This commentary relates to the case of Birmingham YMCA (and others), about which I wrote a previous commentary in September 2018, and in respect of which an appeal has been heard at the Upper Tribunal (UKUT0143). From the VAT technical point of view, this is a case about the application of VAT exemption to welfare services. Where a decision is made by the First tier Tribunal, and an appeal against that fails, it is usually a simple case of upholding the arguments that had been accepted by the first judge. Whereas the Upper Tribunal, in this case, dismissed the charities’ appeals, it is worth pausing to consider why, and what this tells us, in addition to the decisions by the first judge.
The conclusion was that the supplies by the YMCAs are exempt from VAT as being welfare supplies. You can read about why that is not the desired outcome (from YMCA’s standpoint) in my original commentary. The points on which the appeal failed were as follows:
- That the supply was to a local authority, and so was not to the actual persons in need of welfare (an argument which I believe was probably added as a ‘make weight’, since the point seems weak).
- That the true recipients were not “distressed” at the time of the service provision.
- That the supply was not one of those listed in the legislation (in this case not being “instruction”).
In my view, points 2 and 3 above were the strongest, and of greatest interest to charities in general. Taking the last point first, the Upper Tribunal discussed some abstruce semantical points, but finally focussed on whether “instruction” had to comprise only tutelage of some kind, or could be broader, in the sense of signposting possible avenues for enquiry, or providing tips and advice. Whereas mere provision of advice was recognised not to fall into the definition of “instruction”, the tribunal was not keen to see that as a reason to dismiss the over-arching provision within these services as being a form of instruction, taken as a whole. There was no ‘bright line’ between “instruction” and “advice”, and the judge decided then to consider whether the first judge had weighed up this factual distinction or had ignored it (hampered, arguably, by the original posing of somewhat different arguments in the first hearing).
This highlights a key problem for appellants. They do not need to convince the second judge of the merits of their argument per se. They need, instead, to show that the first judge was wrong. Where that wrongness is in relation to a ‘finding of fact’, their task is extremely challenging. The Upper Tribunal concluded that the first judge had dealt with this properly, so there was no basis to overturn the conclusion. That is not the same as saying that the second judge’s conclusion would have been the same, had he heard the case initially.
And the same was said about the second argument above. In effect, the decision was that the first judge’s view of the meaning of “distressed” had not been clearly distinguished from that judge’s factual finding that the recipients were actually distressed, so no error of law on the part of the first tribunal had been revealed. That essentially dismissed this point in the charities’ favour, without a fundamental analysis of what “distressed” should mean in the legislation.
So, on what was presented as a point of procedure – that an appeal could not lie against a factual determination of the first tribunal, the strongest argument in the charities’ arsenal was simply dismissed.
Perhaps this is a decision that cries out to be appealed, on the basis of “too much procedure; too little substance”. But whatever one’s view, it highlights the challenge of overturning a decision of the First Tier Tribunal where the detailed facts are the most critical aspect of the case, and where points of legal interpretation are therefore difficult to bring back to the surface once submerged by the facts.
Graham Elliott is Technical Adviser to the Charity Tax Group