This is all about VAT for Sports Clubs & charities and the problems faced by CASCs with VAT relief on construction.
In two quite separate cases two more sports clubs have fallen VAT victim to the distinction between a CASC and a charity. Both failed to have construction work zero rated: Eynsham Cricket Club [2021] BVC 3 in the Court of Appeal and Westow Cricket Club [2021] BVC 504 in the Upper Tribunal. These cases both form important precedent that cannot be ignored. Any CASCs out there need to be aware of the important distinction between CASCs and charities before assuming they can benefit from VAT zero-rating on construction costs.
The backdrop here is that it is possible for a building to be used for a relevant charitable purpose (RCP) to be constructed on a VAT zero-rated basis. To do so the customer must be a charity and issue a RCP Certificate to the contractor. But to do so when ineligible leaves them open to not only having tax imposed retrospectively but also to penalties.
In the Eynsham case the club was run by volunteers and registered with HMRC as a CASC. Following a fire a new pavilion was to be constructed and the contractor initially zero-rated the work being done. However HMRC decided the club was not entitled to zero-rating which the club appealed initially at the First Tier then the Upper Tier and now the Court of Appeal. Unfortunately the HMRC’s contention that, as the club was not a charity it could not benefit from zero-rating, has again been upheld.
The fundamental problem with VAT for Sports Clubs & charities is that when CASCs were introduced in 2002 they were given some but not all of the tax benefits available to charities.
Since 2009 a club can no longer be treated as a charity for VAT purposes and also be registered as a CASC. The Court of Appeal decided that the legislation permitted VAT relief to charities who have chosen to submit to the regulatory regime governing charities with the consequential greater burden that imposes. Contrast a club that registered as a CASC to obtain different tax reliefs and lesser regulatory burdens. In this case a club cannot qualify as a charity and accordingly cannot benefit from the zero-rating for charitable buildings.
Although on a day-to-day basis a charitable club and a CASC are probably run in a very similar manner, the Court of Appeal decided that the legislation treats CASCs and charities as separate and different entities, governed by different regulatory regimes and subject to different tax reliefs. This decision creates a sharp divide between CASCs and charities when looking at how much VAT has to be paid on a building project. Choosing whether to remain as a CASC or register as a charity should take this distinction into account.
The Westow case centred on the same argument but in this case the club had actually written to HMRC for confirmation of RCP status and HMRC had said that the pavilion ‘appeared’ to qualify. The club completed the RCP certificate and gave its CASC number where the charity registration number was requested.
The Upper Tier followed the Eynsham case by accepting that a CASC is not a charity and therefore the argument for Westow was limited to whether they had a reasonable excuse for incorrectly issuing the RCP certificate. Fortunately sense prevailed and the club was found to have a reasonable excuse and therefore not penalised for issuing the certificate.
Any other decision would have been absurd given that the club had tried to act correctly albeit criticised by the tribunal for having placed undue reliance on HMRC’s letter and should have taken into account all of the relevant circumstances prevailing at the time. For taxpayers to have to deal with such esoteric areas of law and then be criticised for arriving at the wrong decision is perverse but nevertheless this case is a good example of why VAT needs to be thought about very carefully.
The lesson here is that any club looking at undertaking construction of a new building should first consider becoming a charity. It is very sad that organisations run on a voluntary basis and registered as CASCs rather than charities keep being faced with this same argument. Perhaps it would be nice if published guidance made the CASC -versus- charity distinction clear to help clubs avoid this problem.
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