UK First-tier Tribunal finds VAT payable on grant of financial assistance

In January 2012 the First Tier Tribunal in the UK handed down its decision in Aberdeen Sports Village Ltd v Revenue & Customs [2012] UKFTT 80.  The decision is interesting because the Tribunal considered the question of whether provision of financial assistance was subject to VAT, which is an issue sought to be addressed by the Commissioner in Draft GST Ruling GSTR 2011/D4 on financial assistance payments.  The Tribunal also considered the fundamental question of determining whether the payment of consideration is for a supply – an issue which is at the heart of the Commissioner’s Special Leave application in Qantas, which is being heard this Friday 10 February 2012 in Sydney.

The facts of the case were as follows:

  • Aberdeen City Council (ACC) and Aberdeen University (AU) entered into a joint venture to develop the Aberdeen Sports Village (ASV).  As part of the venture, ACC and AU committed to “Annual Grant Funding” to ensure that the funding of the running costs were met on an ongoing annual basis.
  • The objectives of ASV included to provide sports and recreational facilities with the object of improving conditions of life for the students and staff of AU and the local community; to make the facilities available to the public at large; and to advance public participation in sport
  • The Annual Grant Funding payable each year by each of ACC and AU was 50% of the net operating cost of the village
  • The joint venture imposed a number of obligations on ASV, including to operate and maintain the village on the basis of minimising the Annual Grant Funding required, to submit annual audited accounts to ACC and AU, to submit monthly management accounts
  • Various discounts were provided, including to AU staff and students, to ACC staff, to those in full-time education, over 60s and some others – no evidence was given as to the amount of use by “the wider community” – i.e., people not connected with AU or ACC

The issue before the Tribunal was whether the Annual Grant Funding payments are consideration for supplies made by ASV to ACC and AU.  The applicant submitted that the payments were not consideration for the supply of services and the payments had no direct link with discounts offered on admission charges.  Further, the annual payments were solely defect funding.

In finding that VAT was payable, the Tribunal found that there was a supply of services by ASV to ACC and AU and the annual payments were consideration for that supply.  The supply was constituted by the obligations under the joint venture agreement.  In doing so, the Tribunal found that “the purpose of the Annual Grant Funding was the operation and maintenance of leisure services for ACC and AU, despite protestations that the Village was available to a much wider community“.  This is a similar to the approach taken by the Full Federal Court in Qantas, where the Court looked at what the fare (i.e., the consideration) was paid “for”.  Of course, it should be noted that the appellant failed to adduce evidence about the usage of the Village by “the wider community”.

GSTR 2011/D4

The approach taken by the Tribunal in this case is broadly consistent with the approach of the Commissioner in GSTR 2011/D4, which can be summarised as follows:

  • regard must be had to the surrounding facts and circumstances, including any documentation, to determine whether a financial assistance payment is consideration for a supply [paragraph 11-12];
  • it is not sufficient that there be a supply and a payment – the supply must be “for” that payment [paragraph 17]
  • in determining whether a financial assistance payment has a sufficient nexus to a supply regard needs to be had to the true character of the transaction [paragraph 22]




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