In Longridge on the Thames v HMRC [2016] EWCA Civ 930 (1 September 2016), the Court of Appeal found that a charity carried out an economic activity so that VAT incurred on the construction of a training centre was not zero-rated.
Longridge provided water-based and other outdoor activities (for both recreational and educational purposes) and gave instruction in how to undertake such activities. It charged for these facilities but the charge was adjusted to meet the ability of the end user to pay, insofar as donations or receipts from other activities permitted it. It was not registered for VAT.
Longridge had incurred VAT on the construction of a training centre and it contended that the construction supplies should be zero-rated (under VATA 1994 Sch 8 Group 5 item 2 note 6), as the building was intended for use solely for relevant charitable purposes. HMRC considered that Longridge was carrying out business activities so that zero-rating did not apply. It argued that the CJEU had recently clarified the test for determining whether there was an economic activity. HMRC claimed that this now focused on whether there was a direct link between the service which the recipient received and the payment which he made, and not on the wider context in which the payment was made – which had been the position adopted by the both the FTT and the UT.
The Court of Appeal noted that a charity did not enjoy ‘blanket relief from VAT for its activities’. Its liability to VAT depended on whether its activities were economic activities, judged objectively. Agreeing with HMRC, the Court of Appeal held that if there was a direct link between the service and the money received by the service provider, an economic activity was established. There was no exception for activities carried out for the benefit of the public.
Why it matters: This case illustrates the difficulty in drawing the line between non-economic activity and economic activity, where a charity provides a service for a payment but that payment does not represent the full cost of the service. The Court of Appeal’s decision focused on the objective assessment of Longridge’s activity, so that its reason for providing the services was not enough to convert what would otherwise be an economic activity into an activity of a different kind.
In Longridge on the Thames v HMRC [2016] EWCA Civ 930 (1 September 2016), the Court of Appeal found that a charity carried out an economic activity so that VAT incurred on the construction of a training centre was not zero-rated.
Longridge provided water-based and other outdoor activities (for both recreational and educational purposes) and gave instruction in how to undertake such activities. It charged for these facilities but the charge was adjusted to meet the ability of the end user to pay, insofar as donations or receipts from other activities permitted it. It was not registered for VAT.
Longridge had incurred VAT on the construction of a training centre and it contended that the construction supplies should be zero-rated (under VATA 1994 Sch 8 Group 5 item 2 note 6), as the building was intended for use solely for relevant charitable purposes. HMRC considered that Longridge was carrying out business activities so that zero-rating did not apply. It argued that the CJEU had recently clarified the test for determining whether there was an economic activity. HMRC claimed that this now focused on whether there was a direct link between the service which the recipient received and the payment which he made, and not on the wider context in which the payment was made – which had been the position adopted by the both the FTT and the UT.
The Court of Appeal noted that a charity did not enjoy ‘blanket relief from VAT for its activities’. Its liability to VAT depended on whether its activities were economic activities, judged objectively. Agreeing with HMRC, the Court of Appeal held that if there was a direct link between the service and the money received by the service provider, an economic activity was established. There was no exception for activities carried out for the benefit of the public.
Why it matters: This case illustrates the difficulty in drawing the line between non-economic activity and economic activity, where a charity provides a service for a payment but that payment does not represent the full cost of the service. The Court of Appeal’s decision focused on the objective assessment of Longridge’s activity, so that its reason for providing the services was not enough to convert what would otherwise be an economic activity into an activity of a different kind.
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