VAT News

Deficit Funding


Deficit Funding: A real VAT concern - the Aberdeen Sport Village Ltd case.

The question of whether provision of financial assistance was subject to VAT was explored at the Tribunal in January which also considered the fundamental question of determining whether the payment of consideration is for a supply which links in well with the issue raised earlier on the difference between Grants and Contracts for VAT purposes.

The facts of the case were as follows:

  • Aberdeen City Council (ACC) and Aberdeen University (AU) entered into a joint venture to develop the Aberdeen Sports Village (ASV). As part of the venture, ACC and AU committed to ‘Annual Grant Funding’ to ensure that the funding of the running costs were met on an ongoing annual basis
  • The objectives of ASV included providing sports and recreational facilities with the object of improving conditions of life for the students and staff of AU and the local community; to make the facilities available to the public at large; and to advance public participation in sport
  • The Annual Grant Funding payable each year by both ACC and AU was 50% of the net operating cost of the village
  • The joint venture imposed a number of obligations on ASV, including the operation and maintenance of the village on the basis of minimising the Annual Grant Funding required, to submit annual audited accounts to ACC and AU and to submit monthly management accounts
  • Various discounts were provided, including to AU staff and students, to ACC staff, to those in full-time education, over 60s and some others – no evidence was given as to the amount of use by ‘the wider community’ – i.e., people not connected with AU or ACC

The issue before the Tribunal was whether the Annual Grant Funding payments are consideration for supplies made by ASV to ACC and AU. The company took the view that the payments were not consideration for the supply of services and the payments had no direct link with discounts offered on admission charges. Further, the annual payments were solely deficit funding.

However, the Tribunal found against the company and the assessment (which was for over £350k of VAT) was upheld.

The Tribunal found that there was a supply of services by ASV to ACC and AU and the annual payments were consideration for that supply: “the purpose of the Annual Grant Funding was the operation and maintenance of leisure services for ACC and AU, despite protestations that the Village was available to a much wider community”.

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