A charity that runs a watersports centre for children has won a second tribunal case brought by HM Revenue & Customs, which argued that the charity was liable to pay a sum that could have exceeded £135,000 in VAT on construction costs.
During 2010, the charity Longridge on the Thames constructed a new training facility at its centre in Marlow, Buckinghamshire, which it had run since 2005.
The charity argued that it should not have to pay VAT, which would have amounted to at least £135,000, on the project, because it was going to be used solely for charitable purposes, rather than constituting what is known as an economic activity for tax purposes.
But HMRC said in April 2011 that because the charity charged fees for its activities, it was carrying out a business activity and should pay the VAT.
HMRC was asked to review this decision internally, and confirmed the decision in November of the same year.
Longridge appealed against HMRC’s decision in the first-tier tribunal, and in February 2013 the tribunal rejected HMRC’s stance, saying that although Longridge charged fees, these were heavily subsidised by donations and in most cases covered only the charity’s costs.
HMRC then appealed to the Upper Tribunal against the decision, but in a judgment handed down last month the tribunal again concluded that Longridge was not carrying out an economic activity.
Bill Lewis, a consultant at the law firm Bates Wells Braithwaite, who has advised Longridge on the case, said: "Sense has prevailed – we are looking at substance over form. The fact that this is a decision of the Upper Tribunal is particularly good because it is binding as a precedent in future cases and will benefit other charities."
Speaking after the 2013 decision, Lewis had told Third Sector that HMRC was "in denial about the law".
A spokesman for HMRC said: "HMRC is considering this decision and its implications carefully."
This summer the University of Huddersfield was defeated in a tribunal case over attempts dating back to 1995 to avoid VAT; and in February a Masonic body that administers four charities was unsuccessful in its tribunal appeal against HMRC’s refusal to give it a VAT rebate.