The Upper VAT Tribunal has found that a charity, Longridge on Thames was not in business and could therefore take advantage of thea zero rate on construction as there was a relevant charitable purpose. i.e. a non business purpose.  The court found that the tests applied by the lower tribunal had been correct and would not overturn its decision.

Longridge is an example of a case where there was no doubt that the charity made supplies of the facility being built to groups. But this was not felt to mean it was necessarily a business activity. Its a case that follows the principles found in earlier VAT business cases such as Lord Fisher, Yarborough and St Pauls. What was interesting here was that HMRC argued the tests had moved on as a result of recent EU cases. This was not accepted by the Upper tribunal which found that the tests applied to determine business in the UK were compatible with recent EU case law.

I have long felt that the problem with business/non business cases in the UK is that the result you get on appeal appears to really depend upon who you get as a judge. Generally if you make supplies for consideration and they are of a reasonable scale HMRC will succeed in getting it accepted that you have a business activity but there have been exceptions of which this is one. The trouble is if you take the view that you are not in business you must be prepared to litigate and quite possibly beyond the tribunal and this means you must have deeper pockets than most charities.

I understand that HMRC are seeking to appeal this to the Court of Appeal and that must be a good thing. The business/non business question is one of the most important with charity VAT and its an area where a precedent from a higher court is long overdue. I remember being in HMCE VAT policy in the 90’s hoping for a case that could go to the Court of Appeal so the business question could be settled.

Of course if the courts do find that some charities are not in business even though they make supplies this may not be goo for all. Yes it means that some can now take advantage of the zero rate on construction but what of those that obtain VAT repayments because they undertake heavily loss making activities that are currently seen as business – for example a canal trust. They would be worse off if they can no longer charge and recover VAT.

The judgement can be found here http://www.tribunals.gov.uk/financeandtax/Documents/decisions/HMRC-v-Longridge.pdf