The upper tribunal, which is essentially the tax Court of Appeal, has ruled that lift passes sold at an indoor ski centre should be subject to 5% VAT. Overturning the first-tier tribunal decision from 2018.
The decision highlights one of the most worrying aspects of our VAT system, in that how two different courts can consider the same facts about a source of income and reach completely different conclusions about its VAT liability. If the judges can’t agree on the basic facts, how can taxpayers be expected to get things right?
Sadly, the days when we could ask the local VAT office for a written ruling are long gone. The safety-first approach of just charging 20% VAT, would not be accepted by a prudent customer. Because the sensible customer knows he cannot claim input tax on incorrectly charged VAT.
VAT Liability of lift passes
The upper tribunal decision in the case of Snow Factor Ltd, a company which operates artificial ski slopes all over the UK, is a case in point.
The issue considered by the court was whether the up sale of lift passes to skiers at an indoor ski and snowboard centre qualified for 5% VAT.
Alternatively, was the reality that the customer was paying for the right to use the ski slope, in which case the pass should be subject to 20% VAT. At the first-tier tribunal, HMRC argued that the supply of the lift service was standard rated, and the first-tier tribunal agreed with them; but Snow Factor appealed.
5% VAT Rate: What does the law say?
Looking at the VAT Act, Note (1) of the Group 13 in Schedule 7A excludes the 5% rate where the business or a connected party also supplies the right to use facilities at a “place of entertainment, recreation or amusement”.
Schedule 7A would seem to apply to Snow Factor, but the critical fact put forward by the taxpayer was that the company made no charges to use the slopes. The only payment made by the customer was to use the lift with a pass that “specifies the date and window of time within which the pass can be used.”
5% VAT Rate:Shanks’s pony option
The upper tribunal gave their analysis of the facts when reaching their decision and highlighted two issues:
- It was possible for very fit or experienced skiers, to access the ski slope by walking up the slope rather than use the lift. It might be hard work but possible and was allowed by Snow Factor with the skier effectively having use of the facilities for free.
- Even though only around 1% of skiers took this energy-sapping option, the fact that it was possible meant there was “an absence of reciprocity” between the lift and slope. In other words, customers could ski without payment. Therefore, it follows that the lift pass must relate only to the transport and not recreation.
5% VAT Rate HMRC’s argument
HMRC argued that the skiers parted with their cash because they wanted access to the ski slope “without the effort and inconvenience of walking up the slope” – they were not paying for the transport.
They also made the point that it was the perception of the customer that was the critical factor in determining the nature of the supply. They followed this up by arguing that in the eyes of the vast majority of Snow Factor’s customers, they were paying for the ski-lift and the skiing as a package.
However, unfortunately for HMRC, the upper tribunal rejected this argument on the principal premise that ‘the law is the law’.
Tax Accountant’s Summary
I enjoyed reviewing this case and could not help having some sympathy for HMRC. They had argued their case well but could not overcome the loophole in the law that Snow Factor had so effectively exploited.
To put it bluntly, imagine a skier all kitted out in his expensive gear and looking forward to an exciting bit of skiing down the nearly 200-metre slope. The customer purchases a lift pass uses lift and rides to the top of the dry piste. He gets off the aerial tramway and discovers that the slope is closed due to a technical problem. Would the skier ask for (and receive) a full refund including lift pass fee? I suspect the answer might be ‘yes’ which is why the upper tribunal’s decision is controversial.
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