Local Authorities – Market Income Liability Challenge from HMRC

The VAT treatment to be applied to grants of licences to occupy land in all its various forms have become an area which has regularly appeared in the VAT Tribunals over recent years. It is arguable that HMRC are narrowing down the areas of activity which they feel will sit within the VAT Exemption Schedule as an interest in land to exclude any supply where there is a link to facilities being provided as well as the right to use the space being supplied.

There have been cases such as Blue Chip Hotels which found that the hire of a room licensed for a marriage or civil partnership ceremony was a standard rated supply and not a VAT exempt one. Then there have been a number of cases relating to pitch fees at Antique, Craft and Arts Fairs where they too were seen as ultimately a supply of the right to participate in an event rather than solely a right over land – also bringing such income into the automatically standard rated area.

These challenges in commercial areas are now starting to flow into the activities of local authorities in terms of their arrangements with stall holders at a range of council owned or run venues and events. The liability will be influenced by the nature of the arrangements your council may have with the stall holder, how you deal with additional services you supply to them or even the nature of the event the pitch is at. A council setting up and running a Food Festival or seasonal French or Christmas Market as a one off to attract visitors to its area or town will likely face a challenge from HMRC that income from pitches involves much more than simply an exempt right over land.

Certainly local authorities are receiving VAT inspections from HMRC where the VAT treatment of this type of income is under scrutiny with the associated threat of assessments being raised covering the last four years of income.

It would be timely to ensure that some internal compliance checks are undertaken on the nature of arrangements your council has with stall holders whether at regular weekly markets as well as at more targeted themed events, festivals etc.

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