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A sports club and a university wanted to develop a sports hub located at the Club but with the University having access during certain times during term and the club at other times for their members. Significant investment was required to create the hub.

Lawyers drew up an agreement whereby both parties invested in a sports “hub” whereby both parties were to contribute £2m and the University pay the club £250,000+ VAT, rent per annum. (The club opted to tax the hub.)

HMRC saw the £2m as a premium for the lease and was therefore subject to VAT. In fact the initial heads of terms and early drafts of the contract specifically referred to this payment as a premium. The university saw this as a way of addressing restrictions on how it could use funds. They were also advised to retain the use of the term premium for SDLT purposes, even though no SDLT was paid.

VAT advice was sought but was rather inconclusive (obviously not from Rickard Luckin!) and an offer of further assistance requiring liaising with HMRC was not taken up.

The appellant tried to argue that the £2m was a capital contribution to the works and used the fact that it was treated as such in the club’s accounts as a main part of its argument. The Tribunal made the important point that the way a taxpayer treats expenditure in its accounts is “not determinative of its tax treatment”.

The Tribunal agreed with HMRC that the payment was a premium for a lease. VAT was due.

This case highlights the importance of establishing exactly what is being supplied and who by to understand the potential VAT implications. It also seems that attempts to save 5% of SDLT may have led to VAT at 20% being due.

The message is to contact to our advisors at the earliest possible stages of a project to see what potential VAT and other tax issues may be a factor.

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