The tax authorities are by no means always right and, with the right legal advice, their decisions can sometimes be challenged successfully. In one case, a small football club that was accused of wrongly treating the construction of its clubhouse as VAT-free was relieved of an unwelcome financial penalty.
The club, a registered charity, spent £265,000 on building the clubhouse after local people contributed generously to the cost. However, the building’s completion was greeted by an HM Revenue and Customs (HMRC) investigation. Tax officials said that the club should not have certified to its building contractors that their services would be treated as zero-rated for VAT purposes. HMRC proceeded to impose a £53,101 penalty on the club, representing 20 per cent of the construction costs.
In upholding the club’s appeal against the penalty, the First-tier Tribunal (FTT) found that the clubhouse was akin to a village hall and was open for use by the entire local community. Club members had no priority over others when booking space for events and the clubhouse was not operated as a business.
Any cash generated was ploughed back into the building’s maintenance and the clubhouse was, amongst other things, used for karate classes, a toddlers’ group, Irish dancing classes and church services on Sundays. The building was intended solely for a relevant charitable purpose and its construction costs were, indeed, free from VAT. The penalty was overturned.