St Andrew’s College Bradfield v The Commissioners for HMRC

For the sports-services exemption, the restriction in Note (2A)(a) must be a restriction on the body’s own ability to distribute profits. A company does not satisfy that condition merely because its sole shareholder is, at the relevant time, a non-profit-making body.

The company’s constitution is the primary source for identifying its aims and permitted distributions. Specific facts may show whether stated non-profit-making aims are carried out in practice, but cannot replace an appropriate constitutional restriction. Domestic VAT legislation implementing EU law should, so far as possible, be construed consistently with the Directive, even if the implementation may be defective.

The College was the representative member of a VAT group which included two wholly owned companies supplying sports facilities. It accounted for VAT on those supplies and sought repayment on the basis that the companies were eligible bodies for the exemption in Item 3 of Group 10 of Schedule 9 to the Value Added Tax Act 1994.

The First-tier Tribunal dismissed the appeal in [2015] UKFTT 0034 (TC). It held that the subsidiaries were not non-profit-making bodies because their constitutional documents did not restrict profit distributions, notwithstanding their sole charitable shareholder and deeds of covenant under which profits were intended to be paid to the College.

The Upper Tribunal considered whether those circumstances satisfied the second limb of Note (2A)(a), and the relevance of Kennemer Golf & Country Club v Staatssecretaris van Financiën Case C-174/00.

1. Appeal dismissed. The First-tier Tribunal made no error of law in holding that the subsidiaries were not eligible bodies during the relevant VAT periods.

2. Note (2A)(a) of Group 10 is prescriptive. To rely on its second limb, a body must be subject to a restriction which permits distributions of profit only to a non-profit-making body. The fact that the College was then the sole shareholder created only a consequential and temporary practical restriction. It was not the required restriction on the companies’ own powers.

3. The companies’ memoranda and articles did not prohibit distributions to non-eligible bodies. Their deeds of covenant did not cure that defect. They did not require all operating profits to pass to the College, could be terminated unilaterally, and did not prevent equivalent arrangements with profit-making bodies. The College could also sell shares or cease to be non-profit-making.

4. The Tribunal held that domestic legislation intended to implement EU law should be construed in the light of the relevant Directive: HMRC v IDT Card Services Ltd [2006] EWCA Civ 29. That approach applies even if the intended implementation may be defective.

5. Kennemer Golf & Country Club v Staatssecretaris van Financiën supported the conclusion. The constitution is the starting point, and in this case decisive, in assessing whether an organisation is non-profit-making; specific facts remain relevant but are not necessarily conclusive. The Tribunal declined to decide finally whether the domestic wording fully conformed to the Directive. It nevertheless adopted the construction departing as little as possible from the Directive’s requirements.

Any costs application had to be made in writing within one month of release of the decision.

• Upper Tribunal (Tax and Chancery Chamber): dismissed the College’s appeal.
• First-tier Tribunal (Tax Chamber): dismissed the College’s VAT repayment appeal in [2015] UKFTT 0034 (TC), holding that the subsidiaries were not eligible bodies under Group 10 of Schedule 9 to the Value Added Tax Act 1994.