“The facts that Longridge is a charity and its activities are non-profit making are not of any significance for this purpose.”
So said Mr Justice Morgan in the keenly anticipated Court of Appeal VAT decision in the Longridge on the Thames v HMRC case. Put simply, the case concerned whether or not Longridge (a charitable provider of outdoor recreational and education activities) carried on a business or not. If it did not carry on a business, it would benefit from the construction of its new training centre being free of VAT (giving rise to a £135,000 refund of VAT already paid over to HMRC).
Longridge won in both the First-tier and Upper Tier Tribunals, which both concluded that its activities were non-business (largely on the basis of discounting / subsidising of charges for certain groups, e.g. those with disabilities, as well as the use of volunteers to help operate the site). So its predominant concern was in permitting access to its activities, rather than making any profit.
However, the Court of Appeal took a different approach. It focussed its attention primarily on the European line of cases concerning “economic activity” rather than UK case law. Under this jurisprudence, the key test is whether or not there is a direct and immediate link between the supply and the consideration for it. If there is, and the activities are being carried out on a sufficiently permanent basis, then the assumption is that an economic activity is being pursued. The supplier’s motives in making the supply are largely irrelevant and the kind of subsidising of charges being operated by Longridge (or the absence of any profit motive) is insufficient to displace the assumption.
There is no special rule for charities in this context. Whether or not they are undertaking an “economic activity” is subject to the same kind of analysis as would apply to any commercial entity.
The Court of Appeal concluded that Longridge’s activities were long-established and regularly carried on, and that there was a direct link between charging and the services provided. Longridge’s charitable motives were not sufficient to mean it was acting on a “non-business” basis.
Whilst the decision by the Court of Appeal to side with HMRC was anticipated, Longridge is still an important and disappointing case for charities. It effectively displaces earlier, more helpful, decisions and means that activities carried on by a charity for a charge (even if discounted, and even in the absence of any profit motive) are now more likely to be treated as “business” supplies for VAT purposes.
One suspects far fewer charities will now be able to benefit from the VAT-free construction of charitable use buildings. Whether or not the very stringent requirements now effectively imposed on this VAT relief were intended by the EU or UK Parliament is an interesting question. Perhaps Brexit will allow the UK to expand the relief again – watch this space, but perhaps don’t hold your breath whilst doing so…