Westow Cricket Club: no reasonable excuse for zero-rating sports pavilion

Whilst this is only a First Tier Tribunal (FTT) case – which means it wouldn’t stand as a precedent – it offers insight into HMRC’s stance on the use of 100% penalties where “incorrect” zero rating reliefs had been applied by a taxpayer. It’s also highlighting a concern for tax payers when they think they’ve cleared the liability position in a call to HMRC only to find HMRC don’t take the same view on the nature of the discussion.

In 2012, Westow Cricket Club (run by unpaid volunteers with a love for village cricket) had a new sports pavilion built. It checked the VAT treatment with HMRC, was told that that the pavilion appeared to qualify for zero-rating, and so issued a certificate to the builder. Nevertheless, the FTT has ruled that the Club did not have a reasonable excuse against a penalty for getting the certificate wrong, when HMRC later challenged the VAT treatment.

In the FTT’s view, the fact that HMRC had only said that the pavilion “appeared” to qualify for zero-rating meant that it had not provided a definitive response which the club could rely on. Furthermore, the FTT seems to have considered it obvious that the club was not a charity and could not therefore issue a certificate (it does not mention ongoing litigation about VAT and Community Amateur Sports Clubs). Finally, the FTT concluded that the 100% penalty was not disproportionate, accepting that the penalty effectively stood in place of the VAT that the builder should have charged.

VAT and property projects remain one of our key areas of support offered to clients whether that’s on universities or colleges developing new buildings and campuses to private developers renovating properties as landlords. It is also an area where VAT gets complicated and no more so when trying to apply the zero rating reliefs that are available to charities for non-business use projects or the “village hall” type community build project.

With the risk of an 100% penalty for the VAT not correctly charged, the importance of securing VAT advice you can rely on is heightened in such cases. As ever if the Centurion VAT team can assist get in touch at emailus@centurionvat.com and always, always get any ruling in writing from HMRC, setting out all the facts that the decision would be based on, if you plan to “go it alone”.