The "Economic activities" VAT test

A training centre was engaged in economic activities despite its charitable purpose and therefore liable to pay VAT, the Court of Appeal has held.

In Longridge on the Thames v HMRC [2016] EWCA Civ 930, the Court considered whether VAT was payable on the construction of a training centre for outdoor activities which worked with young people and charged users according to ability to pay. The training centre, Longridge, sought to recover £135,000 worth of VAT that it had paid on the construction, on the grounds the building would be used for charitable purposes.

HMRC contended that Longridge was engaged in business activities. It argued that, according to European Court of Justice caselaw, the test for determining whether there is economic activity and therefore VAT payable is whether there is a “direct link between the service the recipient receives and the payment which he makes, not on the wider context in which the payment is made”.

The Court of Appeal agreed with HMRC, even though payments to Longridge did not reflect the full cost of the service.

Delivering the lead judgment, Lady Justice Arden said: “Economic activity is assessed objectively and so the concern of Longridge, which is its reason for providing the services which it does provide, is not enough to convert what would otherwise be economic activity into an activity of a different kind for VAT purposes.”