Non-profit-making organisations enjoy favourable tax treatment, but deciding which bodies qualify for that status can pose difficulties. In a guideline case, however, the Upper Tribunal (UT) ruled that a golf and leisure club had rightly been exempted from having to account for VAT on green fees and other receipts.
The course on which the club’s members played was formerly part of a hotel and spa resort. There was no dispute that the resort was a fully commercial organisation. After the course was hived off to the club, the resort continued to own fitness facilities and other infrastructure used by the club’s members. The club received green fees and other income but, after annual licence fees were paid to the resort in respect of the use of its facilities, it did not make a profit.
HM Revenue and Customs (HMRC), however, took the view that the club did not qualify as a non-profit-making organisation and could thus not take advantage of the sporting exemption from VAT contained within the VAT Act 1994. On that basis, the club was retrospectively assessed for VAT in respect of a period of almost five years. After the club appealed, however, its arguments were preferred by the First-tier Tribunal (FTT) and the assessment was overturned.
In dismissing HMRC’s challenge to that ruling, the UT found that the club did not operate as an integral part of a single commercial operation with the resort and was free from the latter’s commercial influence. The licence fees the club paid were negotiated at arm’s length and its directors, none of whom were also directors of the resort, acted independently in the club’s interests. The club did not bear costs that should have been attributed to the resort and there was no error of law in the FTT’s conclusion that the club was a non-profit-making body.