It is not easy to interpret the impact that the Upper Tribunal decision in HMRC v Greenisland FC (UKUT 440) will make on HMRC policy, on other tribunal decisions, or on decisions that charities themselves will make. This alone appears to make this decision far from satisfactory.
The case relates to the zero rate relief for the construction of a new property for a charity to use for relevant charitable purposes. However, the case was not so much about the relief, but about whether a penalty was due on the charity issuing a certificate for the relief. Unlike the recent decision in Marlow Rowing Club, however, the charity did not accept that the relief was non-applicable. The issue of whether a penalty ought to be imposed for issuing a certificate was therefore potentially defendable under two heads: that the relief applied in any event, and that the certificate was not issued carelessly by the trustees. The charity would win the case if it succeeded in either point. In the end, it succeeded in defending its conduct in issuing the certificate.
The tribunal was asked to consider two bases for the relief applying, and the third basis that the certificate was issued reasonably. The First tier Tribunal had accepted all three bases. However, as the charity in this case charged subscriptions to its members and hire fees to members of the community that were not its members, it is difficult to see how the tribunal could accept that the use of the building would be ‘non-business’. The Upper Tribunal excoriated the First tier Tribunal for its woolly logic in reaching this conclusion. One can only agree with that.
This then left the question whether the ‘village hall’ condition applied, in consonance with the Upper Tribunal decision in Caithness RFC. Whilst the Upper Tribunal was almost as dismissive of the First tier on this point, I detect a small difference. It appeared to say that the tribunal had not asked itself the correct questions and therefore failed to apply the correct test. But that is not the same as saying that the charity would have failed the test had these been properly asked. Although the Upper Tribunal oddly stated that it found for HMRC on this point, I believe it ought (had it been necessary) to have remitted it for re-hearing on the basis of incorrect procedure.
That it did not do so was probably because it accepted the charity’s final defence, namely that the certificate was issued after careful and reasonable consideration by the trustees.
HMRC could not persuade the Upper Tribunal to interfere with the lower tribunal’s judgemental decision, since that was the fact-finding tribunal, and it had trusted the testimony of the club. It is clear to me that there was some distaste on the Upper Tribunal’s part for HMRC’s attempt to impugn the probity of the charity’s witness. Despite the Upper Tribunal having lacerated the First tier’s efforts on the legal issues, it was unprepared to go as far as to overturn it on the issue of the charity’s conduct.
One of the reasons for this can also be found in HMRC’s change of position. Whereas its guidance says that the decision of trustees will be accepted where either it seeks professional advice or a determination from HMRC, the argument in the court was that all charity trustees must seek an HMRC determination. It is not clear whether this was advanced merely to win a case or is now HMRC policy. If so, they need to change their guidance. However, it is an approach to be deplored rather than welcomed. HMRC decisions on such cases are extremely partisan, and this threatens to turn VAT into a non-self-assessing tax. The implications of that are very far reaching. One also wonders why HMRC thinks it can resource such a commitment in this day and age.
The fact (accepted by both tribunals) was that the charity had contacted its advisers who had given oral advice that the building would be zero rated. That oral advice was considered to be sufficient. That nobody was sure that the advisers had explained on what they based their view was beside the point.
When considering how this contrasts with the outcome of the First tier decision in Marlow Rowing Club one is struck by the fact that the latter charity had obtained a detailed opinion from both a QC and its (substantial) external accountants, which had confirmed possible relief but subject to developments in case law. Yet, issuing a certificate in this case was deemed ‘careless’ despite it falling into line with the case law of the period (only overturned by the Court of Appeal later). That Greenisland could rely on an undocumented and unexplained oral decision by advisers, contrasts very unhappily with Marlow.
That said, it seems to me that Greenisland was so close to the precedent of Caithness that it ought to be regarded as not being careless on that basis. And, in my estimation, it is likely that it also qualifies for the relief on the Caithness precedent for village hall use in any event.
One can expect HMRC either to appeal or to make mileage out of this decision, in ways that are far from ideal.
Graham Elliott is Technical Adviser to the Charity Tax Group and Director of City & Cambridge Consultancy