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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Sport In Desford v Customs and Excise [2005] UKVAT V18914 (21 January 2005) URL: http://www.bailii.org/uk/cases/UKVAT/2005/V18914.html Cite as: [2005] UKVAT V18914

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18914

ZERO–RATING — value added tax — supply of the construction of a Clubhouse — whether for use by a charity — whether for use as a village hall or similarly in providing social or recreational facilities for a local community — appeal allowed — VATA 1994 s.30 and Schedule 8 Group 5 Item 2(a) and Note 6(b)

MANCHESTER TRIBUNAL CENTRE

SPORT IN DESFORD Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Ian E Vellins (Chairman)

David Wenn

Sitting in public in Birmingham on 13 and 14 December 2004

Ms Sarah Dunn, counsel, for the Appellant

Mr James Puzey, counsel, instructed by the Solicitor's office for HM Customs and Excise for the Respondents

© CROWN COPYRIGHT 2005


 


DECISION

The Appeal

1. In this appeal, the Appellant, Sport in Desford, appeals against a decision of the Respondents, the Commissioners of Customs and Excise, contained in a letter dated 12 August 1999 to the effect that the supply to the Appellant of the construction of a Clubhouse was not a zero-rated supply because its use was not by a charity, and also because it was not intended for use as a village hall or similarly in providing social or recreational facilities for a local community. At the hearing of this appeal at Birmingham on 13 and 14 December 2004, the Appellant was represented by Ms Sarah Dunn, counsel and the Respondents were represented by Mr James Puzey, counsel.

The Legislation

2. Section 30 of the Value Added Tax Act 1994 ("VATA 1994") provides that a supply of goods or services is zero-rated if the supply is of a description specified in Schedule 8.
3. Group 5 of Schedule 8 describes supplies relating to the construction of buildings. Item 2 of Group 5 describes:

"2. The supply in the course of construction of –

(a) a building … intended for use solely for a … relevant … charitable purpose … of any services related to the construction other than the services of an architect …"

4. Note 6 of Group 5 provides:

"6. Use for a relevant charitable purpose means use by a charity in either or both the following ways, namely –

(a) otherwise than in the course or furtherance of a business;

(b) as a village hall or similarly in providing social or recreational facilities for a local community"

The Issues

5. The Commissioners argued firstly that, the Appellant was not a charity, and secondly that the Clubhouse was not intended for use solely as a village hall or similarly in providing social or recreational facilities for a local community. The Appellant argued that the intended use was by a charity, and that it was intended for use solely as a village hall or similarly in providing social or recreational facilities for a local community. Accordingly, the two issues for determination in this appeal were whether the intended use was use by a charity, and whether the Clubhouse was intended for use solely as a village hall or similarly in providing social or recreational facilities for a local community.

The Evidence

6. Oral evidence was given at the hearing on behalf of the Appellant by Mr Jim Houghton, the marketing officer and development officer of the Appellant. An agreed bundle of documents containing 189 pages was produced, together with plans and photographs of the Clubhouse. No oral evidence was given on behalf of the Commissioners. We found Mr Houghton to be a credible witness and we accepted his evidence as to the facts.
7. The parties produced and referred to the following authorities:

Jubilee Hall Recreation Centre Limited v Commissioners of Customs and Excise – Court of Appeal [1999] STC 381

Commissioners of Customs and Excise v St Dunston's Educational Foundation – Court of Appeal [1999] STC 381

Ormiston Charitable Trust v Commissioners of Customs and Excise [1994] (No. 13187)

The South Molton Swimming Pool Trustees v Commissioners of Customs and Excise [1999] (No. 16495)

Ledbury Amateur Dramatics Society v Commissioners of Customs and Excise [2000] (No. 16845)

Bennachie Leisure Centre Association v Commissioners of Customs and Excise [1996] (No. 14276)

Guild v Inland Revenue Commissioners – House of Lords – [1992] 2A.C. 310

The Facts

8. The Appellant, Sport in Desford ("SiD") ("the Club") is a Club which provides sporting and recreational facilities. It is a members club. At the time of the decision of the Respondents dated 12 August 1999, the Club was not a registered charity. The Club registered as a registered charity with the Charity Commission on 27^th October 2003. It is not registered for value added tax.
9. Under the Club's 1990 constitution, its stated object was "Sport in Desford exists to promote sporting opportunities within the village for all sections of the Community. Disabled access must be included in all developments". This was the constitution in force at the time of the decision of the Respondents. A more detailed constitution was adopted on 6 March 2002 which set out the Club's objects as "the promotion of community participation within the village of Desford and its environs in healthy recreation, in particular by the provision of facilities for playing bowls, tennis, squash, football, recreational fitness and running".
10. Desford is a small village outside Leicester. It had approximately 4,000 inhabitants in 1997, and was estimated by Mr Houghton to have approximately 4,500 inhabitants now. The main site of the Club consists of five acres at Peckleton Lane, Desford, and there is a subsidiary site consisting of three acres at Kirkby Road, Desford.
11. In 1986, Desford Parish Council were approached by two groups to improve community and leisure facilities within the community. The first group consisted of two senior football teams and a junior football team who had found the existing site run by the Parish Council at the recreation ground in Kirkby Road to be insufficient for their needs and had requested a second site. The second group involved a group of parishioners seeking the building of a bowls green within the parish. At the time, the Parish Council had the funds to at least purchase land to fulfil these two requests. After considering a number of sites, the Parish Council decided to purchase a four acre site at Peckleton Lane from the Caterpillar company who occupied the war time site of Desford Aerodrome. That site which the council purchased was derelict and had been originally occupied by the Sergeant's mess, with all buildings demolished except for a lone squash court and an outside double tennis court. On that site, there was room for the proposed football pitch but not enough room to add the bowls green. The Parish Council then undertook to purchase a further adjacent one acre site from a local farmer to accommodate the bowls green. That transaction was completed in 1988. The sites purchased then totalled 5 acres.
12. The Parish Council decided that this was too big a project for the Council itself, so it set up a committee, called Sport in Desford ("SiD"), to administer the further development of the site including a stipulation that three Parish Councillors should always remain on the committee. The chairman of SiD was the vice-chair of the Parish Council. The Parish Council formalised this arrangement by setting up a lease on the Peckleton Lane site for 35 years at the peppercorn rent of £1.00 per annum. This was later extended into a lease for 99 years. The lease in 1990 was stated to be between the Desford Parish Council and the then Trustees of SiD, who were all resident in Desford. A football pitch was built and the tennis courts retained.
13. In order to fund the development, SiD set about an extensive range of fundraising events, and set about raising grants initially from the Parish, Borough and County Councils, together with the office of East Midlands Sports Council. Using these resources, they were able to hire external contractors to landscape the site, level the tipping and construct a simple basic football pitch. Volunteers spent considerable time removing stones from the pitch prior to its being seeded. At the same time, one of the committee members excavated the site for the bowls green using a borrowed JCB excavator for the purpose. Then a commercial company laid the drains and built the bowls green. The grounds were seeded with grass, most of which was donated by a commercial seed company.
14. At this time in 1991, the grant monies dried up, and although the bowls green was built, it was surrounded by mounds of spare earth, and volunteers worked many weekends to level these areas, and one of the footballers laid 160 meters of paving around the bowls green so that it become a useable facility. The green itself was first used in 1993.
15. The new football pitch was used from 1992/3, although the preferred site remained the Kirkby Road recreation ground. However, during 1991, vandalism at the Kirkby Road recreation ground had increased significantly, and the two wooden huts erected by the footballers already could not be kept secure. As a result, in 1991, the footballers approached SiD with a proposal that they wanted to build a brick built set of changing rooms with showers, in place of the two vandalised wooden huts at the Kirky Road site, and their proposal was that the footballers would do all the site work if SiD found the resources to buy the materials and obtained permissions from the planning and building authorities, which was done. SiD obtained funding from East Midlands Sports Council and further grant aid, and a local brick company supplied the bricks at cost price. The roof was erected by volunteers supervised by a local roofing contractor free of charge. The volunteers were from Desford. The materials were purchased by the fundraising and grant aid to the extent of £25,000. That building is still used throughout each weekend of the season. This building later won an award for community development.
16. As a result of these various endeavours, SiD had developed all the external facilities at the main site in Peckleton Lane for not only football and bowls, but also for tennis and squash (which was already in place when that site was purchased). However, at that time there was no Clubhouse, changing facility or even basic toilets on the Peckleton Lane site. From 1990, SiD worked closely with strategic planners from Leicestershire Council and East Midlands Sports Council, and following advice and guidance SiD produced a development plan scheduled over ten years to provide these covered services.
17. SiD were able to secure a number of Council grants together with a more substantial offer of £45,000 from the Foundation for Sport and the Arts, allowing the SiD to bank about £80,000, but this fell far short of the £288,000 which was required by SiD in their plans. In 1994, the National Lottery was born and SiD made an application. By then, SiD had already completed the ground works, and sought lottery funding to build and fit out the shell of the building at Peckleton Lane. This application was approved in 1997 by the National Lottery.
18. In the meantime, various sports were developing on the ground and the need for toilets became an urgent requirement at Peckleton Lane. As the old squash court was the only building on the site, in 1994, SiD then set about building an extension to this building which provided limited changing areas, two toilets and a very small kitchen area. This was built by volunteers drawn from squash, bowls and the main committee with minor grant aid from the Parish Council to buy the materials, was completed in the summer of 1994, before the main Clubhouse was built.
19. During this time, SiD also made their facilities available to the local primary school who brought groups of children up to the Peckleton Lane site over lunchtimes to develop and coach their pupils using the two outside tennis courts. This service was provided free of charge. Also, during this period, the squash court was upgraded in various stages. The specialist work was carried out by contractors and paid for by minor grants and fundraising, but a substantial amount of work was carried out by volunteers to keep the already 50 year old building in a serviceable condition.
20. During the period prior to 1998 when the Clubhouse was built at Peckleton Lane, tennis continued to be very popular on the 50 year old double court. Senior members provided training voluntarily free of charge, although an external coach provided limited coaching for some three years at a small fee per session. Around 1996 with grant aid from the Parish Council, SiD replaced the surrounding netting and established a more formalised booking system for the tennis courts, with a charging system of £10 per year for seniors and £5 for juniors, with access to the courts available during all daylight hours seven days a week. That situation still prevails.
21. During 1996/1997, SiD had discussions with the planning departments and drew up tender documents to put to local builders for the building of the Clubhouse at Peckleton Lane. Contractors started work in 1997. One member of the committee of SiD took on the role of unpaid site agent during the whole of the building programme. In addition to the grants, a loan was taken out from a local bank with two members providing personal collateral to the bank.
22. Up to the opening of the Clubhouse in May 1998, the only regular payments for services had been to a self employed groundsman who maintained the football pitch and the bowls green. Later in 1998, one of the members of SiD became the Clubhouse manager. Apart from him no member of the SiD committee or any of its officers had ever been paid for any of their work. SiD now have 500 – 600 members.
23. Once the building was complete, membership began to expand. One of the first jobs was to find equipment to fill the brand new, but empty, gym. Further funding was arranged by a further bank loan from the Parish Council. Second-hand equipment was purchased for the gym, as second hand equipment was all that could be afforded. A qualified gym instructor had to be hired at a bare minimum wage of around £5.00 per hour. The gym has never made a profit and the losses are funded by fundraising efforts by gym members and the main committee.
24. The gym instructor, together with volunteers from gym members, carpeted the floor and redecorated the walls and ceilings, in their free time. The gym attracts over a 100 members with facilities free for a whole year to the over 50s. More recently the gym has been taken over by a team of three, providing cover for the 40 hours per week that the gym is now open. SiD has also now secured funding to provide home visits for people in care homes who are unable to attend the gym.
25. In a separate development in 2000, SiD obtained a grant from the Coalfields Regeneration Trust to refurbish the two tennis courts and make them into a multi-purpose training area which is flood-lit, with a playing surface marked out for tennis, basketball, netball and five-a-side football. The flood lit facilities are hired out to local teams at the rate of £5 per hour.
26. In 1998, once the Clubhouse was complete, SiD found themselves with a main function room without a bar to serve their members. One of the bowls members took it upon himself to both supply materials and build the bar facility free for the benefit of members. Another member of the bowls club built and maintained an honours board for both the bowls club and the running club free of charge.
27. In 2000, SiD became aware that on special occasions they needed to have the facility of both the main function room and the adjacent dance studio for larger functions, and a group of bowls members voluntarily knocked down part of the intervening wall and put in a triple door to provide greater flexibility of use. This enabled a social gathering of 150 people to take place for the Millennium New Year's Eve party.
28. In 1999, the Striders running club made the Clubhouse at Peckleton Lane their permanent base.
29. Over the past six years, SiD have hosted a number of dance clubs, including an old time dance club that provided a service for two hours per week for senior citizens. This was based on a room hire basis with the dance club charging its members a nominal fee for the tea and coffee they provided for themselves. This club stayed with SiD for some three years. More recently, SiD have been joined by a dance academy, also on a room hire basis, which provides classes for tap dancing, ballet and modern dancing. The dance academy pay a fee for the hire of the room at a reduced rate. The dance academy itself, free of charge, redecorated the dance studio and installed a dance bar along two of the walls.
30. In 2001, the bowls club required an automatic watering system. SiD assisted with the grant applications to Awards for All with members of the bowls club fitting the pipework, giving their time free of charge. SiD now has a green worthy of hosting county bowls matches.
31. Once SiD had commissioned the second squash court, which was incorporated into the new building, the squash club began to flourish. Up to then, the old squash court had continued to be in use. A grant was obtained in 2000 and members of the squash club set about gutting the old toilet block which had been added to the squash court in 1994 and which was now redundant due to the enhanced facilities in the new building. They blocked off external doors, moved internal doors, and built in a new stairwell to turn this building into a specialist changing room with showers for all squash players. They also transformed the old squash court itself. The work was completed by volunteer labour from the squash club over a period of almost two years. The squash club now boasts over a hundred members with a joining fee of £15 (which includes £10 membership of SiD) per annum, with court fees set at £3.00 per hour.
32. In 2002, SiD raised a second grant from the Coalfields Regeneration Trust to change the drive access to the site, to provide pedestrian lighting for the new roadway and to install two new rooms in the eaves of the club house and create a pedestrian link between the two squash courts at spectator gallery level.
33. A small sports provider called "In 2 Sports" provides after school sports clubs for local children in the area, and when SiD made the two rooms in the eaves, SiD allocated one of those rooms consisting of 400 square feet for the use of In 2 Sports in return for a monthly subscription. In 2 Sports now occupy both the eaves rooms.
34. Throughout its existence, SiD has enjoyed the support of all the local Councils and in particular in receiving 100 per cent rate relief on all its operations from Hinckley and Bosworth Borough Council. SiD pay peppercorn rents to Desford Parish Council of £1 per annum on both the sites at Peckleton Lane and Kirkby Road.
35. Since the Clubhouse was erected, SiD appointed initially one and then two Clubhouse managers whose salaries have been increased to £50 per week each, which is barely above the minimum wage of £5.00 per hour. They perform all caretaking functions, including dealing with all the bar stock, preparing rooms for functions, and being responsible for the access to the building and locking and unlocking the building. They also arrange for cleaning and set in motion all repairs which are done mainly through volunteer supporters. They take bookings and man the bars, assisted by volunteers.
36. The Probation Service has used persons serving community service orders to assist the SiD volunteers in painting and repairs.
37. The local secondary school, Bosworth College, collaborates with SiD, so that years 12 and 13 can use SiD's squash, short matt bowls and fitness facilities.
38. The bar provides an income of approximately £25,000 per annum, and membership fees, events and fundraising activities add to the income which is spent on management costs, maintenance, developments and shortfalls. Strategically, SiD makes efforts to break even in their running of their operation.
39. Members of the gym club recently helped to fund and install mirrors in the gym. Mr Houghton stated that SiD had a strong element of self help and was a vibrant community organisation.
40. The club now offers facilities for football, squash, tennis, and bowls. There are therefore the two sites. The five acre site at Peckleton Lane is the main site and there is the subsidiary three acre site at Kirkby Road. The Clubhouse was constructed on the Peckleton Lane site. As well as the Clubhouse on the Peckleton Lane site, the two sites contain the football pitches, tennis courts, squash courts and bowls green.
41. The Clubhouse contains a fitness room, a further squash court, two small kitchens which are open only for specific functions, the club room or function room, a bar (which was not part of the original building), changing rooms and showers, stores, and the dance studio.
42. Within the club house, the dance studio and the club room are also used for other community based recreational activities including an old time dance club for senior citizens, a line dancing group, an old folks' club, meetings of local political groups, bonfire night parties, new year's eve parties, barn dances, jazz nights, martial arts classes and quiz nights. The club also holds dog shows and a village show. A usage report for the period July 1998 – December 2000 was produced.
43. The sporting facilities are available for all sections of the community at low cost. The cost is a fraction of that which would be payable at a commercially run sports centre. The sports facilities are not otherwise available within the village. Efforts are made to encourage participation amongst the disabled and the over 50s.
44. The running of the club and the management of the club is undertaken by volunteers for no payment. There is a very high level of volunteer activity. Activities undertaken by volunteers including overall management, working as ad-hoc bar staff, the maintenance of electrical heating and plumbing, the marking of pitches, catering when required, the organisation of events, working parties for various specific projects and additional cleaning. The paid staff consists of the groundsman, the general caretaker, the fitness instructor and the aerobics instructor. Their pay was, in 1997, in respect of the groundsman £3,500 per annum, in respect of the general caretaker £4,000 per annum, in respect of the fitness instructor £5,000 per annum and in respect of the aerobics instructor £600 per annum. These were the 1997 figures and have since increased but not substantially. Only the caretaker is employed full time from 4.00 pm to 9.00 pm weekdays.
45. Membership is open to all sections of the community in the Desford region. 95 per cent of the members live within a six mile radius. The charge for membership is set at a low level and is designed to ensure that cost is no barrier to membership. In 1999, membership cost £6 per annum for adults and £3 for juniors.
46. The various sporting activities of squash, tennis, football and bowls, are run by groups of volunteers from the village as separate sections. The use of the club room for various functions is arranged directly by the management committee. The Clubhouse is open on weekdays from 4.00 pm to late and at weekends from 10 am to midnight.
47. Membership is not restricted to members of the various sports In a questionnaire in March 2001, it was indicated that 10 per cent of members were non-playing.
48. The constitution provided that prospective members must be proposed and seconded by two existing members and membership applications were subject to scrutiny by the management committee. Mr Houghton confirmed that in practice, membership has not been refused to any applicant.
49. Although subscriptions are payable by members, non-members may visit three times before being asked to apply for membership, the club rules providing that visitors must be introduced by members. The bar is licensed
50. The application for planning permission for the Clubhouse and the grant of planning permission referred to a Clubhouse, changing rooms, and squash courts. The application form to the Lottery Sports Fund for a grant in relation to construction of the Clubhouse referred to a ten year development plan to develop a five acre site in Peckleton Lane, Desford in order to increase participation in sports, and focused on the building and fitting out of the Clubhouse to support these existing sports. Funding for the Clubhouse development, with the exception of a brewery loan, was predominantly from bodies connected with or committed to funding the sports. The newspaper articles in the bundle of documents consisted of items relating to the development of the Clubhouse and changing rooms. The area available for non-sports or dance activities in the club room amounts to less than 25 per cent of the total area of the Clubhouse.
51. Use of the Clubhouse was by membership only (£6 per annum for adults and £3 per annum for children), Membership was stated to be open to "playing members of the bowls, tennis, squash, football, and other sections including social members". The social club was known as "SiD 200". The building and fitting out of the Clubhouse cost £287,800 (including VAT of £42,800) and was funded through grants and local funding of £288,000 (which included the lottery grant of £187,200).
52. In correspondence with the Respondents, the Appellant notified the Respondents that membership was open to all sections of the community in Desford and its environs and that the membership fees were intentionally nominal. The Appellant in correspondence had stated that the current membership had been 390 members of which 66 per cent were Desford residents, 24 per cent from neighbouring villages, and ten per cent from suburban areas of Leicester and Hinckley. They stated that over 95 per cent of the membership lived within six miles of the Clubhouse. The Appellant stated in correspondence to the Respondents that the reference in the planning permission to "Sports Centre" was an administrative error by the architect, and that the building was otherwise referred to as a Clubhouse. The Appellant also stated in correspondence to the Respondents that the Clubhouse was used very largely for internal functions, run by the committee for its own members and this applied specifically to the bowls, football, squash, tennis and fitness sections and more generally to wider social and fundraising activity.
53. In correspondence, the Appellant notified the Respondents that the only occasions when any part of the facility was not available to the ordinary membership were in respect of the main club room for two hours per week when it was used by the local old time dance club, the dance studio for three hours per week when it was used by the local club, the squash court for about one hour per week when used by the local squash team, and the main club room when it was let out for occasional lettings to birthday parties, etc. At all other times when the Clubhouse was open on weekdays from 4.00 pm to late and at weekends from 10.00 am to 12.00 pm, all facilities were open to all members.
54. Each of the sections paid the following fees to the central committee, namely the five junior football teams paid a pitch fee of £80 per year, the three senior football teams a pitch fee of £200 per year, the bowls players paid a green fee of £35 per year each, the fee for playing squash per hour for two people was a court fee of £3 per hour, the court fee per player for tennis was £8 per year, with juniors at half price, and the session fee for the use of the fitness room was £2.50 per hour per user.
55. The management committee comprises of three representatives from Desford Parish Council, two tennis / squash representatives, two bowls representatives, two senior football representatives, two junior football representatives, two social section representatives, six elected members, four co-opted members and two Bosworth College Management Committee representatives.
56. The club rules provide for eligibility for full membership to persons over 16 years of age and playing members of the bowls, tennis, squash, football and other sections, including social members. Children below the age of 16 are eligible as junior members.
57. The development plan in 1997 of SiD stated that the main purpose of SiD was to provide a multi sports facility for community use, together with associated social facilities for Desford and area residents, and that the aims provided that the facilities available should be made accessible to all local residents, with particular regards to the needs of young people and the elderly, and should make provision equally for both sexes, and that the facilities should be equally available to novice and casual users as well as those who wish to take part in competitive activity.
58. When the Appellant received the Lottery grant and local funding to finance the construction of the Clubhouse at Peckleton Lane, Desford, their contractors, who were undertaking the construction work, in 1997, sought a ruling from the Commissioners on the VAT and liability of the Clubhouse. The Commissioners concluded that the Clubhouse did not qualify for zero-rating. In February 1998, the Appellant sought a further ruling from the Commissioners on the VAT liability of the Clubhouse. The Commissioners concluded that the Clubhouse did qualify for zero-rating on the basis of the correspondence from the Appellant subject to the proviso that that was an interim zero-rated ruling, pending the outcome of the Jubilee Hall, Court of Appeal case.
59. In February 1999 and following the decision of the Court of Appeal in the case of Jubilee Hall, the Commissioners requested further information from the Appellant in order to reconsider the interim ruling given in February 1998. As a result of correspondence, in May 1999, the Commissioners informed the Appellant that the construction of the Desford Clubhouse would not qualify for zero-rating. By a letter dated 17th May 1999, the Appellant asked for a review of the decision, and the decision was upheld by the Commissioners' letter dated 12 August 1999.
60. By Notice of Appeal dated 31 August 1999, the Appellant appealed against the decision on the grounds "that Sport in Desford (a non-profit-making organisation) is providing through its Clubhouse social and recreational facilities for the local community."
61. Mr Houghton, at the hearing, gave evidence that there was an existing village hall in Desford which provided a single room and kitchen. That village hall pre-dated the Appellant's Clubhouse, and still exists. It, however, provides very limited facilities and is used by table tennis players, for craft fairs, and possibly by Women's Institute and mothers and babies groups. Both the village hall and the Clubhouse are supported by the Parish Council. Mr Houghton considered that the existing village hall and Club complemented each other and were not in competition, and both served the needs of the local community.
62. Apart from Desford, the other villages within a six mile radius of the Club were Newton Umthank, Botchestone, Newbold Vernon, Kirkby Mallory, Kirkby Muxlowe, Newbold Heath, Barwell, Earlshelton and Ratby. Mr Houghton calculated that the number of members of the Club was now 500 – 600.
63. Mr Houghton produced at the hearing photographs and plans of the Clubhouse. These showed, on the ground floor of the premises, the squash courts, fitness room (including weight training), lobby, wet changing rooms and showers, bowls and tennis pavilion, kitchen, female changing room, male changing room, equipment store and referees changing room and toilets. The first floor of the premises consisted of a viewing gallery in respect of the squash, the dance studio, the club room, with kitchen and bar, and the additional rooms in the eaves.

Reasons for decision

64. In considering whether the construction of the Clubhouse qualified for zero-rating, the first question we have to decide is whether the Clubhouse was intended for use by a charity. Accordingly, we have to decide whether the Appellant was a charity.

Was the Appellant a charity?

65. The meaning of "charity" is to be determined as a matter of general law. There is no definition of "charity" in VATA 1994.
66. The meaning of "charity" was considered by Lord MacNaughton in Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC531. He stated at p583 …

" 'charity' in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not falling under any of the preceding heads"

67. The Recreational Charities Act 1958 provided as follows:

"1 (1) Subject to the provisions of this Act, it shall be and be deemed always to have been charitable to provide, or assist in the provision of, facilities for recreation or other leisure-time occupation if the facilities are provided in the interests of social welfare:

provided that nothing in this section shall be taken to derogate from the principle that a trust or institution to be charitable must be for the public benefit.

(2) The requirement of the foregoing subsection that the facilities are provided in the interests of social welfare shall not be treated as satisfied unless:

(a) the facilities are provided with the object of improving conditions of life for the persons for whom the facilities are primarily intended; and

(b) either –

(i) those persons have need of such facilities as aforesaid by reasons of their youth, age, infirmity, or disablement, poverty or social and economic circumstances; or

(ii) the facilities are to be available to the members or female members of the public at large.

(3) Subject to the said requirement, subsection (1) of this section applies in particular to the provision of facilities at village halls, community centres and women's institutes and to the provision and maintenance of grounds and buildings to be used for purposes of recreation or leisure-time occupation and extends to the provision of facilities for those purposes by the organising of any activity."

68. We find that it is no part of the definition of a charity that it be registered with the Charity Commission. However, at any time when it is registered, it is conclusively presumed by Section 4(1) of the Charities Act 1993 to be a charity. Section 4(1) of the Charities Act 1993 states:

"4(1) An institution shall for all purposes other than rectification of the register be conclusively presumed to be or to have been a charity at any time when it is or was on the register of charities".

69. The Appellant was not registered with the Charity Commission at the time when it made application to the Respondents for zero-rating of the construction of the Clubhouse, nor at the time when the Commissioners made their decision refusing zero-rating on 12 August 1999. However, the Appellant later applied for registration with the Charity Commission and registration was confirmed in a letter from the Charity Commission dated 27 October 2003.
70. Since the Appellant was not registered at the material time, it cannot rely on its registration as a conclusive presumption provided for by Section 4(1) of the Charities Act 1993. We find, that nevertheless, the registration of the Appellant is compelling evidence that it does qualify as a charity, and that it was a charity at the material time.
71. In the case of Guild v Inland Revenue Commissioners [1992] 2A.C.310, the House of Lords had to consider a request by a Testator in his will who had left the residue of his estate "to the Town Council of North Berwick for the use in connection with the sports centre in North Berwick or some similar purpose in connection with sport". The Court had to decide whether the bequest was an exempt transfer for the purpose of the Finance Act 1975 as being attributable to property given to charities, as if not it would be liable to capital transfer tax. The House of Lords held that on the true construction of Section 1(2)(a) of the Recreational Charities Act 1958, facilities for recreation or other leisure-time occupation could be provided with the object for improving the conditions of life for the persons for whom they were primarily intended notwithstanding that those persons were not in a position of relative social disadvantage or suffering from some degree of deprivation; but that the facilities that the bequest for use in connection with the sports centre would assist in providing, would be provided in the interests of social welfare within the meaning of subsections (1) and (2) of section 1 of the 1958 Act; and accordingly, that part of the bequest was charitable within the meaning of section 1 of the 1958 Act and for the purpose of the Finance Act 1975.
72. Mr Puzey submitted on behalf of the Commissioners that the Appellant was not a charity. He submitted that the Appellant was a sports club and that the Recreational Charities Act 1958 did not specify that sport in itself was charitable. He submitted that the Appellant did not fall within section 1(2)(b)(i) of the Recreational Charities Act 1958 in that the persons for whom the facilities were primarily intended "were not persons who needed the facilities by reason of their youth, age, infirmity or disablement, poverty or social and economic circumstances", as there were people in the village using the facilities who could afford to travel to a gym or sports club, although they preferred to use the cheaper facilities of the Appellant in the village. He further submitted that the Appellant did not fall within section 1(2)(b)(ii) which required that the facilities were to be available to the members of the public at large, as the facilities were only available if a person joined the Appellant's club and paid for membership and paid for the particular sports subscription. He submitted that a sports club offering facilities for payment of money could not be regarded as offering facilities available to members of the public at large and therefore eligible for qualification as a charity.
73. Mr Puzey further submitted that the Appellant had changed its objects, aims and ethos, when it had changed the wording of the objects in its Constitution in 2002. In the original 1990 Constitution, its object was stated to be "Sport in Desford exists to promote sporting opportunities within the village for all sections of the Community". In March 2002, the object was changed to "the promotion of community participation within the village of Desford and its environs in healthy recreation, in particular by the provision of facilities for playing bowls, tennis, squash, football, recreational fitness and running". He submitted that the Appellant had deliberately dropped the reference to "sporting opportunities" in the original object, and inserted "healthy recreation" in order to place itself in line with an attempt to obtain charitable status.
74. Ms Dunn submitted on behalf of the Appellant that the aims, object and ethos of the Appellant had not changed despite the slight change in the wording of the objects of the Appellant when it changed the wording of its constitution in March 2002. She submitted that it was clear that the object of the Appellant was the provision of facilities for recreation or other leisure-time occupation in the interests of social welfare and for their benefit. She submitted that there was no doubt that the Appellant qualified as a charity as provided for in Section 1 of the Recreational Charities Act 1958. She submitted that the objects and activities of the Club were essentially the same before registration as they were after registration. She submitted that Mr Puzey's submissions in connection with Section 1(2)(b)(i) and (ii) could not be correct in view of the decision of the House of Lords in the Guild v Inland Revenue Commissioners case. The House of Lords specifically concluded in that case that a sports centre did assist in providing the appropriate facilities in the interests of social welfare within the meaning of subsections (1) and (2) of section 1 of the 1958 Act.
75. We prefer the submissions of Ms Dunn to the submissions of Mr Puzey.
76. We find that the Appellant was a charity at the material time. We find that the objects and activities of the Appellant can be regarded as purposes beneficial to the community for the public benefit. We find that it provides facilities for recreation and other leisure-time occupation in the interests of social welfare. We find that the facilities are provided with the objective of improving the conditions of life for the persons for whom the facilities are primarily intended, namely in the village of Desford. We find that the persons using the facilities have need of such facilities within the meaning of Section 1(2)(b)(i) and (ii). We find that the users of the premises use the premises for the purposes of recreation or leisure time occupation. The sports activities fall within this definition. The users need the facilities for reasons connected with their use or age, as suitable recreation to that use or age, and we find that facilities are available to the members of the public at large who can join the Appellant's club for a very nominal membership fee and participate in activities for a very small charge at a rate which is far below that charged by commercial organisations. We find accordingly that although there is a requirement for a user to be a member, and to pay a small charge, this does not result in the facilities not being available to the members of the public at large. We find that we accepted as truthful Mr Houghton's explanation of the reason why the wording of the objects of the Appellant were changed in 2002 when the wording of the constitution was slightly changed. We accepted his explanation that the opportunity had been taken by the Appellant to modernise its constitution, and that in doing so the Appellant was not changing materially its objects, aims and ethos. We find that the object of the Appellant is the provision of facilities for recreation or other leisure time occupation in the interests of social welfare and for the public benefit. We find that it qualifies as a charity as provided for in section 1 of the Recreational Charities Act 1958. We find that the registration of the Appellant as a charity by the Charity Commission in October 2003 is indeed compelling evidence that it qualified as a charity at the material time when it applied for zero-rating and was refused by the Commissioners. We find that the objects and the activities carried out by the Appellant were essentially the same before registration as they were after registration. We find accordingly that in answer to the first question as to whether the Appellant was a charity, that the Appellant was a charity at the material time.
77. The second question in this appeal is whether the intended use of the Clubhouse was either as a village hall or similarly in providing social or recreational facilities for a local community.

Was the Clubhouse used as a village hall or similarly in providing social or recreational facilities for a local community?

78. It is clear that the issue is essentially one of fact.
79. Mr Puzey, on behalf of the Commissioners, accepted that the issue was essentially a factual one. He submitted that although the representatives referred to other cases, previous tribunal decisions were of little assistance. Mr Puzey submitted that although the Jubilee Hall case was important, as it was the only Court of Appeal authority, he conceded that it was different factually from the present case and that all of the tribunal cases could be distinguished on the facts.
80. Ms Dunn also submitted that whether the use, to which the Clubhouse was put, qualified for zero-rating was principally a question of fact. Both representatives made detailed submissions on the relevance of the various cases cited.
81. In the Bennachie Leisure Centre Association case, the chairman, in the penultimate paragraph of his decision, stated "accordingly we do not consider ourselves as bound or guided by any previous decision. We regard the question as being one which is appropriate to decide in the circumstances of each particular case".
82. In the Ledbury Amateur Dramatic Society case, the chairman commenced her conclusions with the words "whilst the decision in the Jubilee Hall case is binding on this tribunal, and whilst other cases decided in the tribunal are helpful, the issue in this case is primarily one of fact. Do the attributes of this building come within the description of "village hall or similarly"?".
83. In order to decide the issue, it was necessary for us to consider the various cases in order to consider the facts of those cases, and to consider whether the facts were similar or dissimilar to the facts in the present appeal.
84. In the Jubilee Hall Recreation Centre Limited case, Jubilee Hall was a charity which ran a sports and fitness centre in Covent Garden, London. It included a state-of-the-art gym, a hall, café, studios, changing rooms, sauna, showers and sunbeds. Numerous classes, such as yoga, aerobics and acrobatics were run. Treatments such as osteopathy, massage, shiatsu, treatment of sports injuries and reflexology were available. The centre sold a very large range of health products and a range of clothing. The centre was run on a commercial basis by full time paid staff and directors. It was held that the use of the centre was not similar to the use of a village hall. The Court of Appeal held that the purpose of the exemption was to extend relief to cases where the local community was the final consumer in respect of the supply of services, in the sense that the local community is the user of the services (through a body of trustees or a management committee acting on its behalf). The Court of Appeal upheld the decision of the original tribunal in that case (and overturned that of Lightman J. in the High Court). The tribunal had held that whereas the relief was available for village halls which provided some economic activity, particularly that in which the community participated directly, the relief did not extend to something run predominantly as a commercial venture.
85. Sir John Vinelott on p389 of the Decision concluded "subparagraph (b) is intended to cover economic activities which are an ordinary incident of the use of a building by a local community for social, including recreational, instances. The village hall is the model or paradigm of that case". He further concluded on p389 "I feel considerable doubt whether the persons for whom the facilities are said to be primarily intended, namely the community of Covent Garden and its neighbourhood can aptly be described as a local community. The neighbourhood, if taken by the centre, is including W1, SW1, WC1 and EC4 … The charity counts amongst the local community students attending places of education as distinct and disparate as the St Martin's School of Art, Kings College London, the London School of Economics and the Inns of Court School of Law. I doubt whether an area as wide as this can be treated as a "locality" within the contemplation of Note 6(b)."
86. In the associated case of St Dunstan's Educational Foundation, the Court of Appeal considered the case of the Foundation which had built a sports hall, incorporating an existing swimming pool. It was to be used principally by a local fee paying school. It was also to be hired out to organised groups recommended by the local authority. The Court of Appeal found against the Foundation on the grounds that one could not treat pupils at the fee paying school as part of the local community. Sir John Vinelott concluded at p394 "the sports centre was constructed primarily for use as one of the facilities of a fee paying school. Use for community purposes, at the direction of the Council, was secondary. Insofar as the pupils at the school benefited from that facility, they did so, not as members of the local community, but as pupils on whose behalf fees were paid to the school. The sports centre could not therefore be said to have been intended for use solely for the purpose of "providing social or recreational facilities for a local community"."
87. The case of Ormiston Charitable Trust concerned a sports centre built by the Ormiston Charitable Trust to provide sports and out-of-school activities for children and their families. The Ormiston Charitable Trust was the operational arm of the Ormiston Trust, which described itself as East Anglia's own children and families' charity. It had a network of facilities for families in East Anglia offering support through family centres, prison visitor centres, and an out-of-school community project which was the centre in question. The Appellant failed because the centre was not owned, organised and administered by the community. It was run by the Trust which carried out projects across several counties, therefore the requirement that the use must be similar to the use of a village hall was not satisfied. The tribunal also suggested that the requirement that the facilities must be provided for a local community might not be satisfied, as the aims of the Trust seemed to extend to catering for children from a large number of surrounding towns and villages.
88. The tribunal rejected the submission of the Commissioners that it was necessary for the building to carry on the same sorts of activities as would a village hall. It also rejected the submission of the Commissioners that the building should physically resemble a village hall. The chairman concluded "a mix of social and recreational activities of the kind commonly associated with a village hall is not essential and the relief extends to buildings, like the cricket pavilions and changing rooms mentioned in the Commissioners' leaflet, providing recreational facilities rather than social facilities".
89. In the Bennachie Leisure Centre case, the appeal concerned a leisure centre. It consisted of a main central area for badminton. In addition, there were changing rooms, a crèche and club room, an office, a kitchen, a tea room, craft shop, thrift shop, fitness room and equipment store. The kitchen, tea room and thrift shop was to be operated by another local charity with overlapping membership and any surplus ploughed back into the community. It was intended that staff would be employed and fitness equipment acquired and supervised. The various parishes from which the members were drawn were expected to be within a six mile radius. The appeal succeeded. It was held that the building was intended solely for use for both social and recreational facilities. It was also held that the community that would use it was a "local community". On the question of whether the use was similar to the use of a village hall, the tribunal held that it was a question of fact. The chairman suggested that the tribunal in the Ormiston case had been wrong in requiring the building to be owned by the community when the exemption clearly contemplated ownership by a charity. The chairman in the Bennachie case concluded "since, however, the explicit purpose of the building, its management committee and the association which is to run it is to provide facilities, social and recreational, for the stated wide, local membership, we have no hesitation in finding on the facts of this case that the appeal succeeds and that the building is entitled to zero-rating".
90. The chairman stated "… what qualifies as a local community in an urban setting may be very different from what would qualify as such in a rural setting. What is the appropriate provision of facilities for that community again may differ on the facts of each case".
91. The South Molton Swimming Pool Trustees case concerned the construction of a swimming pool. The pool building originally contained, as well as the pool, changing rooms, a first-aid room, and showers. A sauna was later added. At the entrance was a reception area and cafeteria. Sports clothes and sports goods were sold. In fact, the trustees derived 20 per cent of their income from the sale of sports clothes and sports goods. There were three full-time employees, a manager, deputy manager and assistant manager. There was one part-time employee, a swimming teacher. 30 volunteers acted as life guards and looked after the reception area. The Appellant did not succeed. First it was held that it was not used in a manner equivalent to a village hall. This was mainly because the activities taking place in the pool building were not organised by the community. They were all run by the Trustees. The purpose of the pool was the provision of activities by the Trustees and not letting to groups in the community for their own purposes as one might expect with a village hall. Further, the pool was a well organised commercial operation. The scale of supplies of sports clothes, sports goods and refreshments was not similar to the use of a village hall. Secondly, the pool was not provided for a local community. The community using the pool extended to those living 23 miles a way. That was not such a local community as would use the facilities of a village hall or something similar to a village hall. The tribunal recorded that it accepted two points made by the Trustees. First, the legislation only required the provision of social or recreational facilities. There did not have to be both. Secondly, it was irrelevant that the pool did not look like a village hall.
92. The Ledbury Amateur Dramatics Society case related to the construction of a new theatre. The chairman concluded that there was no requirement that the building and the activities should be identical to the building and the activities of a village hall. The chairman found that the Trustees did not come within the normal meaning of the final consumer, however, the supplies had by virtue of an agreement, to be for the benefit of the local community. The Trustees were not acting with a view to making a profit, they were acting in order to provide a benefit to the community. The chairman concluded "whilst the Trustees are not representing the interests of everyone in the local community, nonetheless, anyone in the local community was able to be a Trustee, just as anyone in a village might apply to be on the village hall committee. Mr Graham, on behalf of the Appellant quite properly accepted that there was a difference between the way in which the building was operated and the way in which a village hall would be operated, nonetheless he was able to point to a very large number of areas in which there was not just a similarity, but a close similarity. The tribunal does not consider that those areas where there are differences are fatal to this appeal. I accept the submission on behalf of the Appellant that the building in the present case and the way it is run is much closer to a village hall operation than in any of the cited cases where the court or tribunal has found against zero-rating, and accept the basis on which he distinguished those cases. In all the circumstances, this appeal is allowed."

Conclusions as to "village hall or similarly"

93. We have considered the facts in this appeal, in relation to the facts and decisions in the cases cited to us. We find that the facts of all the cases cited to us are different to the facts in this particular appeal, and accordingly, the other cases can be distinguished on the facts. We agree with the submissions of both representatives that the issue is essential a factual one.
94. We have to decide whether the use of the Clubhouse is either as a village hall or similarly in providing social or recreational facilities for a local community. It is only if this question is answered in the affirmative that the Appellant qualifies for zero-rating.
95. To satisfy the test, there are three requirements:

(i) the use must be similar to the use of a village hall

(ii) social or recreational facilities must be provided

(iii) those facilities must be provided for a local community.

96. Mr Puzey, on behalf of the Commissioners submitted that the Clubhouse was intended to provide an extension to the existing sports provision at the Peckleton Lane site of the Appellant and also to provide high quality amenities to support the existing developments. He submitted that it was not intended as a village hall or similar, and that it was essentially a members' sports club. He submitted that insofar as the Clubhouse was used for community activities, which were not restricted to its members, these were incidental to the principal activity and purpose of the buildings.
97. We did not agree with Mr Puzey's submissions. We found on all the facts in this appeal that the Clubhouse was intended as a village hall or similar. We find that it was not material that the majority of the activities were sports activities. We find that the fact that users had to become members and pay a small fee did not lead to the conclusion that it was not similar to a village hall.
98. We find that the sporting activities fall within the definition of "social or recreational facilities". A high degree of sporting use does not make the use dissimilar to the use of a village hall. We find that the sporting facilities are provided for the local community, on the basis that users must pay the small membership fee and the small fees in order to participate in the various sports ran at the Clubhouse.
99. We find that membership is not restricted to playing members of the various sports, and in 2001, some 10 per cent of members were non-playing. Although the emphasis on the application for planning permission and on the application form for the Lottery Sports Fund places an emphasis on participation in sports, such as bowls, football, tennis and squash, and although the funding for the development was predominantly from bodies connected with the funding of sport, we find that the sports activities do not take the use away from the term "similar to the use of a village hall". We find from the plans and photographs that there is a substantial club room available for non-sporting activities.
100. We find that the users of the Clubhouse are predominantly from the village of Desford and its environs. Some 95 per cent of the users live within the radius of six miles from the Clubhouse. The management of the Clubhouse is carried out by residents of Desford. The history of the planning and construction of the Clubhouse shows a substantial degree of involvement by the local community.
101. We find that the degree of community involvement in running the building is high, as is the benefit that it provides to the community. We find that the Clubhouse is not run as a commercial venture and that it is run in a manner similar to that of a typical village hall, unlike the Jubilee Hall in the Jubilee Hall case, which had extensive commercial operations.
102. The Club was conceived initially by Desford Parish Council which was concerned to improve the leisure facilities within the village of Desford, the small village outside Leicester which had then approximately 4,000 residents. The leases to the Club from the local council are at peppercorn rents. Three council members sit on the committee of the Club.
103. We are satisfied that the dance studio and club room are also used for other community based recreational activities, similar to that in village halls. The sporting facilities are provided at low cost. There is a very high level of volunteer activity in the running and management of the Club. Most of the work was carried out by volunteers. The running and management of the club is largely undertaken by volunteers for no payment. The paid staff is limited. Membership is open to all sections of the community in the Desford region, 95 per cent of the members live within a six mile radius. Various sporting activities are run by groups of volunteers from the village as separate sections.
104. In relation to whether the use is similar to the use of a village hall, the test of similarity does not relate to the physical description of the building. It is not necessary for the activities to encompass the same mix of activities as one would expect to find in a village hall. The essence of the test of similarity is to distinguish between, on the one hand, community buildings where the supply in reality is to the community as such, and, on the other hand, buildings which are commercial operations. This is ultimately a question of fact. We find that the key factors point to the fact that the Clubhouse is a community building where the supply is really to the community as such, with a high degree of community and voluntary involvement in the running of the building, a desire to promote the use of the facilities by members of the community, a great emphasis on the needs of and benefits to the participants and not aimed at commercial profits.
105. With regard to the point as to whether social or recreational facilities are provided, we find that the facilities provided must be social or recreational. It is not necessary for them to compromise both. The chairman in the Ormiston Charitable Trust case stressed that the definition referred to the provision of "social or recreational activities", and concluded "so a mix of social and recreational activities of the kind commonly associated with a village hall is not essential and the relief extends to buildings, like the cricket pavilions and changing rooms mentioned in the Commissioners' leaflet, providing recreational facilities rather than social facilities". We agree that the sporting activities of SiD fall within this definition of "recreational activities".
106. There is a requirement that facilities must be provided for a local community. This requires the provision to be of benefit to members of that community as such. The persons who are able to benefit must not be too narrow a section of that community, as in the Ormiston Charitable Trust case. The members of the local community must benefit as members of the community and not in some other capacity, such as persons on whose behalf school fees are paid, as in the St Dunstan's Educational Foundation case. They must not inhabit or work in an area too large and populous to be sensibly described as a local community as in the Jubilee Hall Recreation Centre Limited case. We find that in a rural area, there is no difficulty in regarding various parishes within a six mile radius as a local community, as in the Bennachie Leisure Centre case. Indeed, the radius in the present appeal is similar to the radius in the Bennachie appeal. We are satisfied that some 95 per cent of the members of SiD live within a five mile radius of the Clubhouse.
107. We find that the factors stressed by the decisions in the other cases relating to use similar to that of a village hall are satisfied in the case of SiD. We find that the facilities provided by the Club are organised by the community with extensive involvement by volunteers. The Club is not a commercial venture. It has never sought to make a profit from the provision of these facilities. It is concerned with the provision, by the community and for the community, of recreational facilities. The cases in which the Commissioners succeeded on this issue are readily distinguishable. Ormiston Charitable Trust concerned a charity which carried out projects across several counties. There was no community participation in the organisation, management or running of that charity. Similarly in the South Molton Swimming Pool Trustees case, the community played no part in the management. In the Jubilee Hall Recreation Centre Limited case, the centre was a commercial venture in direct competition with profit making gyms in the City and west end of London and charging comparable fees.
108. We find that the Club, and in particular the Clubhouse, provide both social and recreational facilities, and the fact that the facilities are largely sporting ones presents no difficulty. This was the situation with regard to the badminton facility in the Bennachie Leisure Centre case, and the swimming pool in the South Molton Swimming Pool Trustees case succeeded on this point, but not on the question of whether the use was similar to the use of a village hall.
109. The SiD Clubhouse is in a rural area and this area can sensibly be described as a local community as it was in the Bennachie case. 95 per cent of the club's members live within the six mile radius of the Clubhouse. There is no comparison between this case and those where the alleged community was held not to warrant that description, as in the South Molton case where there was a 23 mile radius, the Jubilee Hall case where there was a large proportion of those living or working in the west end of London, or the St Dunstan's case where the case involved the children at the fee paying school coming from a large area.
110. We find accordingly that the use to which the Clubhouse was intended to be put, as well as the use to which the Clubhouse was actually put, was "as a village hall or similarly in providing social or recreational facilities for a local community within the definition of Note 6(b) to Group 5 of Schedule 8 to the VATA 1994".

Summary of Decision

111. We allow the appeal having found that the Clubhouse was intended for use by a charity for a relevant charitable purpose, as a village hall or similarly in providing social or recreational facilities for a local community within the definition of Note(6) and Item 2(a) of Group 5 of Schedule 8 to the VATA 1994.
112. We award costs to the Appellant to be agreed.

IAN E VELLINS

CHAIRMAN
Release Date: 21 January 2005

MAN/99/0803