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There has been a flurry of interesting Tax Tribunal cases recently, so here’s a selection of the best:

VAT on Bridge tournaments

The English Bridge Union (EBU) failed in its bid to reclaim VAT on £631,000 of tournament fees after a tax tribunal ruled that bridge was a game rather than a sport. The EBU had appealed against HMRC’s refusal to repay VAT on competition entry fees it raised between 30 June 2008 and 31 December 2011. HMRC argued that under the European VAT directive and UK law, contract bridge was not a sport, so competition fees were not a VATable supply.

English Bridge Union Logo

A Bridge too far

Dr John Petrie, the EBU treasurer, submitted correspondence to the tribunal from French, Dutch, Belgian, Irish and Polish bridge bodies explaining that VAT was not charged on entry fees in their countries. The EBU’s barrister also pointed out that bridge was recognised as a sport by the Olympic Committee.

He also cited HMRC’s VAT Notice 701/45 which includes activities such as croquet, darts, billiards, flying and gliding, where physical activity plays second fiddle to mental skill. The natural meaning of “sport” is not limited to activities which principally involve physical skill or exertion, he argued.

HMRC’s barrister turned to the Oxford English Dictionary to support its case and backed it with the Council for Europe’s sports charter which explains that “sport” encompasses all forms of physical activity that “aim at expressing or improving physical fitness and mental well being, forming social relationships or obtaining results in competition at all levels”.

The case bore all the hallmarks of a classic British legal showdown and is similar to the great “is it a biscuit or is it a cake” debate at the centre of the 1991 United Biscuits Jaffa Cake case.

Unfortunately for the EBU at the end of their deliberations, the judges sided with HMRC and concluded that the normal English meaning of “sport” involves a significant element of physical activity: “To our minds sport normally connotes a game with an athletic element rather than simply a game.”

So to all of you darts players out there, you can now consider yourself athletes!

VAT free restaurant meals

A Hampshire college is to get a VAT rebate after a tribunal ruled that the food served at its restaurant is exempt from VAT.

MJ’s restaurant at Brockenhurst College (No connection to Morgan Jones & Co, but I do like the name), which is used to train students, is open to the public, with three-course meal s starting at £15. The food has been praised by celebrity chefs including James Martin and Raymond Blanc.

MJs Restuarant LogoThe College has been in dispute with HMRC over whether it could reclaim VAT charged on the restaurant food. Its barrister argued that the main purpose of the restaurant was to educate its students. HMRC counter argued that the main people who benefited from the service were the restaurant’s customers and not the students.

The tribunal judges Roger Berner and Judith Powell ruled that the restaurant aimed to meet the educational needs of the students and should therefore be exempt from VAT. “There is no requirement under EU law that the goods or services must be consumed by the student. Supplies may be closely related if they are a means whereby the students better enjoy the supply of education,” the judges said.

Second-hand car Tax avoidance scheme

A Tax Tribunal has dismissed another tax avoidance scheme sold by NT Advisors to clients, which include DJ Chris Moyles, in which the participants masquerade as second-hand car dealers.

The “highly artificial Working Wheels” scheme involved its users claiming to be self-employed used car traders making large tax deductions on finance fees incurred to borrow money to invest in their trade.

Moyles had filed a self assessment return that claimed he had “engaged in self-employment as a used car trader” during the year to April 2008. HMRC rejected the loss claim, leading the former BBC star to launch an appeal. The DJ submitted a “very brief and rather uninformative” witness statement that made it clear he had entered the scheme “for no purpose other than to achieve a tax saving”, according to Judge Colin Bishop.

The star’s accountant agreed that the scale of his borrowing was driven by the amount of the tax loss he wanted to achieve, in Moyles’ case £1m, and that the trading was not carried on for its own sake but was more a means to an end.

chris-moyles-laughing-like a used car salesman

Chris Moyles

The judgement revealed that the purpose of the scheme was to manufacture a tax loss greater than any true economic loss at little or no financial risk to the user, whose exposure was limited to the cost of the promoters’ fees and some other minor expenses. The tribunal found the appellants’ aim was to make it appear, “as though by  magic”, that they had incurred vast fees in order to borrow modest amounts of money they did not need in order to invest it in a trade they had no desire to pursue.

After the judge said that it was impossible to reach a conclusion this was a trade seriously pursued with a view to profit, Moyles issued a statement taking full responsibility for his actions and said he had learnt “a valuable lesson”.

So Chris Moyles has yet again adopted the “sackcloth and ashes” approach to being found out. You might remember, that this is the second occasion, in a short space of time that the ex-Radio 1 DJ has participated in dodgy tax-avoidance scheme, the first involved an offshore tax scam.

The DJ will shortly be receiving a large bill from HMRC and I suspect he will probably have provoked them into starting a full blown investigation of all his business and investment activities in recent years. I just hope he has deep pockets, he’ll certainly need them!

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David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David’s depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire’s most respected Accountancy Practice. Email David