Eastbourne Town Radio Cars Association v. Commissioners of Customs & Excise

An unincorporated association may be a taxable person making taxable supplies to its members. A supply arises where an association provides facilities or services under its rules in consideration of payments into its funds.

The statutory incidence of VAT depends on the commercial reality. Private contractual descriptions, including provisions presenting members as joint employers or principals, do not determine the VAT result. Subscription payments may constitute consideration even when calculated by dividing annual expenses rather than charging for individual uses. There must nevertheless be a direct link between the payment and the member’s entitlement to the facilities or services.

An unincorporated association of private hire car drivers provided advertising, communications and related services through salaried staff. Its members paid a joining fee and periodical contributions towards its expenses. After revising its constitution to describe the members as joint principals and employers, the Association applied to cancel its VAT registration under paragraph 13(2) of Schedule 1 to the Value Added Tax Act 1994.

The Commissioners refused cancellation. The London VAT Tribunal upheld that decision, Turner J reversed it in [1996] STC 1469, and the Court of Appeal restored the Tribunal’s decision in [1998] STC 669. The central issue was whether, despite the revised contractual arrangements, the Association made taxable supplies of services to its members.

1. Appeal dismissed unanimously. Lord Slynn and Lord Hoffmann delivered reasoned speeches. Lord Cooke, Lord Hobhouse and Lord Scott agreed with both. The Association was making taxable supplies to its members and remained liable to registration for VAT.

2. Per Lord Slynn, section 94(2)(a) of the Value Added Tax Act 1994 showed that Parliament intended an unincorporated association’s activities to fall within VAT. The provision of facilities or advantages to members for a subscription or other consideration was deemed to be the carrying on of a business. The Association’s infrastructure, governance, membership rules and control over access to services established that it was an association or organisation within the Act.

3. Per Lord Hoffmann, an unincorporated association was a “person” because Schedule 1 to the Interpretation Act 1978 included a body of persons corporate or unincorporate. Two matters identified a supply by an association to its members: there had to be an association, rather than merely a joint purchasing arrangement, and the service had to be provided under its rules in consideration of payment into its funds. An association commonly had mutually binding rules, objects, governance arrangements, continuing membership and rules governing members’ benefits. Those characteristics were indicative rather than exhaustive.

4. Both conditions were satisfied. Members obtained the employees’ services under the Association’s rules and bye-laws in return for subscriptions paid into its funds. The descriptions of the members as joint employers or principals did not alter the character of the transaction. Nor did the method of dividing expenses by length of membership rather than individual use.

5. Per Lord Slynn, the joining fee and expense contributions were consideration for the Association’s services. There was the necessary direct link between payment and services. The commercial reality, rather than contractual drafting alone, determined the statutory VAT consequences. The services were non-exempt supplies under sections 4 and 5. Since their value exceeded the registration threshold in Schedule 1, the Association was a taxable person under section 3(1).

1. House of Lords: The Association’s appeal was dismissed unanimously. The Court of Appeal’s decision was affirmed: [2001] UKHL 19.
2. Court of Appeal: Restored the VAT Tribunal’s decision: [1998] STC 669.
3. High Court: Turner J set aside the VAT Tribunal’s decision: [1996] STC 1469.
4. London VAT Tribunal: Upheld the Commissioners’ refusal to cancel the Association’s VAT registration.