In Snow Factor and Snow Factor Training v HMRC [2019] UKFTT 664 (31 October 2019), the FTT, applying the Halifax doctrine, redefined a supply by a non-profit making company as a supply by its profit-making parent, and therefore outside the education exemption (VATA 1994 Sch 9 Group 6 item 1).
Snow Factor (SF) operated an ‘indoor snow sport resort’ with two slopes and an ice wall. Its director set up Snow Factor Training (SFT), a company limited by guarantee, with no shareholders, whose purpose was ‘to provide training and tuition in relation to snow sports’ and then transferred its own training business to SFT as a transfer as a going concern for £1. The agreement provided that the entire income of SFT, which had been the income of SF, would be paid to SF, plus the costs incurred. As SFT was a non-profit making body, the intention was that supplies of tuition by SFT would be exempt. The issue was whether the arrangement constituted an abuse of right under the Halifax principle.
The UT noted that the purpose of the legislation was to exempt the supply of education services by ‘eligible bodies’. In this respect, the UT disagreed with SF’s contention that the tuition was provided by SFT. It noted that, from the date of the transfer, ‘apart from book-keeping entries between the companies and the creation of a bank account for SFT (which was part of a group banking facility) nothing very much really changed. Customers continued to be attracted to the Snow Dome by SF’s website and publicity where there was no mention that SFT provided the tuition services.’ The UT concluded that the contractual framework between the two companies was ‘wholly artificial’; the tuition services were provided by SF, which did not qualify as an eligible body.
The UT then considered whether the essential aim of the arrangements was the obtaining of a tax advantage. The UT rejected each of SF’s contentions to the effect that the structure had generated substantial non-tax savings, in particular, in relation to insurance. It noted, for example, that any savings on insurance costs were ‘dwarfed’ by the VAT savings. The transactions were therefore abusive and fell to be redefined as supplies by SF.
Finally, the UT found that, in any event, SFT could not have qualified as an eligible body. The tribunal accepted that SFT had been incorporated with the sole intention of being an eligible body. This was the reason why its articles of association prohibited it from paying or transferring its income or property to its members. However, this was not a determining factor, given that the aim of the arrangements was to enrich SF.
Why it matters: In its opening remarks, the FTT described SFT as a ‘mere cypher’. It had no staff and ‘it was so far below the radar screen that it was virtually invisible’. The FTT also rejected the notion that the arrangement had non-tax advantages, noting that no evidence had been produced suggesting that the board had considered these. In this context, board meeting minutes or an advisory paper would have been helpful to the appellants’ case, although it is doubtful that they would have changed the outcome.
In Snow Factor and Snow Factor Training v HMRC [2019] UKFTT 664 (31 October 2019), the FTT, applying the Halifax doctrine, redefined a supply by a non-profit making company as a supply by its profit-making parent, and therefore outside the education exemption (VATA 1994 Sch 9 Group 6 item 1).
Snow Factor (SF) operated an ‘indoor snow sport resort’ with two slopes and an ice wall. Its director set up Snow Factor Training (SFT), a company limited by guarantee, with no shareholders, whose purpose was ‘to provide training and tuition in relation to snow sports’ and then transferred its own training business to SFT as a transfer as a going concern for £1. The agreement provided that the entire income of SFT, which had been the income of SF, would be paid to SF, plus the costs incurred. As SFT was a non-profit making body, the intention was that supplies of tuition by SFT would be exempt. The issue was whether the arrangement constituted an abuse of right under the Halifax principle.
The UT noted that the purpose of the legislation was to exempt the supply of education services by ‘eligible bodies’. In this respect, the UT disagreed with SF’s contention that the tuition was provided by SFT. It noted that, from the date of the transfer, ‘apart from book-keeping entries between the companies and the creation of a bank account for SFT (which was part of a group banking facility) nothing very much really changed. Customers continued to be attracted to the Snow Dome by SF’s website and publicity where there was no mention that SFT provided the tuition services.’ The UT concluded that the contractual framework between the two companies was ‘wholly artificial’; the tuition services were provided by SF, which did not qualify as an eligible body.
The UT then considered whether the essential aim of the arrangements was the obtaining of a tax advantage. The UT rejected each of SF’s contentions to the effect that the structure had generated substantial non-tax savings, in particular, in relation to insurance. It noted, for example, that any savings on insurance costs were ‘dwarfed’ by the VAT savings. The transactions were therefore abusive and fell to be redefined as supplies by SF.
Finally, the UT found that, in any event, SFT could not have qualified as an eligible body. The tribunal accepted that SFT had been incorporated with the sole intention of being an eligible body. This was the reason why its articles of association prohibited it from paying or transferring its income or property to its members. However, this was not a determining factor, given that the aim of the arrangements was to enrich SF.
Why it matters: In its opening remarks, the FTT described SFT as a ‘mere cypher’. It had no staff and ‘it was so far below the radar screen that it was virtually invisible’. The FTT also rejected the notion that the arrangement had non-tax advantages, noting that no evidence had been produced suggesting that the board had considered these. In this context, board meeting minutes or an advisory paper would have been helpful to the appellants’ case, although it is doubtful that they would have changed the outcome.
