Eamon McNicholas Tax Barrister, Accountant

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Longridge on the Thames v HMRC [2016] EWCA Civ 930, 01/Sep/16

Correct test for "economic activity" in VAT, "predominant concern" test disapproved.

Longridge is a charity providing recreational and educational activities on or around the river Thames. It had a new training centre built with VAT payable of £135,000. Longridge claimed it should have been zero-rated as the supply was to a charity under VAT Act 1994 (VATA) sch.8 grp.5 items 2 and 4 with note 6.

Reviewing the European authorities, especially EC v Finland (2009), the Court of Appeal defined "economic activity" in the VAT Directive, "business" in VATA, for deciding when an organisation was subject to VAT. The test was objective. Only supplies for a consideration were taxable and there had to be a direct link between supply and consideration. There was no special rule, or blanket relief, for a charity; its VAT status depended on its economic activities. The amount charged was irrelevant, as was any concession given, and a non-profit making activity could still be taxable.

Reviewing domestic authorities the Court held these had diverged somewhat from the correct test, as set out by Europe. In particular the "predominant concern" criterion, from C&E v Lord Fisher (1981), QB, was unhelpful or even misleading. Applying that to this case the Court found there was, on the facts as found, a direct link, Longridge was carrying on an economic activity and the building works were standard-rated.

HMRC's appeal allowed.