First-tier Tribunal (Tax)

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Cite as: [2009] UKFTT 114 (TC)

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Keele University Students Union v Revenue & Customs [2009] UKFTT 114 (TC) (27 May 2009)
VAT - EXEMPT SUPPLIES
Cultural services

[

[2009] UKFTT 114 (TC)

TC00082

Appeal Number: Man/08/0387

FIRST TIER TRIBUNAL TAX

VAT – EXEMPT SUPPLIES – Eligible Body – No – Appeal Dismissed

DECISION NOTICE

(Summary Reasons)

Rule 35(2) The Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009

KEELE UNIVERSITY STUDENTS UNION Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE and CUSTOMS Respondents

Tribunal: MICHAEL TILDESLEY OBE

Sitting in public at Birmingham on 14 May 2009

Nigel Gibbon, Director of VAT & Customs Appeals, Omnis VAT Consultancy Limited, Agent for VATangles for the Appellant

Vinesh Mandalia counsel instructed by the Solicitor's office of HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

The Appeal

The Appellant was appealing against HMRC decision dated 9 August 2007 that the Appellant did not qualify as an eligible body so as to treat as exempt its supplies of a right of admission to entertainments which qualify as a performance of a cultural nature (item 2b group 13 schedule 9 of the VAT Act 1994).

The Dispute

The dispute concerned whether the Appellant met the requirements of an eligible body as defined by note 2 group 13 schedule 13 of the VAT Act 1994 which provides

"For the purposes of item 2 "eligible body" means any body (other than a public body) which –

a) is precluded from distributing, and does not distribute any profit it makes;

b) applies any profits made from supplies of a description falling within item 2 to the continuance or improvement of the facilities made available by means of the supplies; and

c) is managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities.

In order to qualify as an eligible body the Appellant has to establish on the balance of probabilities that it meets the three requirements of note 2.

Notes 2a and 2c refer to the organisation as a whole. Note 2b is specific to the supplies of a right of admission.

The Evidence

The Tribunal heard evidence from Martyn John McCormack, General Manager of the Students Union, Maurice Tootell, Management Accountant, Talah Omran, Students' Union President, and Dauda Bappa, Students Union Vice President for the Appellant. The witness statement of John McCombie, HM Revenue & Customs Officer was admitted in evidence for HMRC. A bundle of documents was received in evidence.

Summary Findings of Fact and Reasons

First Requirement: Precluded from distributing, and does not distribute any profit it makes

Membership of the Appellant was open to all registered students of Keele University.

The Appellant's constitution indentified three objectives:

(1) To advance education;

(2) To promote and enhance the general welfare of its members;

(3) To provide a recognised channel of communication between the Appellant's members and other bodies.

The constitution did not have a stated aim of making profits.

The Appellant's statement of values included:

"We are dedicated to re-investing our surpluses in order to provide and develop our services, whilst improving the facilities we have here".

The constitution did not have an explicit clause prohibiting distribution of any surplus made on its activities. The sole clause relating to its assets and liabilities was that on dissolution of the Appellant as an organisation, the University shall assume control of the Appellant's assets and liabilities.

The Appellant was a membership organisation which has no external shareholders. The Appellant enjoyed charitable status as a result of its association with the University.

The Appellant was organised as a mutual trading association with commercial costs centres and non commercial activity centres. The income gained from the commercial areas was applied to the costs of the non-commercial activities.

The Appellant's annual turnover was approximately £2 million which was supplemented by a block grant from the University.

The Appellant has made an annual surplus of £6,000 to £15,000 in four of the last six years. The surplus was applied to the Appellant's services and facilities for its members.

The Appellant's staff except the General Manager were entitled under their conditions of employment to a small flat rate annual bonus at Christmas if they have been in the Appellant's employment for a qualifying period of time and the commercial activities made a profit. The bonus was usually about £100. The Tribunal finds that the bonus did not amount a distribution as understood in Kennemer (see Advocate General's opinion at paragraph 4: take the form of unusually high remuneration for employees).

The Tribunal decides that the Appellant was a non-profit making organisation and that its operating surpluses were not distributed to the Appellant's members as profits. The Appellant meets Note 2a.

(Applied the rationale of ECJ in Kennemer Golf and Country Club v Staatssecretaris Van Financien Case C – 174/00 [2002] 3 WLR 829)

Second Requirement: Applies any profits made from supplies of a description falling within item 2 to the continuance or improvement of the facilities made available by means of the supplies

Appellant adduced evidence that any surplus gained from the admission charges was allocated to the entertainments sub-section of the capital reserves, which were then applied to improving the entertainments facilities. HMRC did not challenge the evidence.

The Tribunal decides that the Appellant meets Note 2(b).

Third Requirement: Is managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities?

The Appellant has four sabbatical officers (shortly to be increased to five), the President and three (four) Vice-Presidents, who managed the Appellant's affairs and took decisions of "last resort".

The sabbatical officers took decisions of last resort principally at the Finance and General Purposes Committee and Staffing Committee. The sabbatical officers were the sole voting members on these two committees, and the only persons empowered to make decisions.

The sabbatical officers were elected annually by the student body.

The General Manager and the paid staff did not take decisions of last resort. They were obliged to implement the decisions made by the sabbatical officers.

The sabbatical officers were each entitled to a bursary for fulfilling their duties. The bursary for 2008 was £15,345 per annum which was related to the salary scale for the Appellant's employees (equivalent to the salary of a senior bar staff) and subject to income tax and national insurance. They were also entitled to reimbursement of expenses incurred on official duties which included a mobile phone, clothing, travel expenses and accommodation/subsistence. The terms and conditions of their appointment were set out in the Sabbatical Officer agreement covering duties, holiday entitlement and arrangements for sickness and absence.

The quantum of the bursary was not dependent upon the financial performance of the Appellant.

The Tribunal finds that

(1) The four sabbatical officers made decisions of last resort (conceded by the Appellant).

(2) The four sabbatical officers have no direct or indirect financial interest in the Appellant's activities in that the bursary was not results based or at such a high rate as to be a disguised means of distributing profit.

(3) The Appellant was not managed on an essentially voluntary basis. The sabbatical officers were entitled to bursaries which in effect were annual salaries. The bursaries although below the market rate for jobs of equivalent responsibilities were significantly more than a nominal rate. The decisions of last resort were made by the body of four sabbatical officers, all of whom were in receipt of this bursary.

The Tribunal decides that the Appellant did not meet note 2(c).

(The reasoning of May LJ and Lloyd LJ in Bournemouth Symphony Orchestra v Commissioners for HM Revenue & Customs [2006] EWCA Civ 1281) followed).

Decision

The Tribunal decides that the Appellant was not an eligible body in that it was not managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities. The Appellant was, therefore, not eligible to treat its supplies of a right of admission to a cultural event as exempt. Appeal dismissed. No order for costs.

MICHAEL TILDESLEY OBE

TRIBUNAL JUDGE

RELEASE DATE: 27 May 2009

MAN/

Notes

The Tribunal directed that the costs regime which operated prior to 1 April 2009 applied to this Appeal. The Tribunal noted HMRC counsel's objections to its direction.

A party may apply for full written findings and reasons, and must do so before making an application for permission to Appeal, provided the application is made in writing and received within 28 days after the date that the Tribunal released the decision notice.

A party wishing to Appeal this decision to the Upper Tribunal must seek permission by making an application in writing to the Tribunal within 56 days of being provided with full written reasons for the decision. An application for permission must identify the alleged error(s) in the decision and state the result the party making the application is seeking.