Riverside Housing Association Ltd v Revenue and Customs

For VAT purposes, business and economic activity have a wide meaning. An activity may be a business even where it is conducted by a charity for social purposes, does not seek to maximise profit, and reinvests its surpluses. The continuing letting of property for rent is ordinarily the exploitation of property for income and is therefore an economic activity.

The special treatment of bodies governed by public law under Article 4(5) of the Sixth Directive is distinct. It does not convert an economic activity into a non-business activity. It applies only where the body is governed by public law and acts as a public authority. A housing association dealing with tenants under the ordinary civil-law regime does not satisfy that test.

Riverside Housing Association, a charity and registered social landlord, appealed against a Tribunal decision refusing zero-rating for construction services relating to its new divisional head office.

The claimed relief depended on Item 2 of Group 5 of Schedule 8 to the Value Added Tax Act 1994. Riverside had to show that the building was intended for use otherwise than in the course or furtherance of a business. It argued that its social purpose, public funding, rent controls and regulatory framework meant that its housing activities were non-business activities, and alternatively that it was a body governed by public law acting as a public authority.

The central issues were whether its letting of social housing was an economic activity and whether Article 4(5) of the Sixth Directive altered that conclusion.

1. The appeal was dismissed. The Tribunal was entitled to conclude that the construction services did not qualify for zero-rating because Riverside’s use of the head office was in the course or furtherance of a business.
2. Section 4 of the Value Added Tax Act 1994 had to be construed consistently with Article 4 of the Sixth Directive. The statutory term business therefore corresponded, so far as possible, with economic activity.
3. Business is a wide concept. The absence of a profit motive is not decisive. The relevant question concerns the intrinsic nature and continuity of the activity, viewed in its full factual context. Riverside’s substantial and continuing letting of properties for rent was an economic activity because it involved exploiting property to obtain income on a continuing basis.
4. Riverside’s charitable objectives, rent restrictions, public grants, reinvestment of surpluses and extensive regulation did not displace that conclusion. Those matters did not alter the economic nature of the lettings.
5. Article 4(5) provides an exemption from taxable-person status; it does not mean that the relevant activity was never an economic activity or business. The exemption requires both that the activity be carried out by a body governed by public law and that the body act as a public authority.
6. Riverside satisfied neither requirement. Its relationship with tenants was governed by the ordinary civil-law regime applicable to private landlords. Renting residential property, even as social housing, was not an official act performed on behalf of the State.
7. The Tribunal’s decision was therefore one which it was entitled to reach on the facts, applying the appellate approach in Edwards v Bairstow. The head-office construction was standard-rated.

The appeal was brought from a decision of the Tribunal dismissing Riverside’s appeal against the refusal of zero-rating. The High Court dismissed the appeal and upheld the Tribunal’s conclusion.