The rules which determine whether VAT at the zero-rate can be applied to the construction of a new building by a charity are complex, particularly where the charity in question is a sports club and the new building will be a clubhouse or sports pavilion.
In the case of Caithness Rugby Club, the Upper-tier Tribunal dismissed HMRC’s appeal against zero-rating and, in finding that the construction of a new clubhouse met all the relevant conditions, the rugby club did not have to pay some £50,000 in VAT costs.
On determining whether the clubhouse was a ‘village hall or similar’, the Tribunal notes that it is not whether the building is similar in say, design to a village hall, but whether the ‘use’ of the building is similar. That is, the building could be designed with sports persons in mind, but what is important is whether, and to what extent, the building is at the disposal of the community, and whether any fees charged for its use are of a commercial nature.
In this case, it was agreed that there was no ‘commercial use’ and that as well as the rugby club a diverse range of community groups used the building.
HMRC argued that the local community did not have any effective control of the building as only the rugby club could be elected to the executive committee responsible for managing the clubhouse. Without such control, HMRC contended that even if it could be agreed that the building is ‘similar in use to a village hall’, the construction could not be zero-rated.
In siding with the club, the Tribunal stated however that VAT legislation does not require that a local community has direction over, or control of, the use of the building within which the relevant facilities are provided. Whilst in any particular case the existence or absence of direction or control will be a relevant factor, such is not necessarily a decisive one for VAT purposes; the ‘use’ of a building may still be at the disposal of a local community, even though the community is not the body directing or controlling such use.
Caithness Rugby Club is therefore a welcome decision, confirming that, despite HMRC’s assertions, a sports pavilion used by the wider community can be viewed as similar to a village hall, and the issue of control is not in itself a deciding factor in determining if the construction should be VAT zero-rated.
For more information please get in touch with David Wilson, or your usual RSM contact.