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Steve Allen of VAT Advisers Ltd highlights a further selection of recent VAT cases.

Tribunal says Golfing Tuition from a Company is Not Exempt

The Appellant was a three-way partnership comprising a golf professional, his wife, and their related limited company. HMRC accepted that golfing tuition supplied by the golf professional as a partner was exempt, but said that tuition supplied by him as director of the limited company was standard-rated. HMRC also said that tuition supplied by a partnership employee was standard-rated.

The Appellant said fiscal neutrality demanded that golf tuition given in the capacity of a company director should be exempt, because the same tuition was exempt when provided as a partner in a partnership. The same argument was presented for the employee of the partnership, who was also self employed, and whose tuition income was only exempt when he acted in the latter capacity. The Appellant had submitted refund claims for VAT overpaid on the taxable tuition, and argued that the 3-year cap (now four-year) could not be applied as the claim arose from a failure to implement the VAT Directive.

The Tribunal said that as neither the golf professional nor the employee was a body covered by public law with education as its aim, the only exemption possibly available was tuition given privately by a teacher, covering school or university education. The term ‘privately’ was defined by the ECJ in Haderer (later supported by the Court of Session in Empowerment Enterprises) as requiring the teacher to provide the tuition on his own account and at his own risk, something an employee would not do. The term ‘acting independently of an employer’ in the UK exemption reflects that definition of ‘privately’. The Directive had been correctly transposed and there was no claim. Even if there had been, the UK had transposed the VAT Directive correctly and could rely on the three-year cap.

The principle of fiscal neutrality was overridden by the terms of the VAT Directive, which envisaged different liabilities applying to the same supply of tuition, depending on the status of the supplier.

Marcus Webb Golf Professional (TC00323)

Tribunal says Self-Built Log Cabin is Eligible for DIY Claim

This case concerned whether the Appellant’s construction of a log cabin was eligible for a VAT refund under the DIY Housebuilder’s Scheme.

In November 2007, The Appellant arranged the construction of a log cabin, which was a ‘dwelling’ for the purposes of VATA 1994 Sch 8 Group 5. She paid builders to construct the cabin, but personally bought certain materials used in its construction which were incorporated into the cabin. The builders zero-rated their construction services, and the Appellant submitted an application for refund of the VAT on the materials under the DIY Housebuilder’s scheme.

The scheme is covered by VATA 1994 s 35, which provides for refunds of VAT to persons constructing certain buildings. The log cabin itself was subject to a number of planning conditions, including one barring occupation throughout February, and limitations on its continuous occupation and use as a main residence.

HMRC refused to repay the DIY claim, arguing that the zero-rating provisions within VATA 1994 Sch 8 Group 5 excludes the first grant by a person where there are restrictions on use. Note 13 in Group 5 excludes dwellings on which the grantee is not entitled to reside throughout the year, or where use as a principal private residence is prevented. They argued that Note 13 must be read into VATA 1994 s 35 so that no repayment of VAT was due if the building was subject to those restrictions.

The Appellant argued that this was unfair. There were 34 other log cabins on the same site that had been built for the site owners by builders who had purchased the materials themselves, and had zero-rated their supplies. The other log cabins were subject to the same planning restrictions, and it could not be right that one person should bear a VAT cost merely because they bought the materials personally.

The Tribunal saw that Note 13 relates specifically to the first grant of an interest and that s 35, the legislation providing for the refunds of such VAT, makes no reference to ‘grant of an interest’, or the relevant Item 1 of Group 5. The Tribunal concluded, therefore, that the note has no relation or impact on s 35 claims. HMRC also argued that s 35(4), which states “The notes to Group 5 of Schedule 8 shall apply for construing this section as they apply for construing that Group”, introduces the purpose and effect of the operation of the whole of Group 5. In applying a consistent interpretation of Group 5, HMRC added that s 35 should be interpreted as including the Note 13 restriction. However, the Tribunal also dismissed this argument, finding that there was no reason to construe s 35 as not being intended to relieve the exact hardship of the VAT cost incurred in the present case. The appeal was therefore allowed.

Mrs Irene Susan Jennings (TC00362)