[2010] UKFTT 268 (TC)

TC00562

Appeal number MAN/2007/0600

VALUE ADDED TAX — exemptions — VAT Directive arts 133, 134, VATA Sch 9 Group 10 Item 3 — whether appellant’s supplies “closely linked to sport” and “essential” — appeal re-considered following Canterbury Hockey Club — appeal allowed

FIRST-TIER TRIBUNAL

TAX

THE BRITISH ASSOCIATION FOR SHOOTING

                                         AND CONSERVATION LIMITED                         Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

                                              REVENUE AND CUSTOMS                    Respondents

                            TRIBUNAL:    Judge Colin Bishopp

         Sitting in public in Manchester on 15 April 2010

Andrew Hitchmough and Jonathan Bremner, counsel, instructed by Baker Tilly, chartered accountants, for the Appellant

Richard Chapman, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.           This is the continued appeal of the British Association for Shooting and Conservation Limited (“BASC”) against an assessment, in the total amount of £397,551, made by the Commissioners in 2007. The parties are agreed that part of BASC’s subscription income is attributable to the exempt supply to its members of insurance and part to the zero-rated supply of magazines, but they disagree about the tax treatment of the remainder. BASC contends it is exempt while the Commissioners, having originally agreed with that view, decided in 2006 that it was standard-rated. BASC continued to account for VAT on its subscription income as it had been doing (that is, by treating the residual portion as exempt), and as a result the Commissioners made the disputed assessment, against which BASC appealed to the VAT and Duties Tribunal.

2.           The matter came before me in that tribunal in 2008, when BASC advanced two arguments: that the supplies it made in return for the residual part of the members’ subscriptions fell within Item 1 of Group 9 of Sch 9 to the Value Added Tax Act 1994 (“the political exemption”), since they were of a political nature; and, in the alternative, that they fell within Item 3 of Group 10 of the same Schedule (“the sporting exemption”), which reads

“The supply by an eligible body to an individual, except, where the body operates a membership scheme, an individual who is not a member, of services closely linked with and essential to sport or physical education in which the individual is taking part.”

3.           I dismissed the appeal by a decision (2008, VAT Decision 20739) released on 10 July 2008. BASC appealed to the High Court: see [2009] STC 1421. Lewison J agreed that the political exemption was not available to BASC, and dismissed the appeal in that respect. He concluded, however, that in my decision in respect of the sporting exemption I had applied what, following the judgment of the European Court of Justice in Canterbury Hockey Club v Revenue and Customs Commissioners (Case C-253/07) [2008] STC 3351, must be considered the wrong test. He was not satisfied that, had I had the benefit of that judgment (which was delivered between the release of my decision and the hearing of the appeal in the High Court), I would have come to the same conclusion and, the facts being the province of the tribunal, he remitted the matter to me for further consideration.

4.           At the further hearing BASC was represented before me by Andrew Hitchmough and Jonathan Bremner of counsel (neither of whom appeared before me at the first hearing or before the High Court) and the Commissioners by Richard Chapman, also of counsel, who has represented them throughout. I had some further evidence, in the form of statements made by Christopher Graffius, John Swift and Joseph Harriman. Mr Graffius and Mr Swift gave oral evidence at the first hearing, but Mr Chapman did not take issue with anything in their or Mr Harriman’s statements and I heard no further oral evidence on this occasion.

5.           As Lewison J indicated (see [2009] STC 1421 at [14]), the sporting exemption is available only if five conditions are met: the supply must be made by a non-profit-making organisation; the organisation must make a supply of services; those services must be supplied to persons taking part in sport; the services must be closely linked to sport; and the supply must be essential to the transactions exempted. There was never any dispute that the first two of those conditions are satisfied, nor has it ever been in dispute that the shooting of game is a sport. It is now agreed, following the judgment in Canterbury Hockey Club, that the third is met. The parties disagree about the closeness of the link between the supplies and the sport to which they relate, and whether, assuming a sufficiently close link, the supplies are essential.

6.           The background facts as I found them were set out in my first decision, and only a short recapitulation is necessary now. BASC is primarily a representative body, supporting the shooting of game and the conservation of the countryside. I found that it is a responsible organisation, some of whose activities (such as advising the police and government about gun control) are of benefit to the community at large and not merely to its members or sporting shooters as a class, but that was not sufficient to bring the supplies it makes within the political exemption. I found that its activities do not include the supply to its members of the facilities for taking part in sporting shooting—that is, the provision of weapons, game or the land on which to shoot it—and it was largely for that reason that I decided that the sporting exemption was not available; my view then was that, useful though the supplies (essentially, of representation, conservation and advice) which it made were, they did not have a sufficiently close link with sport to enable BASC to benefit from the exemption.

7.           The further evidence which was adduced for the purpose of this hearing expanded on the material before me at the first hearing. It described in considerable detail the nature of BASC’s activities which constitute the disputed supply. I need give at this stage, I think, only a few examples in order to convey the flavour of what BASC does; I will provide more detail later. It organises deer stalking schemes, two in England and one in Scotland, where its members may shoot, and it also has a web service which its members and others may use in order to identify and contact landowners who offer stalking. It makes it possible for coastal wildfowling to continue by negotiating rights of access, formulating codes of conduct and ensuring that wildfowlers retain a high reputation. It develops and runs training courses for coaches, range officers, school teachers, young people and its own members, and awards certificates to successful participants. It devotes a great deal of effort to protecting its members’ right to continue shooting, by lobbying and by educating ministers, MPs, chief constables and others about the sport. In particular, it endeavours to persuade legislators away from imposing what it perceives as unwarranted restrictions on shooting and the possession of firearms by demonstrating that shooting does not represent a danger to the public but has benefits, such as the control of vermin and the production of food. It has its own firearms department, of which Mr Harriman is the director, which has close links with the Home Office and the Association of Chief Police Officers enabling it to demonstrate more effectively that the association and its members are responsible people whose activities should not be unnecessarily restricted.

8.           The supplies in issue in the Canterbury Hockey Club case were made by England Hockey, a non-profit-making organisation whose purpose was the encouragement and development of hockey playing in England. It charged member clubs, of which Canterbury Hockey Club was one, affiliation fees in return for various services. They were described in the Court’s judgment, at [8], as

“including a club accreditation scheme, courses for coaches, umpires, teachers and young persons, a network of hockey development offices, facilities for accessing government and lottery funding, advice on marketing and obtaining sponsorship, club management services and insurance, and competitions for teams.”

9.           It was not in issue in that case that the supplies so described were “closely linked to sport”; the Court recorded that to be the case in terms which indicate it had no misgivings about the matter. The question was whether the fact that England Hockey’s relationship was with clubs, rather than with individuals taking part in sport, with whom it had only an indirect relationship, excluded those supplies from the sporting exemption. The tribunal found that it did not; the reality was that the supplies were made to individual participants and not to the unincorporated associations of which they were members, Canterbury Hockey Club itself being an unincorporated association, and that in consequence they fell within the sporting exemption.

10.        The Commissioners appealed that decision to the High Court, asserting that the clubs could not be regarded as “transparent”, while the club cross-appealed, advancing the additional argument that the requirement of domestic law that the supply must be made to an individual did not correctly transpose Community law. The High Court allowed the Commissioners’ appeal on the first point, but decided to refer two questions to the Court of Justice before deciding the club’s cross-appeal. The answers to the questions are not relevant, in themselves, to this appeal, but in providing them the Court made a number of observations on which Lewison J drew when deciding the appeal to the High Court in this case.

11.        Lewison J undertook a careful analysis of the relevant criteria on which it would be presumptuous of me to attempt to improve. He examined what the Court of Justice said not only in Canterbury Hockey Club but also in EC Commission v France (Case C-76/99) [2001] ECR I-249, EC Commission v Germany (Case C-287/00) [2002] STC 982 and Diagnostiko & Therapeftiko Kentro Athinon-Ygeia AE v Ipourgos Ikonomikon (Joined cases C-394/04 and C-395/04) [2006] STC 1349, cases in which the sporting exemption was not in issue but where similar considerations, or similar legislative provisions, were in point. At [26] he said

“From these cases I conclude that:

i)       The policy underlying the inclusion of ‘closely related’ services within the sports exception is to ensure that participation in sport is not hindered by the increased cost of participation that would result if the services in question were taxable;

ii)       The exception is intended to apply to sport generally, rather than to limited categories of sport;

iii)      Services are closely related to participation in sport only if they are ancillary to that participation;

iv)      Services will be regarded as ancillary to a principal service if they constitute not an end in themselves but a means of enhancing the enjoyment or benefit of the principal service.”

12.        He then undertook an examination of the fifth of the conditions he had identified at [14] of his judgment, and which I have repeated at para 5 above. He referred to it as the fourth but, as the parties agreed, that is an obvious error. His analysis relied, again, on the judgments of the Court of Justice in the cases to which I have already referred, and in addition on Staatssecretaris van Financiën v Stichting Kinderopvang Enschede (Case C-415/04) [2007] STC 294, in which the taxable person provided both care for pre-school children and an intermediary service for parents wishing to secure reliable care for their school-age children outside school hours. Those supplies were, of course, quite different from the appellant’s services, but similar considerations arose. At [34] Lewison J said

“From these cases I conclude that:

i)       The fact that a service is of great assistance to an exempted transaction is insufficient to make that service essential to that transaction;

ii)       The fact that there are alternative means of entering into an exempted transaction is relevant in determining whether the services in question are essential to that transaction;

iii)      But in considering that question the decision-maker must ask not merely whether, without the service in question, it would be impossible to enter into an exempted transaction, but whether it would be impossible to enter into an exempted transaction of the same value;

iv)      In the case of sport the exempted transaction is the sport itself.”

13.        Before applying the result of that analysis to the facts in this case it is necessary to say something about the second of those sub-paragraphs. At [35], Lewison J quoted para 41 of my first decision, in which I had said “it seems to me irrelevant that not all sporting shooters are members of BASC”. At [36] he commented, in respect of that observation, that

“The … point (that it is irrelevant that not all shooters are members of BASC or an equivalent organisation) is also, I think, an error of law. In EC Commission v Germany … the fact that many universities achieved their educational objectives without resorting to commercially funded research was critical to the court’s conclusion that such research was not essential. This point may not be a decisive point, but it goes too far to dismiss it as irrelevant.”

14.        With the greatest of respect, that comment seems to be based on a misunderstanding of what I intended to say in my first decision, though I readily accept that the misunderstanding may be attributable to an infelicity of wording on my part. The point I was endeavouring to make was that BASC’s supplies are not excluded from the exemption merely because other competing organisations may make the same or similar supplies, or because some sporting shooters, such as the owners of large estates, may be able to secure the same benefits themselves. In other words, it is the nature of the supply which must be examined, and it is not necessary that it should be obtained from a monopoly provider. Canterbury Hockey Club’s own supplies to its members are not disqualified from exemption because there is another, similar, club in Tunbridge Wells. As it happens, however, the evidence indicated that BASC is unique in the United Kingdom.

15.        In the light of Lewison J’s analysis it is clear that the test I applied in my first decision sets the bar much too high. As I have indicated, some of BASC’s supplies consist (contrary to my earlier understanding) of making available land on which shooting may take place. However, it is able to do so at only three such sites in the whole country, while shooting is carried on in many other places. It must at the least be questionable whether the provision of as few as three sites could properly be regarded as essential, even in the qualified sense to which Lewison J referred. But if the test is not whether BASC makes participation in the sport physically possible—by supplying game, guns (neither of which it supplies) or land—but whether, without its supplies, the quality of the sport would be of a materially lesser value, that ceases to be a decisive factor.

16.        The thrust of, in particular, Mr Graffius’s evidence was that without BASC’s activities it is unlikely that sporting shooting would still exist in this country, at least in a recognisable form. Mr Chapman did not challenge the evidence that BASC, by making representations to Members of Parliament and others, had been able to secure amendments to the Hunting Act 2004, so as to exclude from prohibition the control of foxes by flushing them (with dogs) from underground, nor the evidence Mr Graffius gave of BASC’s assistance to clubs (like Canterbury Hockey Club, unincorporated associations) negotiating to purchase land, or secure rights of access to land, on which shooting could take place. Its activities relate also to the preservation of game habitats, as I described in my first decision. Mr Graffius gave also a good deal of information about the manner in which BASC has successfully persuaded Government and others that gun ownership should not be prohibited or so closely controlled that sporting shooting would become virtually impossible. These are only a few examples, but it is clear to me from this unchallenged evidence that it is a far from fanciful proposition that, if BASC or some equivalent did not exist, there would be significantly greater restrictions on shooting than are in fact in place, and that the available facilities would be of a poorer quality. Mr Swift’s evidence, again unchallenged, compared the quality of shooting within the United Kingdom with that available in continental Europe, where policies of, at one extreme, tight regulation and, at the other, laissez faire have led to a diminished quality of sport.

17.        Mr Hitchmough’s argument was, in essence, that it was unnecessary to look further than the evidence since the only reasonable conclusion to be drawn was that BASC’s activities were closely linked to the sport of shooting, and essential to it in the sense developed by Lewison J. Mr Chapman, by contrast, argued that BASC is primarily a representative body, and that representation, far from being ancillary to the sport, is an end in itself. He relied on several passages in Mr Swift’s evidence which, he said, revealed that BASC considered it had a social function above and beyond participation in the sport itself. He particularly drew my attention to the following passage in the statement Mr Swift had produced for the first hearing:

“Though BASC is committed to helping those of its members who seek advice, the number who directly benefit in this manner is small (probably less than 10%); the purpose and focus of BASC’s work are programmes for safeguarding the future of responsible sporting shooting by ensuring that there continues to be somewhere for people to go shooting safely, plentiful game quarry to shoot sustainably, and continued freedom, subject to police checks, to possess and use sporting shotguns and rifles privately without danger to public safety.

In achieving those aims, the whole shooting community, not just BASC’s members, directly benefit and, in relation [to] matters such as wildlife and habitat conservation, animal welfare and gun safety, benefits demonstrably accrue to the wider population.”

18.        That passage showed clearly, he said, that BASC’s aims extended beyond sport, and were, and were intended to be, of benefit not only to sporting shooters or even BASC’s members, but also to the wider community. Some of its activities were expressly aimed at people such as gamekeepers who, though associated with the sport, were not (at least in their capacity as gamekeepers) participants in it. Moreover, it could not be said that BASC’s supplies were essential; they might, as I had concluded in my first decision, make it more likely that sporting shooting would survive, but that was not enough.

19.        The passage from Mr Swift’s statement which I have set out was made in the context of BASC’s earlier argument that its supplies came within the political exemption, and must be treated with some care, but I nevertheless agree with Mr Chapman that much of what BASC does is of benefit to the community at large and not specifically its own members, still less is it exclusively of benefit to sporting shooters: that is, broadly speaking, what I concluded in my first decision when considering the political exemption argument. But it seems to me to be beside the point. If the test, as explained by Lewison J, is whether the supplies are closely linked with a sport, and essential to it in the sense that, without them, the value of the sport would be less, it must be irrelevant whether others, who are not participating in the sport or are not members of BASC, also benefit. Those who do not play but enjoy watching hockey no doubt benefit from English Hockey’s organisation of team competitions, without which the opportunities to watch matches and, presumably, the quality of those matches would be reduced; but it would be a remarkable result if the fact that spectators derive a benefit were to bring the supplies outside the exemption.

20.        The only questions I need answer, therefore, are whether the supplies are closely linked with the sport of shooting, and whether they add value—I interpose, though I doubt it is controversial, that it must be significant value—to that sport. After applying that test, rather different from the one I applied in my first decision, I have reached the clear view that BASC’s residual supplies, as they are described in the evidence, do come within the exemption. In my judgment it is an inescapable conclusion that, without its campaigning, advisory, educational and land management activities sporting shooting within the United Kingdom, in all its forms, would be of materially poorer quality, and in some forms might not exist at all. Though hockey and shooting differ in many ways, I see no difference of principle, within the context of the test, between the supplies in issue in Canterbury Hockey Club and those in issue here.

21.        The appeal is, therefore, allowed. I was asked to give the parties permission to apply for a direction in respect of costs, on the assumption that I would be willing to apply the provisions of para 7 of Sch 3 to the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009. I give the permission requested, while adding that it seems to me, without the benefit of further argument, that costs should follow the event.

COLIN BISHOPP

Tribunal Judge

Release Date: 14 June 2010