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The Tribunal's ruling was published here http://www.courtservice.gov.uk/tribunals/comtax/decision/16441.htm If when this page is being read in the future [ it's being published in late 2003 ] the above link is broken here's the details that site carried. 16441 ZERO-RATING - VAT Act 1994 Sch 8 Group 5, Item 2(a), Note 6(a), (b) -
New building forming part of Community Centre - Building intended for use
solely for relevant charitable purpose - Village hall or similarly providing
social or recreational facilities for a local community LONDON TRIBUNAL CENTRE SOUTHWICK COMMUNITY ASSOCIATION
Appellant Tribunal: MR P H LAWSON (Chairman) Sitting in public in London on 14 October 1999 Mr Robert Killington of H L B Kidsons, Chartered Accountants, for the
Appellant © CROWN COPYRIGHT 1999 DECISION This is an appeal by the Southwick Community Association against a ruling by the Commissioners that the construction costs of a certain building which I shall describe below are to be standard rated, rather than zero rated. The sole issue is whether the building falls within Note 6(a) or (b) of Group 5 of Schedule 8 of the VAT Act 1994. 1. No oral evidence was given at the hearing and the facts stated in this Decision are derived from the bundle of documents provided by the parties. Note 6 reads as follows:- "Use for a relevant charitable purpose means use by a Charity in either or both the following ways namely:- (a) otherwise than in the course or furtherance of a business (b) as a village hall or similarly in providing social or recreational facilities for a local community"
2. The Southwick Community Association (which I shall refer to as "the Association") was formed on 31 January 1945. It was granted a 21 year Lease of a building called "The Homestead", previously a farmhouse and outbuildings, by the Local Authority, then the Southwick Urban District Council. The Community Centre was opened on 23 January 1946 after The Homestead had been refurbished by voluntary labour. In 1951 a barn was adapted and brought into use as an auditorium. The Association has a constitution, the latest version of which was adopted at a General Meeting of the Association held on 15 June 1998. The objects of the Association as stated in that constitution are:- "(a) to promote the benefit of the inhabitants of Southwick and its immediate neighbourhood in the Adur District of West Sussex ... without distinction of sex, sexual orientation, race or disability or political, religious or other opinions by associating together the said inhabitants and the local authorities, voluntary and other organisations in a common effort to advance education and to provide facilities in the interests of social welfare for recreation and leisure-time occupation with the object of improving the conditions of life for the said inhabitants. (b) to establish a Community Centre in Southwick ... and to maintain and manage the same (whether alone or in co-operation with any local authority or other person or body) in furtherance of these objects. (c) to promote such other charitable purposes as may from time to time be determined. The Association shall be non-party in politics and non-sectarian in religion". The Association is a registered charity. 3. Membership is open to individuals aged 18 years and over who live within the area described above ("Individual Members") and also to individuals aged 18 and over who live outside that area ("Associate Members"). It is also open to individuals under the age of 18 whether living within or outside the area described above ("Junior Members"). There is a class of honorary life members and membership is also open to Associations and organisations, whether incorporated or not, and including branches of national or international organisations, which operate solely or in part within the area described above which are voluntary or non-profit distributing and which wish to support the objects of the Association ("Affiliated Groups"). 4. The day-to-day operation of the Community Centre is under the control of the Management Committee which reports to a Board of Trustees. 5. The building in question in this appeal replaced a "temporary" structure, for the continued use of which the local planning authority had refused planning permission and some old outbuildings. In a Business Plan prepared in January 1996 in support of the Association’s application for National Lottery funding the building in question was described as "replacing old and temporary workshops with a new purpose designed building for arts and crafts use and for theatre support purposes". 6. The Business Plan included the following statement of its policy aims and objectives. 2. Policy, aims and objectives 2.1 The Community Association’s principal aims include: o promoting the well-being of people in the Southwick area, on the basis of equal opportunity;
2.2 The Association’s general aims in the field of arts and crafts are: o to facilitate the presentation of arts events for the enjoyment of local people;
2.3 Linked closely with the current development project, the Feasibility Report has drawn up some more specific objectives for the arts for the Association to develop and review over the next five years: o to increase the use made of the Centre’s facilities by groups presenting arts events;
7. The building development included two improvements which are not the subject of this appeal namely:- (i) In the Barn hall (a separate building) upgrading the quality of the auditorium and enlarging and re-equipping the stage area and (ii) improving the whole image and profile of the buildings. It was accepted that these items, together with the fitting out and redecoration of the Barn Hall and all professional and consultancy fees were liable to VAT at the standard rate. 8. The Association itself is not registered for VAT. On 17 My 1996 the Hon. Secretary of the Association wrote to the Commissioners’ VAT Business Advice Centre in Hove seeking guidance on the VAT treatment of the new arts and crafts building. He said, "The new arts and crafts building will be split between: (i) arts and crafts rooms which will be hired out ... in the same way as other rooms at the Community Centre (ii) two construction workshops that will be sub-let to three resident drama groups at an annual rental which is well below commercial levels for such facilities. Although the building is connected to an existing storage room, it will have completely independent access from the Community Centre garden and the external path running behind the complex." Earlier in the letter he had said: "I believe that the majority of our activity is of a non-business nature - we let rooms otherwise than for profit to a variety of community, arts and other groups." The Commissioners replied on 12 June 1996 saying: "... an annexe added to an existing building will only qualify for zero rating if the building is intended for use solely for a relevant charitable purpose. By this we mean either: (a) non-business use or (b) to provide social or recreational facilities for the benefit of the local community. You state in your letter that the building is to be let out to local groups. This is a business activity whether or not a profit is made." 9. Notice 701/1/95 ("Charities") was sent. The Notice explains how VAT affects charitable activities. Paragraph 9, headed "What kinds of activities are business" ...... contains the following:- "(a) ... (b) Hiring out charity-run buildings (for example village halls). Hiring out a charity-run building, for example a village hall or similar community building, for a set fee to local groups or individuals is business. Normally the fee is exempt from VAT. However charities can choose to waive the exemption and to charge VAT on their hiring fees. They would then be able to register for VAT and recover VAT on the related overheads. Charities are not able to waive exemption where the letting is to another charity that will use the building for non-business purposes." 10. Building work began in June 1997 and was completed a year later. The cost was about £325,000 and the relevant VAT was paid at the standard rate. 11. Mr Killingston’s firm wrote again to the Commissioners’ Hove office in April 1997 suggesting for the first time that the new building could fall within paragraph 6(b) "as a village hall or similarly in providing social or recreational facilities for a local community". The Commissioners’ reply dated 13 June 1997 rejected this suggestion on the grounds that "... the material I was sent in May 1996 clearly shows, for example, that the management committee provides social activities in the Centre. This fact alone precludes it from being regarded as a village hall." 12. I have been provided with the reports of the Trustees and the audited financial statements of the Association for the years ended 31 March 1998 and 1999. 13. The 1999 accounts in the Report of the Trustees include the following paragraph: "Annual review of activities In the previous year some of the Association’s facilities were closed for extended periods. In the current year, following completion of the development works, the facilities for hire were available for a greater period which raised income for the year from £61,226 to £66,046. The majority of this income derives from room hire at the Community Centre. Other significant services of income include revenue grants (£6,000) and canteen sales (£7,471). 14. Direct expenses on services comprise personnel costs and other expenses of providing the facilities and rooms for hire. The management and administration expenses of the Association principally comprise personnel costs." 15. In the Community Centre as a whole in the year 1998/99 there were 3946 bookings of rooms; there were 60 affiliated organisations and 144 individual members. Activities included whist drives, senior citizens’ lunches, a Festival, monthly concerts, a pre-school playgroup and a disco for children aged 5-12. 16. The new building, now called the Comber Wing, is not an annex. However, it is clear that, along with other parts of the Community Centre, it is available for use by affiliated organisation for a fee. It cannot, therefore, fall within note 6(a). 17. Is it, however, within Note 6(b) as being used "as a village hall or similarly in providing social or recreational facilities for a local community"? 18. The architects’ plans produced in evidence show the building as comprising two workshops, a craft room, a green room and three store-rooms on the ground floor with additional storage space on the first floor. 19. The building is used mainly by three theatre groups, the Southwick Players, the Wick Theatre Company and the Southwick Opera who provide entertainment at various times in the year at a cost of about £5 per seat, about one-third of the price charged by the nearest commercial theatre in Brighton. It is also used for culture projects, handicrafts, art exhibitions and committee meetings of the Association and of its associated groups. 20. The building is clearly not a village hall. Therefore, is it used "similarly in providing social or recreational facilities for a local community"? Mrs Saltissi referred to Note 12 which reads:- "(12) Where all or part of a building is intended for use solely for a relevant residential purpose or a relevant charitable purpose - (a) a supply relating the building (or any part of it) shall not be taken for the purposes of items 2 and 4 as relating to a building intended for such use unless it is made to a person who intends to use the building (or part) for such a purpose and (b) a grant or other supply relating to the building (or any part of it) shall not be taken as relating to a building intended for such use unless before it is made the person to whom it is made has given to the person making it a certificate in such form as may be specified in a notice published by the Commissioners stating that the grant or other supply (or a specified part of it) so relates." She suggested that paragraph (a) or paragraph (b) applied, but clearly the building was designed for the purposes of the Community Association which is a charity and that is the case whichever of its affiliated organisations may in practice use the building. The labels on the plans are irrelevant insofar as the whole building is available to the Association to put to whatever use, subject to planning requirements, it may choose, including use by affiliated organisations on such terms as may be agreed. The application, or otherwise, of paragraph (b) has been in suspense because no certificate could be issued while the Commissioners declined to accept that supplies relating to the construction of the building would be zero rated. 21. I turn to the Court of Appeal’s judgment in Jubilee Hall Recreation Centre Ltd v Customs and Excise Commissioners [1999] STC 381 for assistance on the proper construction of the words "similarly in providing social or recreational facilities for a local community". There are two parts. As to "similarly ..." Sir John Vinelott at p.390(a) said: "The plain purpose of sub-para (b) was in my judgment to extend the relief in sub-para (a) to the case where a local community is the final consumer in respect of the supply of the services, including the reconstruction of a building, in the sense that the local community is the user of the services (through a body of trustees or a management committee acting on its behalf) and in which the only economic activity is one in which they participate directly; the obvious examples are the bring-and-buy or jumble sale, the performance of a play by local players and the like. On a strict construction, any economic activity carried on by somebody outside the local community even to raise money for the maintenance of a village hall (by, for example, letting the village hall at a commercial rate) would be outside sub-para (b). Similarly a hospital which provides free medical care and which carries on the business of selling flowers and books to visitors is outside sub-para (a). Mr Kent explained that the commissioners exercise a reasonable administrative discretion and disregard such incidental use if it is modest in its scope. Lightman J criticised (at 421) the formulation which had been advanced by Miss Stockton of `something which is owned, organised and administered by the community’. I agree that that formulation adds a gloss to the words used which may be too restrictive. I prefer the tribunal’s approach. Sub-paragraph (b) is intended to cover economic activities which are an ordinary incident of the use of a building by a local community for social, including recreational, purposes. The village hall is the model or paradigm of that case." As to the `local community’ Sir John Vinelott said at page 390(e): "There was some debate before the tribunal and before Lightman J whether persons working in a given locality should be included in the local community. The tribunal while not expressing any final conclusion expressed doubts whether they could (see p.11, para 50). Lightman J took the opposite view (at 422). He thought that `to be a member of a local community, it is not necessary that a person reside in the locality: it is sufficient to be part of a local community that he has some degree of commitment, attachment, concern or sense of belonging to the locality. There is no appeal against that part of the decision of Lightman J. I should, however, say that I myself feel considerable doubt whether a simple rule can be formulated. It is easy to see that the local butcher, baker or candlestick maker or, in contemporary society, the local bank manager, solicitor, or accountant would ordinarily be regarded as part of the community in which they have their shop or place of work, although they may live outside. They would ordinarily be expected to take part in local activities. In the context of an urban area comprising primarily commercial premises with some residential premises the conception of a community comprising residents and all those who work in the area, seems to me extravagant. Nor can it be assumed, as was suggested on behalf of the charity, that all the unemployed, the senior citizens and disabled persons who use the facilities of the centre are persons resident in Covent Garden and its neighbourhood. Finally, I feel considerable doubt whether the persons for whom the facilities are said to be primarily intended, namely the `community of Covent Garden ... and its neighbourhood’ can aptly be described as `a local community’. The `neighbourhood’ is taken by the centre as including W1, SW1, WC1 and EC4 (see p 7, para 26 of the tribunal’s decision). The charity counts amongst the local community students attending places of education as distant and disparate as the St Martin’s School of Art, King’s College London, the London School of Economics and the Inns of Court School of Law. I doubt whether an area as wide as this can be treated as a `locality’ within the contemplation of note 6(b)." 22. In this case individual membership is based on residence, not the place of work, but includes people resident outside Southwick and its immediate neighbourhood; membership also includes "Affiliated Groups", which, as stated above, may be national or international, corporate or unincorporated, may operate wholly or solely in part within the Adur district and are either voluntary or non-profit distributing. 23. In general it would be reasonable to say that a Community Centre in an urban or semi-urban area such as Southwick might be expected to provide similar social or recreational facilities to those provided in a village hall. 24. In this case, however, the membership of the Association clearly includes individuals who are not resident in Southwick or "its immediate neighbourhood in the Adur District of West Sussex" and there is no limitation in the case of Affiliated Groups "which operate solely or in part" in that area that their own members must be resident in that area. 25. Therefore, the activities carried on in the Community Centre, including the building which is the subject of this appeal, are not limited to members of the local community. 26. This appeal, therefore, fails. The construction costs of the arts and crafts building were not eligible for zero-rating. The appeal is dismissed and there will be no order for costs. P H LAWSON CHAIRMAN RELEASED: 23rd
December 1999 LON/97/1703-SCA.LAW
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