAT tribunal decisions concerning whether an undertaking was a business or a charitable activity; and whether a piece of land was used as a car park.

Charity, not business

St Paul's Community Project Limited operated a day nursery in a disadvantaged part of Birmingham. In 2000, it leased an area of land from the local council and on this it constructed a building from which it operated its (mostly) charitable activities.

The cost of the building was funded by grants from the National Lottery Charities Board and 'Sure Start', a Department of Education and Science programme to assist the parents of young children to return to work. The day nursery thus helped this aim.

Further grants from local and central government assisted in the running of the day nursery and the shortfall was made up from fund-raising activities and charges made to the parents who used the nursery.

Taking one year with another, the Project aimed to break even on costs and the fees charged were between £85 and £95 per week against its calculated costs of £130 per week. This compared to weekly charges of between £118 and £145 by local commercial nurseries.

Customs took the view that the operation of the day nursery should be regarded as a business activity; in that case, the supplies made to the Project for the construction of the nursery premises should be standard rated for VAT purposes.

The Project contended that its activities were charitable, in which event the supplies would be zero rated under Schedule 8 to the VAT Act 1994. Item 2(a) of Group 5 of Schedule 8 zero rates supplies in the course of the construction of a building used solely for 'a relevant charitable purpose', which means, as defined by Note 6 of Group 5:

'use by a charity in either or both of the following ways, namely:

It was agreed that the Project was a charity and that part (b), above, did not apply. The argument therefore depended upon whether the activities were 'in the course or furtherance of a business'.

'In the course or furtherance of a business' was not defined in the VAT Act 1994 and little help was found from the equivalent term 'economic activity' in the Sixth VAT Directive. The tribunal therefore referred to the case law on the subject, primarily Commissioners of Customs and Excise v Yarburgh Children's Trust [2002] STC 207 because of its similarities to the present case.

Mr Justice Patten in Yarburgh agreed with the comments in Commissioners of Customs and Excise v Morrison's Academy [1978] STC 1 and Commissioners of Customs and Excise v Lord Fisher [1981] STC 238, that an activity may be pursued in the course of a business even if not pursued for profit, but not every supply of services for consideration amounts to a 'business' or 'economic activity' (Wellcome Trust Limited v Commissioners of Customs and Excise [1999] STC 398). Mr Justice Patten concluded that Yarburgh Children's Trust, which operated a playgroup, was not predominantly concerned with the making of taxable supplies for consideration; it was primarily a co-operative venture, was not 'profit-led' and the tribunal in that case had been entitled to find that there was no business use.

Bearing in mind the similarities between Yarburgh and the Birmingham project, and the fact that the fees were set at a level which was designed to 'break even' rather than make a profit, the tribunal held that it was satisfied that the day nursery was run as a charitable activity, not a business, and the building works should thus be zero rated.

Whilst the management of an activity was relevant to its character, the tribunal considered that the essential focus must be on the activity itself. If that was a charitable activity when, as in Yarburgh, it was carried on by a co-operative, it did not cease to be charitable when carried on by a committee as in this case.

(St Paul's Community Project Limited (18466).)

Once upon a time in a car park

Mr Routledge traded as Leicester Basketball Club and leased premises — buildings and land — from Leicester City Council. The leased property was known as 'the Granby Halls Car Park' and adjoined Leicester City Football Club's stadium.

To facilitate crowd access to and from the ground and also to provide adequate access for emergency vehicles, etc., Leicester City Council encouraged Mr Routledge to allow the football club to have control of the adjoining land on match days. An agreement was therefore drawn up, although not by lawyers, and Mr Routledge received £1,800 per month.

Customs considered that as a lease of a car park, this did not fall within the VAT exemption in Group 1, Part II of Schedule 9 to the VAT Act 1994 that applied to the grant of rights over land or a licence to occupy land, and issued an assessment accordingly.

Mr Routledge appealed, contending that the land was not used as a car park.

The description, 'the Granby Halls Car Park' was what the property was known as historically, having been used as such before the 1970s; the use of the term in the rental agreement was perhaps 'sloppy drafting', but was the best description to identify the area concerned.

It was agreed that people occasionally parked their cars on the land on non-match days when visiting the city centre, which was approximately one-and-a-half miles away, but the land was not marked out as a car park and such parking was without permission, was not paid for, and was technically a trespass. And in fact, any such use of the land as a car park would infringe the covenant of use between Mr Routledge and Leicester City Council.

In support of their case, Customs referred to Commissioners of Customs and Excise v Trinity Factoring Services Limited [1994] STC 504 where the court decided that the relevant question was:

'whether and having regard to the nature of the subjects and the terms of the lease, a grant of facilities for parking a vehicle has been made either expressly or by necessary implication.'

Customs also referred to Commissioners of Customs and Excise v Venuebest Limited [2003] STC 433, which confirmed that the nature of the supply of land had to be ascertained from all the facts and circumstances of the case.

Customs argued that the agreement between Leicester City Council and Mr Routledge amounted to a grant of facilities for parking. The term 'car park' in the agreement reflected the reality that the land was a car park. It was irrelevant that the land was not laid out as a car park, it was still suitable for parking.

The taxpayer said that the land was no more a car park than a field or any other piece of land. The property in question had not been used as a car park for many years and Customs had simply assumed that it was one because of the description in the agreement.

The tribunal agreed with the taxpayer.

It was not a case of 'once a car park, always a car park'; changes in the use of land happen and had happened here. Leicester City Council leased the land to the taxpayer for the purposes of basketball and would have objected if it had been used for any other purposes and there was no evidence that it had been used as a car park. The circumstances had not been properly investigated by Customs, who should additionally pay the taxpayer's reasonable costs.

(Kevin T Routledge (18395).)

Issue: 3976 / Categories: