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Jul

VAT: essential - "utterly" or "somewhat" PUBLISHED IN VAT

I have always thought that if something is “essential” to another thing then this means either that: 1. The other thing cannot happen without the first thing, or 2. The first thing forms the bedrock of the other thing, perhaps being the most central aspect, or the most important outcome.

 

Although these definitions are different, they do appear to have some similarity and quite a bit of crossover. I was not aware, up until a few months ago, that there might be another definition of “essential” but now I can add a third which is:

3.    Although the other thing can exist without the first thing, the relative quality of the other thing is significantly improved if the first thing exists.

Readers may not be familiar with that third, rather half-hearted, definition of “essential”, so I will immediately put your mind at rest by pointing out that this is a definition which is likely to exist only in the world of VAT (or, to put it at its widest, of tax in general). 

It arises in the context of the question as to whether a supply made by a sporting body qualifies for VAT exemption on the basis that it is “closely related to and essential” to participation in the sport. This form of words appears both in European and UK VAT legislation. You will note that, in order for exemption to apply, the service must fulfil both separate criteria, namely to be “closely related to” and “essential to” participation in the sport. In practice, this has often been interpreted, both by HMRC and the taxpayer, as being sufficiently fulfilled on the basis of only the “closely related to” criterion. But, around two years ago, a VAT tribunal took a different point of view when considering a sport, and the services provided by an umbrella representative body, and it adopted the more conventional view of “essential” when considering the point. It decided that, as no physical facilities were being provided, and therefore the body in question was doing nothing without which the sport was simply impossible to participate in, then the service could not be “essential”.

This apparently sensible point of view was dismissed by the High Court, upon appeal, which, in somewhat more lengthy terms, came up with the third definition given above. It then remitted the case back to the tribunal for the tribunal to consider the error of its ways. 

And this had the desired result. The tribunal then realised that the act of lobbying and representing the interests of this particular branch of sports persons did significantly enhance the quality of the facilities they would enjoy in general, and thus the services were “essential” to participation in that particular sport.

Full details as to what this means can be read in a factsheet entitled Sporting Supplies VAT Exemption.

There is a wider point to all of this, though, which is that VAT has a language all of its own, and is a tax in which the most obvious meanings of the most common-place words can be found, at length, to be simply, and completely, wrong.

 

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