Case Study – 'Longridge v HMRC'

Is a charity carrying on a business for VAT purposes?

In the recent case Longridge on The Thames (Longridge) v HMRC [2013] UKFTT 158 (TC) the First-Tier Tribunal was once again asked to consider whether the activities of a charity amounted to the carrying on of a business activity for VAT purposes. Longridge is a charity formed in 2007 to provide boating and other water-based activities and facilities for young people from its premises on the banks of the Thames. Certain courses are also available for adults.

To improve the facilities on offer, Longridge had constructed a two storey building, with the ground floor designed as a toilet and shower block and the upper floor to be used as training and meeting rooms. On the presumption that the building was to be used solely for a relevant charitable purpose, otherwise than in the course or furtherance of a business (items 2, 4 and Note 6 to Group 5, Schedule 8 VAT Act 1994), the building contractor did not charge VAT. As an aside, it transpired Longridge had not issued to the builder the zero-rating certificate as required by Note 12 (b), but HMRC made no issue of that omission in these proceedings.

HMRC claimed that the nature of the activities carried on by Longridge amounted in whole or in part to the carrying on of a business, therefore denying them the entitlement to claim zero-rating relief on the construction. On the facts of the case, Longridge was acting in "a business-like manner". It had a full-time CEO and fundraiser with a business plan; in the previous year operating income had amounted to 80% to 90% of operational expenses; it is active on a considerable scale; it is professionally run, seeking out paying customers beyond its charitable remit to subsidise its activities; and the way it provides its courses is consistent with those of a commercial provider. Income in 2010/11 was £580,000 and it was holding assets in excess of £2m.

The issue to be decided was whether, at the time the relevant construction services were supplied to Longridge, they intended to use the building for a relevant charitable purpose, or in the course or furtherance of a business.

In considering this issue, the tribunal looked to the six indicators of whether an activity amounts to the carrying on of a business as first set out in Customs & Excise Commissioners v Lord Fisher QB [1981] STC 238.

The six indicators were summarised by Lord Slynn in ICAEW v C&E Commissioners HL [1999] STC 398 at p404e as...