Auchterarder Golf Club v Revenue & Customs [2006] UKVAT V19907 (24 November 2006) 

19907

Value Added Tax – Partial exemption – golf course and clubhouse – capital goods – whether standard method faire and reasonable – whether suggested special method appropriate – jurisdiction of Tribunal – Tribunal’s function in adjudicating when a special method not agreed when not satisfied of fairness of standard method – VATA 1994 ss24-6 VAT Regs 1995, 101, 116.

EDINBURGH TRIBUNAL CENTRE

AUCHTERARDER GOLF CLUB	Appellants

- and -

THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE & CUSTOMS	       Respondents

Tribunal:	 (Chairman):  T GORDON COUTTS, QC
(Member):      J D CRERAR, WS.,NP

Sitting in Perth on 3 November 2006.

for the Appellant(s)	Eileen Lynn, VAT Consultant	

for the Respondents	Joanna Clark, Shepherd & Wedderburn, WS

© CROWN COPYRIGHT 2006.

DECISION

INTRODUCTORY
	The Appellant, a Members Club founded over 100 years ago, embarked on a significant modern new extension to their Clubhouse.   Plans were produced to the Tribunal, albeit the end result did not wholly conform to them.   Work was carried out over 3 years and the building was first occupied in Aril 2003.    The questions of VAT recovery in relation to input tax to which the Appellant was entitled were raised in relation to current trading activities and also in relation to the capital goods scheme for the cost of the extension itself.

	The use of the standard method (Regulation 101) was eventually agreed so far as trading and day to day income was concerned.   The question for the Tribunal was whether the Appellant had demonstrated that that standard method was not fair or reasonable and that another special method would produce a result which was fairer and more reasonable for the capital goods in question, i.e.  the extension.

	A hearing was heard in Perth and a visit made by the Tribunal to Auchterarder Golf Club at the Appellants’ request so that some impression of the use of the building and comparative sizes and importance of various areas could be given.    

	The Appellant’s representative, their VAT Advisor, not only presented the case but gave evidence and was cross-examined.  No evidence was led for the Respondents.   

STATUTORY FRAMEWORK
	Regulation 116 of the Value Added Tax Regulations 1995 provides in relation to the ascertainment of the taxable use of a capital item that 
“an attribution of the total input tax on the capital item shall be determined for each subsequent interval applicable to it in accordance with the method used under Part XIV for that interval and the proportion of the input tax thereby determined to be attributable to taxable supplies shall be treated as being the extent to which the capital item is used in making taxable supplies in that subsequent interval.
(A2)	Subject to paragraph (2) below, the attribution of the total input tax on a capital item for subsequent intervals determined in accordance with regulation 114(5A) above shall be determined by such method as is agreed with the Commissioners.
(2)	In any particular case the Commissioners may allow another method by which, or may direct the manner in which, the extent to which a capital item is used in making taxable supplies in any subsequent interval applicable to it is to be ascertained.”

Regulation 101 provides:
(1)	“Subject to regulation 102 [and 103B], the amount of input tax which a taxable person shall be entitled to deduct provisionally shall be that amount which is attributable to taxable supplies in accordance with this regulation.
(2)	In respect of each prescribed accounting period –
(a)	goods imported or acquired by and…goods or services supplied to, the taxable person in the period shall be identified.
(b)	there shall be attributed to taxable supplies the whole of the input tax on such of those goods or services as are used or to be used by him exclusively in making taxable supplies,
(c )	no part of the input tax on such of those goods or services as are used or to be used by him exclusively in making exempt supplies, or in carrying on any activity other than the making of taxable supplies, shall be attributed to taxable supplies, and
(d)	there shall be attributed to taxable supplies such proportion of the input tax on such of those goods or services as are used or to be used by him in making both taxable and exempt supplies as bears the same ratio to the total of such input tax as the value of taxable supplies made by him to the value of all supplies made by him in that period.”
	
	Since the underlying provision is phrased to give the Commissioners a discretion to depart from the regulated standard method it follows that it is for the taxpayer to establish (1) that the standard method was not capable of producing a fair and reasonable result and (2) to propose another method which could be agreed as producing such a result.    If such a method was proposed and rejected the Tribunal can hear an appeal.    The Tribunal’s jurisdiction in this matter has been subject to discussion as to whether it was a supervisory or Appellate one.   The latest pronouncement which may disagree with a view of this Tribunal in University Court of University of Glasgow EDN/02/11 that jurisdiction is supervisory, is said to be found in Banbury Visionplus Ltd  [2006] EWHC 1024 where, at paragraph 52 Mr Justice Etherton sitting in the High Court said 

“I can see no practical or jurisprudential difficulty in conferring on the tribunal a full appellate jurisdiction to determine, on the basis of all the facts and matters found by it at the time of its decision, whether a decision of the Commissioners under Regulation 102 substitutes, in place of an existing method, a method which secures, or at least better secures, a fair and reasonable attribution of input tax to taxable supplies for the purposes of s.26(3) of the 1994 Act.  That would be consistent with the unqualified wording of the appeal provisions in s.83(e) of the 1994 Act.   It imposes an objective test which, as Mr Peacock observed, is consistent with the provisions of Articles 17 and 19 of the Sixth Directive, and which the Tribunal, as a body with the requisite specialist expertise, is well qualified to conduct.”

	Whether that quotation can be said to provide a complete answer to the difficulties envisaged by various Tribunals on this matter may be open to question but does not, it is thought, arise in the present case.   In any event it is confined to a situation where the Commissioners at their own instance alter the status quo.

THE FACTS	
	Auchterarder Golf Club, which operates a very pleasant well situated course and Clubhouse has provided for its members and guests provision of a Clubhouse which is agreeable situated in a pleasant situation and of good finish and  design.  It is generous in its provision of space for activities other than golf.  In physical dimensions a substantial part of the Clubhouse can reasonably be said to be concerned with taxable supplies of food, drink and other refreshments comprising a large lounge with annexed, open, dining area, kitchen, bar, bar store and bottle store, also toilets corridors and entrances thereto, amounting to over half the floor area of the building.  An area called “games room” on the plan produced is in fact part of the lounge/bar area.   That  part however can and does have other  minor uses such as holding an Annual General Meeting for a short part of one day in the year and other occasional Club associated activities such as fund-raising events.

	There is no area the use of which which could be described as wholly taxable other than a visitors changing room and there is only a small area which could be described as wholly exempt i.e. the members changing room for men, the rest is mixed use.

	Much correspondence was produced and spoken to the result of which is in summary, that the Appellant proposed a floor based area for calculation of recovery of input tax for the capital item.   This was rejected as  proposed, for various reasons some of which might be thought nitpicking (e.g. to elevate a short AGM into an insuperable difficulty when it could well be described and disregarded as de minimis) which was not helpful.

	On the other hand no specific proposal was put forward by the Appellant with which the Commissioners were satisfied albeit that it is implicit in the exchange of correspondence that it is common ground that there may well be doubts about the fairness in this case of using the standard method for this, capital goods,  purpose.    The difficulties which were put forward by way of ascertainment of any time based or income based modification of the use of a floor based calculation were stressed.   However there was no evidence before the Tribunal to show it that any specific proposal had been put forward with which the Commissioners should have been satisfied as a special method.
	We would add that in so far as the Commissioners’ appear to have rejected out of hand any use of a floor based method of calculation that could not be supported.  In their letter of 24 March 2006 the Respondents purport to follow, as if it was a matter of law, a wide ranging and in our view unnecessary observation by a Tribunal  in Optics Ltd v the Commissioners, 18267 (LON/00/1281) that “methods based on floor area are seldom fair and reasonable”.  In our view that approach is flawed and the matter should not be approached with any such preconceptions.  Such a method could well be used and it should be possible to formulate into an agreement some ascertainable modification to the mathematical floor area based percentage to reflect the realities and achieve fairness.   That has to be achieved by both parties.

	In the result however, unfortunately, the Tribunal did not have sufficient evidence before it to allow it to determine in this case what such a special method should encompass and it is not for the Tribunal to formulate such a method.      The appeal therefore fails but it is open to the Appellant to propose a detailed special method which can be examined and adjudicated upon.    That should be considered by the Commissioners in the light of the above observations and the fuller appreciation of the facts which they must have gained from the hearing and the site visit.    The Appellant would be at liberty to return to the Tribunal should such a specific proposal be rejected or  agreement fail.

DECISION
	In the result therefore the appeal is dismissed.

				T GORDON COUTTS, QC
CHAIRMAN

RELEASE:   24 NOVEMBER 2006.

EDN/06/28