Not for the first time HMRC have lost their argument trying to withhold VAT relief on a community building. Centred on the difficult question rules surrounding VAT and village halls, HMRC’s stance has led to a real cost in lots of situations that I believe the VAT relief was intended to spare. We have to hope that the latest HMRC defeat in Greenisland Football Club [2018] TC 06321 will lead to a shift in their published policy.
[NB this case has since gone to the Upper Tier Tribunal – see here.]
There is a zero rating for the construction of a building similar to a village hall. So far so good. The issue that has affected lots of community projects comes from HMRC insisting, among other things, that a village hall cannot involve paid staff or have a link to a specific sport. Their view of a qualifying village hall seems to be akin to a lock-up space whereas community buildings are often now much more comprehensive and need more management than a simple volunteer roster.
Perhaps driven by the taxpayer being a football club and not a non-specific community group, HMRC tried to impose VAT on construction costs. Their argument was that –
- the clubhouse was not owned, organised and administered by the local community because
the management committee was made up of individuals from various local groups and clubs,
and
- zero-rating could only apply if the local community is the final consumer, claiming that the clubhouse was not freely available to the local community at large.
Interestingly this case follows the success of two other recent appeals that might be seen to be positive for the VAT treatment of sport and community buildings generally –
- Queen’s Club [2017] TC 06119 succeeded in claiming full VAT recovery on renovating a cafe and two bars with the tribunal accepting that the costs were directly linked to the sales of food and drink. Whereas HMRC had argued that the costs were put to a mixed use and therefore, with their exempt membership income, associated VAT was only partly recoverable.
- Litton and Thorner’s Community Hall [2017] TC 06101 in unusual circumstances won its zero rating for the construction of a lean-to store.
Maybe we can hope that these cases point towards the tribunal having a sympathetic and better understanding of VAT and village halls. What is a modern day village hall? If so we must also hope that HMRC alter their outdated policy on interpreting this zero-rated relief very soon.
If you’re ever not sure about VAT related then please give us a call. Remember sooner is always better.