This was an appeal by Riverside Housing Association Ltd (Riverside) against a decision by the Respondents, Her Majesty’s Revenue & Customs, to refuse to approve a zero-rated VAT certificate in respect of the construction of a new head office in Leicester. The Respondents argued that Riverside’s activities were part of a business and it did not qualify for a zero-rated certificate for VAT purposes.
Riverside is a charity and registered social landlord (RSL) providing housing for those in need by reason of physical or mental illness, or disability or age or financial disadvantage. It holds freehold or leasehold stocks of properties which it lets on assured tenancies to residential occupiers. In some cases properties are partially sold within shared ownership schemes in accordance with the “right to buy provisions.” From time to time properties become surplus to Riverside’s requirements and are sold, the proceeds of sale making up a significant part of Riverside’s receipts in a year. Riverside has a number of sources of capital and income, comprising of a mixture between grants paid by the Housing Corporation, who administer the Government’s public housing policy in England, housing benefit, loans and the proceeds of rent and sale of properties. The greater part of Riverside’s income is of public origin. It submitted that in accordance with Schedule 8 of the Value Added Tax Act 1994, it qualified for zero-rated VAT on the basis that its premises would be used “solely for a relevant charitable purpose.” (Note 12, Group 5 VATA 1994.) Alternatively, it argued that it was a body governed by public law falling within Article 4(5) 6th VAT Directive (the Directive) and was not a “taxable person.”
The issue for the Tribunal was whether Riverside’s provision of social housing was properly categorised as a business activity. Although it conducted its affairs in a manner different to other commercial organisations (with philanthropic objectives), was heavily regulated and could not maximise its profits, it still conducted its affairs on business-like lines. It was managed by professionals, produced externally audited accounts and had some freedom in determining the charges for its tenants. The Tribunal found that exemptions from VAT should be construed narrowly: Customs & Excise v Yarburgh Children’s Trust applied. The Tribunal was not persuaded that factors such as close regulation, its lack of autonomy and its use as an instrument of public policy distinguished its activities from business activities in the ordinary sense. Riverside was also distinct from an RSL that was wholly dependent on public funds: Cardiff Community Housing Association Ltd v Customs & Excise  distinguished. The Tribunal held that the term “business” had a wide meaning under the Directive. If Riverside had sought simply to defray the costs of its activities, so it made neither a profit or a loss, then that would go some way to showing that it was not carrying out a business activity. But Riverside set out to make a profit and did make a profit. This was almost conclusive proof that its activities had characteristics of a business. The fact that a high proportion of Riverside’s capital resources and income were derived from public funds did not affect this conclusion. Riverside was engaged in business and its new building could not be zero-rated. On the second submission, the Tribunal found that Riverside was not a public body according to Article 4(5) of the 6th Directive and even if it were found to be so, that would not lead to a means of securing a zero-rating for its new building.
This case has implications for private RSLs providing social housing.