First-tier Tribunal (Tax)

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Cite as: [2009] UKFTT 126 (TC)

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Bridgnorth Golf Club v Revenue & Customs [2009] UKFTT 126 (TC) (09 June 2009)
VAT - INPUT TAX
Attribution

[2009] UKFTT 126 (TC)

TC00094

INPUT TAX – refurbishment of clubhouse – whether input tax recoverable – whether clubhouse used exclusively for taxable supplies – no – appeal dismissed

FIRST-TIER TRIBUNAL (TAX CHAMBER)

BRIDGNORTH GOLF CLUB Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Lady Mitting (Judge)

Marjorie Kostick BA FCA CTA (Member)

Sitting in public in Birmingham on 6 May 2009

Mr. J Darby FCA, former treasurer, for the Appellant

Richard Chapman of counsel, instructed by the General Counsel and Solicitor to Her Majesty's Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

The Appellant appeals against an assessment to tax in the sum of £7,050 for periods 03/06 to 09/06 inclusive and 06/07, notified on 12 May 2008 and raised to recover input tax claimed by the Appellant on the refurbishment of its clubhouse.

The facts were broadly agreed and we heard no oral evidence.

Bridgnorth Golf Club is an non-profit making sports club whose supplies of sporting services to members are treated as exempt for the purposes of VAT under Item 3, Group 10, Schedule 9 VATA 1994. The Club makes taxable supplies from the bar and catering and its entitlement to input tax is calculated in accordance with the standard partial exemption method. During 2005/2006, the Club refurbished three areas of its clubhouse namely the bar, the lounge and dining area and the kitchen. The Club reclaimed its input tax on the entire refurbishment on the basis that each of the areas was used wholly for taxable purposes. The Club then sought confirmation from the Commissioners that this had been the correct treatment. On behalf of the Commissioners, the matter was looked into by Mr. Joseph Bird, the assessing officer. He accepted that the Club had received separate supplies in relation to the three designated areas and he accepted that the input tax was recoverable in respect of the kitchen and bar areas. However, he did not accept that the lounge / dining area was used exclusively for taxable supplies with the effect that input tax in relation to this refurbishment could only be recovered subject to the Club's partial exemption method and he raised the assessment under appeal accordingly. There was no argument on quantum.

The lounge / dining area is available at all times when the club is open. The bar is situated along one wall of this area and the entire area is used for the consumption of drinks and the catering supplies. The room also contains a vending machine which supplies soup, tea and coffee etc. and when the refurbishment was carried out there was also a gaming machine installed. The AGM takes place in the lounge, which is also open to private functions and charitable events (in themselves exempt).

The ability to use the clubhouse is an incidence of a member's membership of the club and is included within the price of his membership. The Club recognises that the facilities offered by any golf club play an important part in attracting new members. This is witnessed, for example, by an extract from the minutes of the AGM held on 21 March 2007 which states that:

"the excellent standards that they have achieved, coupled with the bar and lounge refurbishments and the excellent state of the course, has built up a large amount of goodwill for the club, which hopefully we shall reap the benefits of in the coming years. If we are to attract new people to the club then all the right facilities have to be offered, because if we don't other clubs will"

The bar and catering services are not economically viable in their own right and as Mr. Darby told us and we accept, no profit is made on these supplies but without the bar and catering supplies the Club would find it "impossible to survive".

The relevant legislation is to be found in Regulations 101 of VATR 1995 (made pursuant to section 26(3) of VATA 1994) provide as follows:

"(1) … the amount of input tax which a taxable person shall be entitled to deduct provisionally shall be that amount which is attributable to taxable supplies in accordance with this regulation.

(2) In respect of each prescribed accounting period:

… …

(b) there shall be attributed to taxable supplies the whole of the input tax on such of those goods or services as are used or to be used by him exclusively in making taxable supplies,

… …

(d) there shall be attributed to taxable supplies such proportion of the input tax on such of those goods or services as are used or to used by him in making both taxable and exempt supplies as bears the same ration to the total of such input tax as the value of taxable supplies made by him bears to the value of all supplies made by him in the period."

The issue before the tribunal is whether or not the costs incurred on the refurbishment of the lounge and dining area were used or to be used exclusively in making taxable supplies (as contended by Mr. Darby) and thus directly attributable to taxable supplies or whether they were also used or to be used in making exempt supplies (as contended by Mr. Chapman) and thus properly fell to be residual.

We accept Mr. Chapman's submission that the test to be applied is not simply one of the physical use of the area. The test to be applied is that set out by Parker LJ at paragraph 28 of Dial-A-Phone Ltd v Commissioners of Customs and Excise [2004] EWCA CIV 603:

"Hence, on the authority of BLP and Midland Bank, in applying the 'used for' test prescribed by article 17(2) of the Sixth Directive the relevant inquiry is whether there is a 'direct and immediate link' between the input cost in question and the supply or supplies in question; alternatively whether the input cost is a 'cost component' of that supply or those supplies. It is clear from the judgments of the ECJ in BLP and Midland Bank, as I read them, that there is no material difference between these alternative ways of expressing the basic test."

It was also confirmed in Dial-A-Phone that the tribunal should seek a "sufficient" direct and immediate link rather than the "closest" link. In St. Helen's School Northwood Ltd v Revenue and Customs Commissioners [2006] EWHC 3306 (CH), Warren J at paragraph 75 said:

"I agree with Mr. Thomas that the search in the present case if for a fair and reasonable proxy for the "use" of the sports complex in making the exempt and taxable supplies made by the School. However, I also agree with Miss Simor that the physical use of the complex is not necessarily a fair and reasonable proxy for that use. I consider that her use of the phrase "economic use" is a helpful approach to establishing what the search is for."

The tribunal is therefore looking at not only the physical use of the lounge / dining area but also its economic use. In this context it is not possible to say that the area was used "exclusively" for taxable supplies. Certainly its primary physical use related to taxable supplies, being the area where the members congregated and consumed the drinks supplied by the bar and the food supplied by the kitchen. Even then this use was not exclusive as there were additional events held in the lounge which were in themselves exempt charitable events which the Commissioners argued would alone mean that the area was not used for exclusively taxable supplies. The more pertinent point however is the use of the clubhouse by the members is an intrinsic part of the their membership and inseparable from the exempt supplies of sporting services. The economic driver behind the refurbishment was not merely to make the taxable supply from the bar and the kitchen but, as recognised by the Club in the minutes of the 2007 AGM, to provide an attractive facility for the attraction of new members. The costs incurred in the refurbishment thus had a direct and immediate link to the exempt supply or in other words were a cost component of that supply. As Mr. Darby very fairly said, the Club could not survive without lounge and dining facilities and these had to be at their most attractive to build up the membership. This was the economic driver behind the refurbishment. As pointed out previously, the direct and immediate link does not have to be the closest link but a sufficient link.

For these reasons we find that the costs incurred in the lounge / dining area refurbishment were not used or to be used exclusively in making taxable supplies, but they were also used or to be used in the making of exempt supplies and the input tax therefore falls to be residual. The Commissioners' assessment is therefore upheld and the appeal is dismissed.

We would like to add that this is a highly technical area. The fact that we have had to dismiss the Club's appeal should not be seen as a criticism of the conduct of the Club, which has throughout acted in a totally honest and straightforward manner, not least in the fact that it was the Club that initially approached the Commissioners for confirmation that they had treated the supply correctly.

There was no application for costs and no order is made.

MAN/2008/0646

LADY MITTING

JUDGE
Release Date: 9 June 2009