Customs & Excise v St Paul's Community Project Ltd

[2004] EWHC 2490 (Ch)

Summary

Whether a charitable activity is a business for VAT purposes depends on its intrinsic economic nature, not simply on the charity’s status, the charging of fees, or the absence of profit. Relevant factors include seriousness, continuity, scale, organisation, the nature of the supplies, and whether the activity is predominantly concerned with making taxable supplies for consideration. Fees are important but not decisive. A tribunal may compare materially similar activities and reach the same result where differences are matters of degree rather than principle. A not-for-profit nursery serving disadvantaged families was not shown to be a business within Note (6)(a) to Group 5 of Schedule 8 to the Value Added Tax Act 1994.

Factual background

The Commissioners appealed under section 11 of the Tribunals and Enquiries Act 1992 against the Manchester VAT & Duties Tribunal’s decision allowing St Paul’s appeal. The Tribunal held that construction works relating to premises used for a day nursery were zero-rated under item 2 of Group 5 of Schedule 8 to the Value Added Tax Act 1994.

The Commissioners contended that the nursery was operated in the course or furtherance of a business because parents paid fees, the activity resembled commercial nurseries, and the Tribunal had wrongly relied on Customs and Excise Commissioners v Yarburgh Children’s Trust. The central issues were the correct construction of “business” in Note (6)(a) and whether the Tribunal’s factual conclusion was legally unreasonable.

Held

  1. Appeal dismissed. The High Court could interfere with the Tribunal’s factual conclusion only for an error of law or where no tribunal properly instructed in law and acting judicially could reasonably have reached it, applying Edwards v Bairstow.
  2. Charitable status does not automatically exclude business activity. A charity may operate a taxable business. Its charitable character remains relevant to whether the activity has the economic content required by Article 4 of the Sixth Directive.
  3. Fees were important but not decisive. VAT liability did not depend on profit-making or an intention to make profits. The relevant factors were seriousness, reasonable continuity, substantiality, regular conduct on sound recognised business principles, predominant concern with taxable supplies for consideration, and supplies commonly made by profit-seeking persons.
  4. All factors except predominant concern with taxable supplies for consideration could be answered affirmatively. The Tribunal was entitled to answer that factor negatively. The evidence showed a socially directed, not-for-profit nursery, preferential admissions for disadvantaged children, fees below commercial rates, higher staffing costs, and fees set only to cover costs after grants and donations.
  5. Customs and Excise Commissioners v Yarburgh Children’s Trust was properly used as a factual and legal comparison. The differences between the nurseries were differences of scale or degree, not principle.
  6. Tax neutrality did not determine whether the nursery was a business. The intrinsic nature of the enterprise had to be established first.

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Appellate history

The appeal was brought from the Manchester VAT & Duties Tribunal’s decision released on 28 January 2004. The Tribunal had allowed St Paul’s appeal against the Commissioners’ decision that construction works serving the nursery were standard-rated. The High Court dismissed the Commissioners’ appeal.

Key cases cited

10 authorities cited.

  • Edwards v Bairstow [1955] UKHL 3
  • Customs and Excise Commissioners v Yarburgh Children’s Trust [2002] STC 207
  • Floridienne SA v Belgium Case C-142/99
  • Institute of Chartered Accountants for England & Wales v Commissioners of Customs and Excise [1999] STC 398
  • Wellcome Trust Ltd v Commissioners of Customs and Excise [1996] ECR 3013
  • Polystar Investments Netherlands BV v Inspecteur der Invoerrechten an Accijnzen Arnhem (Case C-60/90) [1993] STC 222
  • EC v France [1988] ECR 4797
  • Commission v Netherlands Case C-235/85
  • C&E Comrs v Lord Fisher [1981] STC 238
  • Customs and Excise Commissioners v Morrison’s Academy Boarding Houses Association [1978] STC 1

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