19480
Value added tax – supply – other – whether sums received by a sports club from spectators and sponsors were consideration for supplies or donations

LONDON TRIBUNAL CENTRE

	RUMNEY RUGBY FOOTBALL CLUB	Appellant

	- and -

	               HM COMMISSIONERS FOR REVENUE AND CUSTOMS        Respondents

				Tribunal: Dr David Williams  (Chairman)
					     Norah Clarke (Member)	

Sitting in public in Cardiff on 7 December 2005

The Appellant was represented by Derrick Morgan, the Club Treasurer

Ms Shaheen Rahman of counsel, instructed by the Acting Solicitor and Counsel General to Her Majesty’s Revenue and Customs, for the Respondent.

© CROWN COPYRIGHT 2005

DECISION

1	The Appellant (“the Club”) is appealing against assessments by the Respondents (“the Commissioners”) of the value added tax (“VAT”) on payments received by the Club and regarded by it as donations and not as consideration for any form of supply. These payments were received during eight consecutive quarters ending 31 July 1998 to 30 April 2000. The total sums assessed, after agreed revisions, are £17,927.00.

2	The tribunal heard submissions and oral evidence from Derrick Morgan, the treasurer of the Club. It received oral evidence from Robert Taylor and Ruth Thomsell, officers of revenue and customs, for the Respondents. It was provided with agreed bundles of relevant correspondence and other documents.

3	Following a VAT inspection by Mr Taylor of the Club’s records and premises, questions were raised by the Commissioners with the Club. It is fair to note that none of these concerned the bar and related social aspects of the Club’s activities. There were initial concerns about a number of matters. The Commissioners have accepted the Club’s answers to queries on several issues no question remains outstanding on them. As a result, the initial assessments were adjusted by agreement. But the Commissioners are not satisfied with the Club’s explanations about various items included in its accounts as “Miscellaneous income” and “Sponsorship/donations”. This appeal concerns those aspects of the assessments on which the parties did not agree.

The Club

4	The Club is a rugby football and social club with a voluntary committee and rules standard to clubs linked to the Welsh Rugby Union (“WRU”). Throughout the relevant period Mr Morgan, who gave evidence to the tribunal, served on a voluntary basis as the Club’s treasurer. The accounts for the period from 1 May 1999 to 30 April 2000, and from 1 May 2000 to 31 January 2002, were seen by the tribunal. These show a gross profit from the bar and related activities of significantly over £100,000 a year. The other main items of income were grants from the WRU, sales of international tickets and “sponsorship and donations” – the latter totalling £65,732 for the year to 30 April 2000. There was also a small amount of “miscellaneous income” of about £5,000 each year. 

5	The Club is a licensee of its ground at Riverside Park, the owner being the County Council (then South Glamorgan, now Cardiff).  The playing pitch used by the Club for its main matches lies within the school grounds of Ysgol Bro Eirwg. It immediately adjoins a sports grounds of Cardiff University on Hartland Road in Cardiff. The Club premises are on the other side of the road. The main pitch has no stands or other formal spectator facilities. Spectators can enter the ground either through the main gate on Hartland Road, opposite the Club’s premises, or by one of several other gates in the perimeter fence around the area containing the pitch. These allow access from other grounds, including the University sports ground. 

6	The licence under which the Club uses the land was agreed on 30 March 1994. It does not create a tenancy or exclusive arrangement. The terms of the licence are that the Club may exercise it only on the days and times stated, those being “any Saturday afternoon between the First day of September and the Thirty First day of May”. During those periods only, the Council permits the Club trustees and members and its guests and visitors to use the licensed area. This limited licence is subject to a number of further exceptions that give the school a right to use the premises even during the licence periods. The licence imposes an obligation on the Club to fence the ground and maintain it to the required standard during the playing season. 

7	Ruth Thompsell and Robert Taylor gave evidence to the tribunal of enquiries made of the Club following Mr Taylor’s visit to the Club for a routine VAT inspection in November 2000 and a follow-up visit in December 2000. Most of the enquiries raised have been answered to the satisfaction of the Commissioners. Two matters have not, in the view of the Commissioners, been explained satisfactorily. One is the question of receipts termed “sponsorship/donations” in the accounts. The other is “ticket sales”. This formed part of the miscellaneous income of the Club.

8	As the Commissioners were not satisfied by all the initial answers given by the Club, assessments were raised against the Club for eight quarters for underdeclared VAT. The Club subsequently provided further information as a result of which the Commissioners reduced those assessments. The remaining amounts reflect the aspects of the Club’s accounts about which the Commissioners remain unsatisfied. The figures, the tribunal was told, are not guesses, but are based on the Club’s own figures. In particular, they are based on a schedule of figures produced by the Club at the Commissioners’ request of payments from sponsors and other specified payments between July 1998 and April 2000. This was produced to the Commissioners with a letter on 12 November 2002. The tribunal was not shown, and could not readily see, precisely how those scheduled figures were linked to the assessments. But no point was taken by either party on that link. 	

9	The Club appealed on several grounds. It contended that: it was following the Commissioners’ guidance, had previously been inspected and had its arrangements approved at that previous visit, had taken advice from other rugby clubs and others, and regarded the payments in question all as voluntary payments on which no VAT was payable. Its appeal stated simply that the amounts in dispute “are donated sums”.

10	It was common ground that there were two separate aspects to the “donated sums” still requiring to be decided. Most are sums paid by sponsors. The balance is income from people watching matches.

Sponsors or donors?

11	This case raises the most fundamental rule of VAT. For something to be subject to VAT there has to be a “supply of goods or services”. For this purpose “supply” … includes all forms of supply, but not anything done otherwise than for a consideration”: sections 1 and 5 of the Value Added Tax Act 1994. The Club’s contention is that the receipts in dispute were not consideration for any supply by the Club.  

12	Neither party raised any argument on the interpretation of that rule before the tribunal. Both sides presented their cases as questions of fact. Somewhat unusually, both parties called in aid the relevance guidance to taxable persons issued by the Commissioners as leaflet 701/41, Sponsorship. The Commissioners also tabled a copy of leaflet 700/22/89, Admissions.  

13	The schedule of receipts produced by the Club in November 2002 details a number of receipts, including some substantial sums paid to the Club by named payers. The Club treated all the scheduled receipts as donations. The Club stated that “most of our income is through donation/sponsorship and given with nothing given or expected in return (ref VAT leaflet 701/41/90 paragraph 2). This is done mostly by word of mouth”: letter of 12 November 2002. The Commissioners regarded them as payments for services, “namely advertising in the programme” (Statement of Case). The Club also regarded the sums given by spectators as donations. The Commissioners regarded these as payments for supplies, namely the right to watch the matches, and referred to them as ticket sales.

14	This case raises no new issue of principle. The tribunal agrees that it must be shown, in accordance with the usual rules about the burden and standard of proof, that the receipts on which the Commissioners raised the assessments were paid to the Club otherwise than for consideration (or in the easier terms of the leaflet “with nothing given or expected in return”). The tribunal tested each of the two forms of receipt on that basis.  

The sponsorship payments

15	The Commissioners based the assessments on the Club on the ground that the sponsors were all engaged in commercial sponsorship. That is, they were making payments as consideration for supplies. The Commissioners’ contentions rested on advertisements in the Club’s match programmes. The Commissioners contended that the Club produced programmes for each of its 15 home games a season. It was also contended that the advertisements in the programmes were “paid advertisements”. More specifically, the Commissioners contended that “with regard to the sponsorship, it is clear from the programmes distributed that contributors are featured in full-scale advertisements which in some cases invite the reader directly to avail himself of the company’s services”. The tribunal was shown a number of the programmes and specific advertisements. As the case was presented, it was assumed in argument by the Commissioners that all the scheduled payments by sponsors received acknowledgement in the form of advertisements in those programmes or at least in some other way. 

16	Mr Morgan gave evidence about the sponsorship arrangements and the way in which advertisements were put in the programmes. The tribunal accepted his oral evidence as given by him fully and openly within the limits of his own knowledge of the Club’s activities. This included knowledge of all the payments received by the Club, and all payments made, but only limited knowledge of the background to specific sponsorships as those were the responsibilities of other members of the Club. Mr Morgan did not himself draw up the VAT returns or the accounts, as these were undertaken by accountants. There were some inconsistencies in his evidence and with some aspects of the written evidence, but the tribunal regarded these as minor issues not calling into question the general content of Mr Morgan’s evidence. But Mr Morgan was unable to offer much evidence of the sponsorships themselves. He had at one stage indicated in correspondence with the Commissioners that evidence would be produced from sponsors. Only one letter was produced, from a minor sponsor. It is an undated and unsigned statement on corporate notepaper that the sponsor did not expect anything back in return for its sponsorship. The tribunal could put little weight on so general a statement given that it was not vouched for by any named individual or to any specific date. The tribunal saw no other specific documentary evidence from or about other sponsors.

17	The tribunal examined some of the programmes in detail. For the purposes of this decision it records its findings about one of those programmes, namely that issued for the match against Pontypool RFC on 26 September 1998, at the beginning of the period in question in this appeal. The programme bore the message on the front page “Programme £1 – Donation to RRFC”. This was followed by a full page advertisement for Brains S.S. bitter, a full page advertisement by the Club of its own facilities, two half-page advertisements and another full page advertisement. This is then followed by editorial matter, the team sheet for the day, and a list of remaining fixtures. Below the team list is stated the name of the day’s match sponsor. There is also a statement on a following page of the name of the match sponsor, with an advertisement, and the name of an individual who gave the match ball that day.  There are then five full page advertisements, with the back page being an advertisement for Halifax Mortgage Service Ltd, a major sponsor of the Club. 

18	Mr Morgan contended that the statements described to the tribunal as advertisements were not truly advertisements. Nor were they “paid advertisements” in any sense. They had been put together by the committee members who produced the programme to “bulk” it out and make it look impressive. He also stated that the programme was not put into wide circulation. At the most, 100 copies were produced, and most were given to each member of the home and visiting team and officials. One of the advertisements in the programme examined in detail was for his own company, and he had not paid for this. Nor was he a sponsor of the Club. Nor had any specific payment been received for any of the other advertisements. The advertisement copy had been obtained informally in most cases, though he accepted that the advertisement for Brains looked as though the copy had been given to the Club by the company.

19	Mr Morgan stated that the Club had tried to sell advertising space in the programmes but had failed to do this. None of the statements described as advertisements were therefore truly statements for which those advertised had paid. It had previously been stated that the Club had also failed to find any match or match ball sponsors. He accepted that this programme showed that this was not so, although he could not recall any other occasion on which a match ball had been given (and in his recollection it was the ball, not money, that had been provided). Nor did he recall receiving any money from that or any other match sponsor.

20	The tribunal had no direct evidence from any sponsor or advertiser save one noted above. It makes its findings based on inspection of the advertisements and the schedule and accounts, and on the oral evidence given to it. 

21	The tribunal does not accept the contention that none of the statements in the programme were advertisements. In the view of the tribunal, the copy used from Brains and that from Halifax are clearly advertisements, and others of the advertisements are more than mere statements of support for the Club, but give appropriate information for advertisements of different products and services. At the same time, the tribunal does not accept that this establishes the Commissioners’ view that all the sponsorship money was consideration for a supply. Neither party attempted systematically to tie the sums in the Club’s November 2002 schedule, used in the Commissioners’ assessments, to those advertisements or other services to clarify the individual positions. Instead, the Commissioners assumed that all were supplies subject to VAT while the Club contended none were. 

22	A closer look at the November 2002 schedule shows that neither contention is a full answer to the points raised by the Commissioners. The schedule lists sums paid by sponsors who were also advertisers – most obviously Brains and Halifax. But there are sponsors listed in the schedule for whom there were no advertisements, and there are advertisements in the programmes produced for which there is no recorded receipt either as a consideration or as a donation. Significant sums are included in the list as receipts from other rugby clubs and the local Eastern District rugby football union (“RFU”). The tribunal received no evidence about these receipts. The payers are not the subject of any advertisement or other statement seen by the tribunal in the programmes or elsewhere, nor was there any evidence of any other form of consideration for the sums. The identity of the payers suggests that they are not “commercial” sponsors or donors in the same way as those already identified. The tribunal accepts from Mr Morgan’s evidence that these sums were probably donations or sponsorship in the sense that they were not payments for any kind of supply by the Club of goods or services to the payers. 

23	As noted above, the tribunal was given no specific documentary or oral evidence linking the sums in the November 2002 schedule on which the Commissioners gave evidence that they had based the assessments with those assessments. So the tribunal simply does not know if the payments from the other rugby clubs and the RFU were included in the assessments.       

24	The tribunal concludes that, unfortunately, it is not in a position to give a full decision on this aspect of the appeal. It must therefore give a decision in principle and refer the matter to the parties to agree the sums due. In absence of agreement, the tribunal will, on application, deal with any unresolved issues of fact and make a final assessment.

25	The tribunal therefore finds that the Club’s appeal succeeds in part only on this aspect of the case. It accepts that the Commissioners rightly assessed the Club on sponsorship payments from those commercial organisations where it has seen evidence of advertisements in the Club programmes. In particular, it finds that the advertisements from Brains and Halifax were, in the Commissioners’ sense “paid advertisements”. But it finds that others of the payments, in particular from the RFU and other rugby clubs and other similar payments, are not of that nature. The tribunal saw nothing in the programmes constituting advertisements about those sponsors, nor did it hear or see any other evidence that those sponsors received any consideration in return for their sponsorships. It is therefore persuaded by the evidence for the Club that some of the receipts are probably not payments made for supplies. But for a full decision it is necessary to conduct further analysis of the sponsorship payments in the 2002 schedule. This is to be done on the basis that those sponsors (in practice, the tribunal anticipates, mainly the commercial sponsors) for whom advertisements were placed or similar acknowledgement give were making taxable supplies. But those sponsors (in practice, probably other rugby organisations or similar bodies) for which there were no such advertisements or similar acknowledgements were not making payments for taxable supplies but voluntary payments.

26	The tribunal directs the Club to provide a further analysis of the 2002 schedule to the Commissioners within one month of issue of this decision. This is to indicate those receipts that, based on the terms of this decision, the Club contends are voluntary as distinguished from those that are, in the view of the tribunal, taxable supplies. If the parties are unable to agree a final assessment based on that amended schedule, either party is at liberty to refer the matter to the tribunal for a full decision.

The gate receipts

27	This is a narrower issue. The Commissioners contend that receipts from spectators paid on entry to the ground at match times were made in consideration for permission to watch the match, and were therefore made in consideration for a service and so subject to VAT. This was based on the contention by the Commissioners that:

“There is no access to the Club’s pitch other than through a set of main gates. The case officer made visits to the Club on 11 October 2000 and 5 December 2000 and found these gate to be padlocked, clearly demonstrating that access to the public was restricted ...  Although there is a notice stating that the entry fee is a donation, there is a fixed price (adults £5, OAPs £3) and there is no suggestion that those entering ever do pay amounts other than this.

In evidence, it was accepted for the Commissioners that the view taken on the entry moneys had not been taken in the light of the licence terms on which the Club was able to use the ground. But Miss Rahman argued that the fencing of the area, and the notices, showed that the true position was that the Club was taking admission fees and that they were not truly voluntary.

28	The tribunal saw copies of the notices, a plan of the ground, and a copy of the licence agreement. 11 October 2000 was a Wednesday and 5 December 2000 was a Tuesday. Under the terms of the licence agreement, the Club had no rights to use the playing field on either of the days. It was therefore not responsible for the gates being locked on those occasions. The tribunal accepts that at those times the ground was the responsibility of the local Council, and in practice probably the local school. It also accepts Mr Morgan’s evidence that there are five access routes to the ground, and that for crowd safety reasons all those access routes were open at all match times. It rejects the Commissioners’ contrary view. And it has noted already that the Club’s licence to use the ground was a non-exclusive licence even during the limited times for which it operated. 

29	Mr Morgan also gave evidence about informal understandings between the Council and the Club at the time the licence agreement was negotiated. He contended that those negotiations, which had involved local councillors, were on the basis that the Club would not impose a compulsory entry charge. While it is the terms of the licence, not the informal discussions, that set the legal framework within which the Club used the grounds, the tribunal accepts that the Club would be open to pressure if it sought to go against this informal understanding.  The tribunal accepts that no tickets were issued, either in advance or on the day, to those entering the ground. It was incorrect to describe these receipts as “ticket sales”. Nor did the Club indirectly issue tickets, for instance by requiring entrants to buy a programme. There was no systematic attempt to sell programmes (or collect donations for them) generally to those attending during the relevant period. Consequently, there was no means of showing that an individual at the ground had, or had not, made a payment. The tribunal also finds that there were no specific facilities for spectators. They stood around the touch line in places of their own choosing. 

30	While the notices at the gate suggested recommended levels of donations for some of those attending, the evidence does not show any means of enforcing payment, and in particular of enforcing payment at a particular level. The management committee of the Club had resolved the levels of donations. The resolution, as notified to spectators, was:

“Your donation will enable us to continue to provide free rugby to all sections within the club from mini & junior right through to youth and senior levels. Your support through your donation is greatly appreciated. The suggested amount of donation is £5 (£3 for senior citizens). Children will always be encouraged to attend these games entirely free of charge.” 

The tribunal would expect regular supporters of a club such as this to make a donation in line with a resolution such as this, but that does not of itself turn a donation into a payment for a taxable supply. In addition, the unusual arrangements under which the licence to use the ground was held by the Club make it difficult to identify any supply that the Club could make for which the Club could properly demand consideration. And the tribunal finds that the Club did not have a system in place to ensure that people only entered the ground if they paid the recommended level of donation, and that the Club did not have the right to exclude all those who did not make a donation at that level or at all. 

31	The tribunal regards this issue as purely a matter of fact. Taking all the evidence into account, the tribunal is satisfied on the balance of probabilities that the payments made by spectators were voluntary, notwithstanding in the particular factual situation that there was a recommended level of donation. It is particularly influenced in that finding by the unusual arrangements by which the Club only had limited non-exclusive use of its ground and that neither it nor any body linked closely to it had the usual powers of a landowner, tenant or exclusive licensee to exclude individuals from the grounds and that those who did have that power had informally prevented the imposition of a charge. It is also influenced by its findings that, compatible with the absence of exclusivity, there were no specific spectator facilities at the ground and that there were no tickets.        

32	This part of the appeal therefore succeeds.

Conclusion

33	The appeal is therefore allowed to the extent that the assessments include sums received as donations by those entering the ground at match times and also in so far as the schedule of sponsors includes sums from other rugby clubs and similar organisations for which there were no advertisements placed in the programmes or other forms of consideration given. But the appeal fails to the extent that the sums paid by commercial sponsors, including those identified specifically in this decision were, in the view of the tribunal, making payments for taxable supplies by the Club. 

34	The tribunal repeats the direction in paragraph 26 to the Club to produce a further schedule to the Commissioners within one month of this decision being issued. The parties have the right to apply to the tribunal if they are unable to agree adjustments to the assessments in the light of this decision.

35	There were no applications for costs.

				        David Williams
					Chairman
					Released: 28 February 2006

LON/04/895