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VAT Voice by Steve Allen

Steve Allen, Director of VAT Solutions (UK) Ltd, reports on two recent VAT cases, concerning a charity and a football club

High Court finds for Charity on recovery of fundraising and newsletter VAT costs

The High Court released its judgment on 29 July 2005 in this appeal against Tribunal decision 18633 of 8 June 2004 in The Church of England Children’s Society v C & E Comrs.

There are two aspects to the dispute between HMRC and the Society, a company limited by guarantee and a charity. The first is a claim by the Society that VAT on its general fundraising costs should fall to be treated as residual input tax. The Tribunal found against the Society on this point, holding that the costs related to donations and not to the generality of operations.

Before the High Court, Counsel for the Society ran an argument based on the Kretztechnik case and new share issues that the costs should be seen as relating to the generality of operations. The argument relied on a contention that the fundraising activities in themselves are not of any relevance in deciding the extent of input tax deduction because they are essentially a 'non-event' for VAT purposes in the same way that the issue of new shares was treated as a 'non-event' in Kretztechnik. Continuing the parallel, the input tax relating to the fund-raising does not therefore get wholly allocated to a 'no supply event' of fundraising (in the same way that, in Kretztechnik, the share issue costs do not get wholly allocated to the 'no supply event' of the share issue) but rather falls to be proportionately recovered by a formula which takes into account the actual identified business activities (taxable or exempt) and non-business activities.

The Hon Mr Justice Blackburne accepted this argument and allowed the Society's appeal on this point, although stating that the matter may need to be remitted to the Tribunal if the parties cannot agree on the basis of quantifying the proportionate recovery. The second is a claim by the Society that VAT on the production of a newsletter, issued for no explicit charge to regular givers, should fall to be recovered in

full as directly related to a zero-rated supply of the newsletter under the 'deemed disposal of business assets' rule at para 5(1) Schedule 4 VATA 1994. The Tribunal found for the Society on this point and the High Court dismissed Customs cross-appeal.

Comment

Both aspects of this decision are of potential significance to charities and any other bodies with a mix of business and non-business activities.

TRIBUNAL ALLOWS VAT RECOVERY ON FOOTBALL AGENTS’ FEES

Those with an interest in VAT and football clubs will be aware of an issue which has been in the background for some time now whereby Customs are looking to deny input tax deduction on the fees which football clubs pay to players' agents in the transfer of players. Although there is a contractual relationship set up between the club and the agent, Customs are looking to argue that the supply of the agent's service is to the player albeit paid by the club. The first case to reach the Tribunal was intended to be that of Glasgow Rangers, although the decision names top English clubs as also having lodged appeals.

The Rangers appeal was due to be heard on Monday 13 June 2005 but HMRC withdrew the assessment on Friday 10 June 2005 and invited Rangers to withdraw their appeal. It is a little unclear whether HMRC were saying that they wished to reconsider their whole position or whether they were saying that they were just looking to have a 'second bite at the cherry' with a better presented assessment. Either way, Rangers declined the HMRC offer to withdraw their appeal. The appeal thus became focused on costs and the Chairman (Reid) directed that, in the circumstances, costs should be awarded on a full third party basis.

The Chairman reserves some harsh words for the behaviour of Customs, his ire being magnified by a suspicion that the real reason for Customs actions was a belated realisation that they would prefer to have the matter resolved by an English Tribunal rather than a Scottish Tribunal.

The Rangers Football Club plc (VTD 19159)

October 2005

Steve Allen
Director, VAT Solutions (UK) Ltd
Email: steveallen@vatsolutions-uk.com

VAT Solutions (UK) Ltd
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VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via the following address: www.vatsolutions-uk.com/newsletter.doc