Summary
For VAT, a permanent supply of goods or services for remuneration is generally an economic activity where the payment has a direct link with the supply. The inquiry is objective. Purpose, charitable status, absence of profit, use of volunteers and concessionary pricing do not by themselves remove the activity from VAT, although the full circumstances may show that no direct link or economic activity exists. Domestic indicia such as businesslike organisation, regularity and comparison with commercial providers may assist, but cannot replace the direct-link analysis. The predominant concern approach is unhelpful and misleading when it asks about the supplier’s motive. A charge below market value remains capable of being consideration.
Factual background
Longridge, a charity providing water-based, outdoor and educational activities, charged users amounts adjusted according to ability to pay and available donations. It sought to recover VAT on the construction of a training centre by claiming zero-rating under Items 2 and 4 of Group 5 of Schedule 8 to the Value Added Tax 1994, relying on Note (6) and the building’s intended use for relevant charitable purposes.
The First-tier Tribunal allowed Longridge’s appeal against HMRC’s determination. The Upper Tribunal upheld that result in [2014] UKUT 504 (TCC). HMRC appealed. The central issue was whether Longridge’s activities constituted economic activity under Article 9 of the Principal VAT Directive and a business under section 4 of the Value Added Tax 1994.
Held
The appeal was allowed unanimously. Longridge’s activities constituted economic activity for VAT purposes, so the construction works did not qualify for the claimed zero rating.
- The governing approach was the direct-link test. A supply is made for consideration only where there is a direct link between the service and the payment. A permanent supply for remuneration received by the supplier generally falls within the economic-activity rule, subject to evidence showing that the link is absent or that the activity is otherwise non-economic. The relevant concepts in the Principal VAT Directive are objective and have a wide scope.
- The supplier’s purpose, charitable status, public benefit, lack of profit motive and reliance on volunteers do not determine the character of the activity. Consideration may be below market value or concessionary. That fact does not itself prevent the activity from being economic, although the relationship between the payment and the service remains relevant to the direct-link inquiry.
- The domestic indicia identified in Customs & Excise Commissioners v Lord Fisher remain useful tools, including regularity, scale, organisation and comparison with commercial providers. They cannot displace the CJEU approach. The predominant concern test is unhelpful and may be misleading, particularly when it refers to the supplier’s motive. The approaches in Yarburgh and St Paul’s were therefore incompatible with the governing principles.
- The charges made by Longridge were more than nominal and directly related to the cost of the services. Its established and continuous activities, substantial scale, professional organisation and operation in a market where similar services were commercially supplied supported the conclusion that it carried on economic activity. Donations, grants, volunteers, charitable objectives and concessionary charges did not rebut that conclusion.
- The First-tier Tribunal had applied the wrong legal test, and the Upper Tribunal was wrong to uphold it. The court left open the issues concerning fiscal neutrality and Articles 132 and 133 of the Principal VAT Directive. No preliminary reference was required.
The court’s approach to earlier authorities
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Appellate history
- Court of Appeal (Civil Division) allowed HMRC’s appeal and held that Longridge’s activities were economic activity for VAT purposes.
- Upper Tribunal (Tax and Chancery Chamber) dismissed HMRC’s appeal and upheld the First-tier Tribunal’s decision in [2014] UKUT 504 (TCC).
- First-tier Tribunal allowed Longridge’s appeal against HMRC’s determination.
Appeal route
- Appealed from[2014] UKUT 504 (TCC)This appealappeal allowed (unanimous)
- This judgment [2016] EWCA Civ 930 Court of Appeal (Civil Division)
Key cases cited
28 authorities cited.
- Institute of Chartered Accountants in England and Wales v Customs and Excise Comrs [1999] 1 WLR 701
- Edwards v Bairstow [1955] UKHL 3
- HMRC v London Clubs [2012] STC 388
- Finanzamt Saarlouis v Malburg Case C-204/13
- SPÖ Landesorganisation Kärnten v Finanzamt Klagenfurt Case C-267/08
- Commission of the European Communities v Finland [2009] ECR I-10605
- Gőtz [2007] ECR I-11298
- Hutchison 3G UK Limited & Ors v Commissioners of Customs and Excise Case C-369/04
- HMRC v St Paul’s Community Project Limited [2005] STC 95 (Evans-Lombe J)
- Customs and Excise Commissioners v Yarburgh Children’s Trust [2002] STC 207
- Floridienne SA v Belgium Case C-142/99
- Mol [1998] ECR 3645
- Institute of the Motor Industry v HMRC Case C-149/97
- SDC Case C-2/95
- Enkler [1996] ECR I-4517
- Wellcome Trust Ltd v Customs and Excise Comrs Case C-155/94
- Tolsma v Inspecteur der Omzetbelasting Leeuwarden [1994] STC 509
- Polystar Investments Netherlands BV v Inspecteur der Invoerrechten an Accijnzen Arnhem (Case C-60/90) [1993] STC 222
- Marleasing SA v La Comercial Internacional de Alimentación SA [1990] ECR I-4135
- EC v France [1988] ECR 4797
- Apple and Pear Development Council v Customs and Excise Comrs [1988] STC 221
- 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
- EDM
- BLP
- Banque Bruxelles Lambert SA v Belgium
- Stichting Uitvoering Financielle Acties v Staatssecretaris van Financien Case C-348/87
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Cases citing this case
1 later case · 1 negative
Most senior citing decisions:
- Wakefield College v Revenue And Customs [2018] EWCA Civ 952 not followed
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