Golf Club VAT Exemption Scheme Unravels


In a case which illustrates that even the best laid tax management plans can come unstuck, an attempt to save substantial VAT by transferring a golf club’s sporting facilities to purportedly non-profit-making companies has been condemned as having the sole and essential aim of obtaining an abusive tax advantage.


GolfOn the basis of professional advice, the owners of the club had transferred the golf course and its associated driving range and health club to two companies limited by guarantee. It was hoped that that this would mean that income from those facilities would be exempt from VAT as not-for-profit supplies of sporting services.


However, that interpretation did not find favour with Her Majesty’s Revenue and Customs (HMRC) which raised tax demands totalling more than £500,000 on the owners in respect of a number of tax years. That was on the basis that the scheme was an attempt to avoid paying VAT on supplies of sporting services which would otherwise have attracted the tax and that the European law doctrine of abuse of rights operated to frustrate the attempt at avoidance.


Dismissing the owners’ appeal against that decision, the First-Tier Tribunal (FTT) noted that rent charged by the owners to the two companies was on considerably more than a commercial basis and was designed to strip out their profits. The owners had remained in practical control of the business and had appointed friends as directors of the companies which were not in practice autonomous. The owners could also regain legal control of the club’s facilities on giving one month’s notice.


The FTT found that the scheme was artificial in that it was designed to create a picture of fully autonomous non-profit-making companies running the club’s facilities when the reality was that the owners were very much in charge and in a position to extract from the companies the saving in VAT. Viewed objectively, the aim of the corporate structure employed was solely to obtain an abusive tax advantage.