UK: The VAT Man Cometh. . .

A Registered Social Landlord and charity was liable for VAT as a business in respect of its letting of property whether or not this was pursued for social or philanthropic reasons. So decided Lawrence Collins J on 3 October 2006 in the High Court Chancery Division in Riverside Housing Association Limited v. Revenue and Customs Commissioners [2006] EWHC 2383 Ch.

The Court noted that the income of Riverside Housing Association (Riverside) is derived principally from rents received from tenants and from grants paid by the Housing Corporation (the agency charged with the administration of public housing policy). Also, Riverside's capital resources are derived from grants paid by the Housing Corporation, from borrowing, and from the proceeds of sale of properties. The Court also observed that Riverside conducts its affairs differently from an ordinary commercial organisation in that 'it has philanthropic objectives, does not set out to (and indeed cannot) maximise its profits, does not distribute such profits as it earns, and is subject to much greater regulation than a company in the commercial sector'.

Nevertheless, it was still held to be in business for the purposes of VAT. This is important for local authorities since an authority which makes taxable supplies is liable to be registered for VAT whatever the value of its supplies. A 'taxable supply' is a supply of goods and services made in the United Kingdom other than an exempt supply (see Schedule 9 to the Value Added Tax Act 1994). And by section 4(1) of the 1994 Act,VAT must be charged on any supply of goods or services made in the UK where it is a taxable supply made by a taxable person 'in the course or furtherance of any business carried on by him'.

Section 94 of the 1994 Act defines 'business' (amongst other things) as including any trade, profession or vocation and without prejudice to the generality of anything else in that Act, the following are deemed to be the carrying on of a business (a) the provision by a club, association or organisation (for a subscription or other consideration) of the facilities or advantages available to its members; and (b) the admission, for a consideration, of persons to any premises. It was common ground that the 1994 Act had to be construed so as to conform to EC Council Directive 77/388, article 4 of which provides that:

1. 'Taxable person' shall mean any person who independently carries out in any place any economic activity specified in paragraph 2 whatever the results of that activity.
2. The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity.'

The Court considered in the light of relevant caselaw that 'business' is a word of wide meaning, and the absence of one common attribute of ordinary businesses, trades, professions or vocations, such as the pursuit of profit, does not necessarily mean that the activity is not a business or trade etc. The Court consequently agreed with the VAT and Duties Tribunal below that although:

• A high proportion of Riverside's capital resources and much of its income was derived, directly or indirectly from public funds

• It was subject to a greater degree of regulation than other organisations

• Without state support it would not be able to carry on its activities

this did not lead to the conclusion that its supplies were not made in the course of pursuing a business activity. Accordingly, the Court accepted the VAT Tribunal's 'inevitable conclusion' that:

VAT is clearly an issue for local authorities to deal with when they make 'taxable supplies' and will also no doubt be a material consideration for authorities considering setting up 'trading companies' under Part 8 of the Local Government Act 2003.