Penalty for issuing incorrect zero-rating certificate

The taxpayer built a ‘water sports hub’ to be used by itself and other local sports clubs. The complex included a gym which was available to non-members. The club which was not VAT registered issued a zero-rating certificate to the builder on the basis the building was intended to be used for a charitable purpose otherwise than in the course of a business.

The decision was based on professional advice taken in light of the First-tier and Upper Tribunal’s decisions in Longridge on Thames (TC2574) and [2015] STC 672) which concerned a similar project and indicated that the subsidised pricing and use of volunteer labour within its new building would allow it to qualify as non-business. However Longridge lost in the Court of Appeal ([2016] STC 2362) so the taxpayer withdrew the certificate. HMRC issued a penalty...