VAT case law tracker

Below is a summary of recent and ongoing VAT litigation that CTG is monitoring on behalf of charities. It also includes older cases with continued significance and important precedence. HMRC maintains a full list of VAT appeals pending, although this often takes some time to be updated. Cases are listed in alphabetical order.

  • Adecco – The Court of Appeal has has published its decision rejecting Adecco’s claim for over-paid VAT on temporary workers, upholding the decisions by the FTT and Upper Tribunal. Read Graham Elliott’s commentary for further details.
  • Adullam Homes – An FTT case that shows that the tussle with HMRC continues in respect of VAT recovery for charity purchases. The issue was whether the costs of maintaining residential accommodation were apportionable or wholly non-recoverable.
  • Association of Graduate Careers Advisory Services (AGCAS) – FTT decision on applicability of VAT exemption in respect of subscriptions to professional bodies.
  • Balhousie Holdings – The FTT held that the Balhousie was not liable to a VAT self-supply charge arising from the sale and lease back of a new care home. But the Upper Tribunal has rejected that analysis and confirmed that a clawback applies.  This was because the sale should be viewed in isolation from the leaseback. In February 2019, the Court of Session dismissed the appeal by Balhousie, upholding the decision of the Upper Tribunal. A commentary on the case can be read here.
  • Bath Festivals Trust – In this case it was found that the Trust was supplying services to the Council and that the payments made by the Council were consideration for those services and not the payment of a grant. For this reason the payments made were within the scope of VAT. Read HMRC’s summary of the case here.
  • BFI – The CJEU has delivered its opinion in this UK referral. This case concerns HMRC’s decision to refuse the British Film Institute’s (BFI) claim for repayment of overpaid VAT accounted for in the period 1990 to 1996 on the sale of tickets for admission to screenings of films. The Court found that the Directive must be interpreted as meaning that the concept of ‘the supply of certain cultural services’ leaves it to the Member States to decide which supplies of cultural services may be exempt from VAT.
  • Brockenhurst College –The CJEU has published its decision in this case, which relates to the VAT treatment of certain ancillary supplies made by an education provider, finding that the charges were exempt. This contrasted the earlier AG’s Opinion which concluded (in line with HMRC’s interpretation) that closely related transactions within the meaning of Article 132(1) of the VAT Directive are independent supplies, the taxation of which also increases the cost of access to supplies that as such are exempt from tax. Graham Elliott’s commentary on the case can read here.
  • Caithness RFC – The Upper Tribunal has released its judgment in the appeal by HMRC as to whether the construction of a village hall for the taxpayer was zero-rated as being intended to provide social or recreational facilities for the local community or whether the absence of control or direction by the local community over the running of the facility precluded that. The Upper Tribunal upheld the FTT’s decision and refused HMRC’s appeal holding that the designation ‘village hall’ required not only the provision of social or recreational facilities but also its management to be vested in the local community. HMRC has confirmed that there will be no further appeal.
  • Capernwray Missionary Fellowship – This case related to fees for religious course set at a rate to recover costs and reliant on volunteers and donations. The FTT found that the provision of religious worship even when supported by the contributions of those attending is not an economic activity. However, because the charity provides (in return for payment) living and sleeping accommodation, food, other activities, and Bible teaching founded on ‘traditional’ principles, it was carrying out an economic activity and the building did not qualify for zero rating. The key reason for this decision was the application by the Tribunal of the Lord Fisher tests (see more here).
  • Cheshire Centre for Independent Living – The FTT has considered whether the VAT exemption for ‘welfare services’ extends to provision of a payroll service.
  • Chester Zoo –  see below.
  • Cost-sharing cases – The CJEU has released its judgments in the Latvian case of DNB Banka (C-326/15), the Polish case of Aviva (C-605/15) and in infringement proceedings brought by the European Commission v Germany (C-616/15). The CJEU has held that the CSE can only be used by organisations which provide VAT exempt services listed in law as being in the ‘public interest’. A summary of all the cases can be found here. The CJEU has also found that Luxembourg’s legislation on independent groups of persons (IGPs) did not comply with the EU VAT Directive, resulting in services being incorrectly treated as exempt.
  • English Bridge Union – The lengthy litigation by the English Bridge Union, to establish that bridge (the card game) falls within the meaning of ‘sport’ for the purposes of exemptions in group 10, schedule 9, VATA, has reached the end of the road with a disappointing outcome. The CJEU has decided that card games cannot be treated as ‘sport’ for this purpose as the physical element is too negligible. Further commentary by Graham Elliott here.
  • Eynsham Cricket Club – The Upper Tribunal was asked to decide whether a sports body can have the benefits of being a CASC and also the VAT benefits of being a charity, or whether the law says you must be one or the other; not both. The Upper Tribunal decided that the clear implication in the law was that there was to be a clear choice.  Either a body could have regulation-lite, and be a CASC, or it could have the full-fat regime of charitable status.  It could not have its charity cake and eat it as a CASC.
  • Frank Smart: The Supreme Court found that input tax incurred on raising funds for the purpose of a farming business was recoverable. This followed closely after the CJEU decision in the University of Cambridge VAT and investment management fees case, considering a number of similar case law precedents.
  • Friends of the Earth Trust – The FTT held that certain payments made by a charity’s supporters were donations rather than consideration for any supply, with the result that VAT incurred on street fundraising costs was not recoverable.
  • Greenisland Football Club – The Upper Tribunal has released its decision in this appeal against a penalty issued by HMRC on the basis that Greenisland Football Club wrongly issued a zero-rated certificate to a contractor who supplied construction services to the Club in respect of a new clubhouse.
  • Gravel Road Records – FTT case which appears, in a round about way, to suggest that there are circumstances in which the old ‘Fisher’ tests would ‘have a role’ in helping charities argue that their activities are non-business, thus qualifying for the construction zero rate for new buildings. Read Graham Elliott’s commentary on the implications for “economic activity” here.
  • Hallé Concert Society –The FTT held that benefits to members constituted a supply within the scope of VAT, but that a philanthropic exemption applied, attributing a wider understanding of “philanthropy”. You can read Graham Elliott’s commentary on the case here.
  • Harley-Davidson Europe Ltd –This case, relating to VAT and membership subscriptions, may be beneficial for charities who operate membership supplies but may struggle to meet HMRC’s criteria for applying the extra-statutory concession for non-profit bodies. A full commentary by Graham Elliott can be read here.
  • Healthwatch Hampshire – FTT case relating to the VAT treatment of supplies by a CIC to local authorities. A case that could potentially ‘read over’ to charities. Graham Elliott’s full commentary can be read here, alongside an item providing an update of general interest to those affected.
  • Hillingdon Legal Resource Centre – The case considered whether grant funding from a local authority was consideration for a supply on the basis that there was a condition requiring a detailed report and accounts be submitted to the local authority to show that the grant was being used as originally intended. The Tribunal ruled that the conditions were simply ‘good housekeeping’ to ensure the correct use of the payment. Therefore no supply was made and the grant was outside the scope of VAT. Read HMRC’s summary of the case here.
  • IANSYST  FTT case on zero rating of equipment for the disabled.
  • Iberdrola –The CJEU has passed judgment on this Bulgarian referral concerning the right of a taxable person to deduct input tax in respect of services provided free of charge relating to the construction or improvement of a property owned and used by a third party. Unfortunately the court declined the opportunity to clarify the Sveda decision, as suggested by the AG. A commentary by Dermot Rafferty can be read here.
  • Ice Rink Company –The FTT considered the VAT treatment of charges made for a package of access to a sports facility and hire of necessary equipment to use it. The FTT decided that this was a split supply of the two separate elements. Charities should consider whether their offerings are truly a single package, or merely a presentation of two separate supplies as if they were a package.
  • Immanual Church – The First Tier Tribunal found that the new structure was an annexe and subject to zero rating. A commentary by Les Howard on this case can be read here.
  • Imperial College – Appeal by HMRC relating to a Fleming claim to recover residual VAT on overheads of academic departments and whether HMRC approved a new non-CVCP retrospective partial exemption special method (PESM) from 1973 to 1994 and whether a combined PESM and business/non-business method was ultra vires. The Upper Tribunal has confirmed the FTT’s ruling that HMRC both could and had agreed a method of apportionment that covered both Business/Non-Business and partial exemption.
  • J&B Hopkins Ltd – FTT case relating to the incorrect zero rating by a subcontractor of its services to a main contractor, for the construction of a place of worship
  • Kati Zombory-Moldovan –Upper Tribunal case on hire fees for stalls at fairs that may have implications for some charities.
  • LIFE Services Ltd and Learning Centre (Romford) – In these cases the issue was whether care services could be regarded as exempt despite being held to fall outside the strict terms of the exemption. Day care services are not regulated in England (though they are in Scotland) so the exemption test is failed.  But no such regulation is needed for a charity, which means the very same services are exempt when supplied by a charity. The FTT, in two separate hearings, decided that the exemption would apply, and ultimately there was a direction for a combined appeal of both cases to the Upper Tribunal. The Upper Tribunal did not accept that a regulatory diversion between Scotland and England changed the black letter exemption criteria for bodies operating in either jurisdictions.  In all cases, to be exempt, they had to be regulated for the relevant activity.  The VAT legislation did not mandate that difference in itself.  The difference was imposed by different authorities which thereby created a concrete difference in VAT terms.  Fiscal neutrality could not intervene to impose a different answer, since it was accepted that the criterion of regulation of the services was inherently reasonable, and the fact that one set of services was regulated, and the other was not, was sufficient difference. There is due to be a further appeal of both cases in Spring 2020 – read an expert commentary on the litigation here.
  • Lilias Graham Trust – A commentary on this case by Graham Elliott focuses on one of the defining planks of the ‘welfare’ exemption which applies (amongst others) to charities.  The relevant provision relates to the ‘care or protection’ of children or young persons.
  • Littlewoods – The case concerns the availability of compound interest on refunds of overpaid VAT, in circumstances where the VAT was paid and collected in breach of EU law. The Supreme Court has disagreed with the Court of Appeal and held that the Littlewoods claimants are not entitled to compound interest. An HMRC Business Brief was published on 8 December 2017.
  • Litton & Thorners Community Centre – This FTT case concerns the zero rate for an annex built for relevant charitable purposes.  The point of contention was whether the building was an ‘annex’ as opposed to an extension of the existing building.  If an annex, the construction is zero rated, but not if it is an extension.
  • Longridge on the Thames – The case relates to VAT zero rating applicable to new buildings for charities. HMRC was successful in its appeal. See Graham Elliott’s commentary here. An HMRC Business Brief is expected in due course. Older case law on the VAT business test is summarised here.
  • Loughborough Students Union – Although the decision in this case seems to relate to the specific world of students unions, some general points for the wider charitable world appear to emerge, regarding whether events in the ‘social calendar’ of a typical students union, could be deemed to be ‘fundraising events’ for the purposes of group 12, schedule 9, VATA. The Upper Tribunal (UT) decided that sales of stationery, art materials and other items from student union shops were not exempt supplies closely related to education.
  • KretztechnikChurch of England Children’s Society – These decisions provided an opportunity for charities to obtain partial VAT recovery on costs of fundraising services. The result of Church of England Children’s Society is that VAT incurred on costs of generating donations is not necessarily directly attributable to non-business activities; instead, the charity can attribute the cost to the activity that the donations will support. If these are generally supporting the overall work of the charity this means the VAT incurred can be partially recoverable. This will not apply where the donations are restricted for charitable non-business use.
  • Madinatul Uloom Al Islamiya – This FTT case found that there was an annexe for VAT purposes but no relevant charitable purpose (RCP).
  • Marlow Rowing Club – This FTT case related to penalties for “careless” application of a zero rate certificate based on the Longridge decision. A commentary by Graham Elliott can be read here.
  • Metropolitan International Schools – The Upper Tribunal has overturned an FTT decision regarding the issue of determining the VAT treatment of a single indivisible supply where there appears to be more than one element. See Graham Elliott’s commentary here. Charities that have relied on the FTT’s decision in this case will need now to take advice and should approach any case of relying on a relief for a complex supply with care.
  • MVM – Following this CJEU case it is recommended that holding companies who are involved in the management of their subsidiaries effectively charge the members of the group for the management services. Read Dermot Rafferty’s commentary here, which includes a review of  new HMRC guidance on VAT recovery for holding companies.
  • Paragon Customer Communications Limited – This FTT decision relates to supplies to an insurer, and there are similarities between it and the issues surrounding VAT on printed charity fundraising packs. HMRC lost the case, with the tribunal holding that the supply was one of zero rated goods. HMRC is yet to decide whether to appeal. A full commentary on the case by Graham Elliott can be read here.
  • Quarriers v Revenue & Customs: This 2008 case considered whether the charity could qualify for zero rating on the purchase of construction services in order to build a new epilepsy centre. HMRC held the view that Quarriers was carrying out a business activity because the services were provided in return for the funding. The Tribunal concluded, however, that the services were provided on the basis of need and that there was no link between the costs of providing the service and payment of the funding. The construction costs for the centre therefore qualified for the zero rate.
  • Queen’s Club – This FTT decision on partial exemption will be of interest to charities that make exempt supplies, which give rise, downstream, to taxable supplies. HMRC thought that the input tax should be apportioned to reflect the exempt subscription income from members, but the tribunal allowed the appeal, and confirmed full recovery. It follows on the heels of the decision in the case of Chester Zoo in which full input tax recovery was allowed (by implication) on the costs of catering outlets, but the taxable turnover of those outlets was included in the apportionment values for the costs of keeping the animals. HMRC is apt to view this as a case of tax payers wanting to have their cake and eat it, but the position can often be argued in a charity’s favour on perfectly legitimate grounds.
  • R. J. Tolsma: In this important 1994 case, the CJEU concluded that where a person’s activity consists exclusively in providing services for no direct consideration there is no basis of assessment and that the services are therefore not subject to VAT.
  • Roman Catholic Diocese of Westminster – HMRC denied VAT relief on the basis that the new fabric did not create an ‘annexe’ in the VAT sense.  The Diocese appealed and won the case. Read a commentary on the case by Graham Elliott here.
  • Royal Opera House Foundation – The FTT has considered what proportion of the VAT on the costs of producing the opera should ROH be able to recover? The FTT has ruled that the production costs had a sufficient link to catering sales, and to sales of ROH’s own recordings. By contrast, there was no such link to other sales from the shop, or commercial hire of rooms. Overall, it appears that a significant proportion of ROH’s taxable supplies should be factored into its method for recovering VAT on production costs.
  • Serpentine Trust – This FTT decision illustrates how an Alternative Dispute Resolution (ADR) agreement with HMRC may not necessarily give certainty to a taxpayer even though both parties have agreed its terms. An earlier case (in 2014) involving the charity concerned the VAT treatment of ‘donations’ made by four friends schemes to the Serpentine Gallery, which provided the donors with benefits from the gallery. The FTT decided that the ‘donations’ were consideration for the standard rated supplies of the benefits. Applying Tron Theatre, the full amount paid for the benefits was the taxable amount subject to VAT, irrespective of their value and any ‘donative intent’. The tribunal rejected, inter alia, the trust’s argument that the supplies were multiple, not composite, and accordingly zero-rated or exempt in part: it is arguable that it is this element of the decision which is most open to challenge.
  • St Andrew’s College Bradfield – Upper Tribunal decision, which held that the sporting services supplied by two subsidiaries of a non-profit making body failed to qualify for VAT exemption as their constitutions did not contain any specific prohibition on the distribution of profits.
  • Sveda / Durham Cathedral – The CJEU has published decisions in Sveda, Skandia and Larentia + Minerva, with strong implications for policy relating to VAT reclaim on costs of acquiring and managing trading subsidiary entities, and the scope of the permissible membership of a VAT group. HMRC’s cost-component theory all but defeated by these cases. CTG has submitted a paper to HMRC on the implications of Sveda (available on request) and held a follow-up discussion with HMRC officials to discuss the implications of the decision for charities. A Business Brief may yet be published, particularly following the Durham Cathedral case.
  • University of Cambridge – in this case relating to investment management fees, HMRC is seeking to reverse the Upper Tribunal’s decision in favour of Cambridge. The Court of Appeal referred the issue to the CJEU for guidance and unfortunately, in July 2019, the CJEU ruled against the University of Cambridge. This case has potentially serious ramifications for charities – read a detailed commentary of the decision here.
  • University of Newcastle – FTT decision in relation to VAT on overseas agents. This will not be appealed.
  • Wakefield College – Wakefield College’s appeal against the Upper Tribunal’s decision in favour of HMRC, has been rejected by the Court of Appeal. This case concerns the meaning of non-business use of a new building constructed by a charity further education (FE) college. Read more here.
  • Wellcome Trust –HMRC has appealed the FTTs decision on the application of the reverse charge to the receipt of investment management services by Wellcome from its non-EU suppliers. We understand that the Upper Tribunal has referred the case to the CJEU. In the well known Wellcome Trust case from 1996 it was held that buying and selling investments is not of itself a business activity. The CJEU found that Wellcome was managing investments in the same way as a private investor as it was itself prohibited from engaging in trading in investments.
  • Will Woodlands – Important recent FTT case which confirms that a charity’s objects or ‘motive’ are not relevant in determining the right to input tax recovery. A detailed commentary on the case, by Graham Elliott, can be found here.
  • Wolverhampton Citizens Advice Bureau (CAB) – Although strings were attached to the grant given by the local authority to the CAB, that in itself did not create a supply, because the local authority itself did not derive any direct benefit from the advice given. The only supplies made were to the local citizens; and because these were mainly free of charge, there was no supply for VAT purposes. Read HMRC’s summary of the case here.
  • Yarburgh Children’s Trust / St Paul’s Community Project LtdBoth cases concerned whether or not the charity in question was carrying out activities that were non-business for VAT purposes and therefore whether the construction services that they were purchasing could qualify for zero rating. HMRC contended that the charities were in business because they were making a charge to users, albeit not at a commercial level but enough to top up their charitable income. The High Court decided in both cases that this did not amount to a business activity because the taxpayers were not predominantly concerned with the making of taxable supplies to consumers for consideration. Therefore, the expenditure was for non-business purposes (‘relevant charitable purpose’) and could qualify for zero rating.
  • Yeshivas Lubavitch Manchester – Graham Elliott has published two commentaries on this VAT case, looking at the status of Relevant Charitable Purpose for nurseries and the VAT status of annexes.
  • YMCA – Four English YMCAs have come together to appeal a decision on the VAT treatment of their funding from local authorities under the Supporting People scheme.  Unfortunately, they have lost in the FTT and it is reasonable to assume that other YMCAs, and similar bodies, will feel the effects of the decision. A commentary by Graham Elliott can be found here.
  • Yorkshire Agricultural Society –The FTT has dismissed the appeal in this case which concerned whether certain events provided free of charge by a charity are part of its overall economic activities. Dermot Rafferty’s commentary provides further details here.
  • ZipVit – The Upper Tribunal confirmed that Royal Mail supplies that were wrongly exempted are not liable to deductible input tax seemingly because of the lack of the needed tax invoices. This decision was appealed, but the Court of Appeal has held in favour of HMRC.  The case is now revealed not to have helpful facts on which a general principle could be established. This, coupled with having lost all three judgments in a row, must make a prediction of ultimate failure more likely. This is a test case and it is thought that several charity claims are reliant on it.