The First-tier Tribunal (FTT) has applied the “Halifax” principle to a partnership which transferred a golf club business and leased a golf course to a not for profit company which paid turnover rent to the partnership and left the company with a token profit.8


As readers will be aware, supplies of services closely linked to golf clubs that are privately owned and run as a business for profit to persons (proprietary golf clubs) taking part in the sport are chargeable to VAT at the standard rate. Supplies of such services by golf clubs that are owned by their members and not run for profit are exempt for VAT purposes.

From 1972, Mr Peter Hearn and his father Jaleh Hearn had carried on a farming business near Wargrave in Berkshire (the Partnership). They were registered for VAT from 1 April 1973.

In 1991, the Partnership constructed a nine-hole golf course on some of the farm land. The course operated as a “Members Club” on the basis that a members only club would have more appeal, given the location of the course. Hennerton Golf Club (the Club) opened to members in June 1992 and those joining paid an annual subscription in return for the right to play on the course and use the facilities. The Club was treated as part of the business activities of the farming business of the Partnership. The business employed green keepers and other staff  in respect of the golf course. It charged output VAT on membership subscriptions and other taxable income and recovered input VAT included in the expenditure on constructing the golf course and clubhouse as well as the costs of running the Club.

In 1997, Peter Hearn became aware that many proprietary golf clubs were changing their method of operation so that the members clubs were separated from the proprietor’s interests. This allowed the clubs to exempt supplies of services, such as membership fees, which meant the clubs no longer had to charge and account for VAT on members’ subscriptions.

He received advice from tax advisers that a not for profit company should be established to collect the membership subscriptions and operate the golf programme. The supplies by the new company would be exempt. The intention was that the Partnership would operate the clubhouse and would let the golf course land to the new company. The company, Hennerton Golf Club Limited (the Company) was subsequently established and applied for VAT registration with effect from 1 February 1998.

Under a business transfer agreement, the Partnership agreed to transfer a part of its business, namely “the activity of providing services closely linked with and essential to sport or physical recreation in which members or casual visitors take part at the Premises (including the driving range)”, to the Company along with staff. In return, the Company agreed to pay the Partnership £1 for the part of the business transferred and to make the payments under a Turnover Licence Agreement, (the Licence) by which the Company had a non-exclusive right to occupy the premises at the Club in return for a licence fee based mainly on turnover.

The Partnership treated the Licence as an exempt supply of land for VAT purposes. The supplies of equipment and right to use the name of the Club were treated as taxable supplies chargeable to VAT at the standard rate. The Partnership retained and accounted for VAT on all income from the bar and restaurant at the clubhouse.

The Partnership had opted to tax the land on which it had constructed a further nine holes in 2005, whereby the option to tax meant the Partnership would charge VAT at the standard rate on the additional charge of £1 per round that the Partnership charged for the use of the new nine holes. The option did not apply to the original nine holes (the existing nine holes).

The main issue

The FTT had to consider whether the arrangements constituted an abusive practice under the

Halifax principle9. Specifically, the FTT asked itself:

  • Did the arrangements entered into result in the accrual of a tax advantage contrary to the purpose of the provisions contained in the VAT Directive?10
  • If so, was the essential aim of the arrangements to obtain such a tax advantage?
  • If so, were there any special features that should prevent the Halifax principle applying?


The FTT indicated that it should not look at individual elements or transactions in isolation but must look at the arrangements as a whole and ask whether the outcome was contrary to the purposes of the provisions contained in the VAT Directive. It was also required to assess the essential aim of the arrangements objectively and not by reference to the actual intentions of the parties.

Having regard to the case law, the FTT said it was required to consider the terms of the various agreements between the parties but was not obliged to treat them as conclusive as determining the identity of the supplier of the sports services. In the view of the FTT, contractual terms that did not reflect economic and commercial reality are artificial and may be disregarded.

The taxpayer’s representative submitted, among other things, that the Partnership had not gained a tax advantage as a result of the arrangements introduced in 1998 because it could   make exempt supplies without the Company, by virtue of Item (m) and Note 16 (a) or (b) to Group 1 of Schedule 9, VATA 1994. It was argued that although the members of the Club received a benefit, in that the new arrangements meant they did not pay VAT on their subscription fees, that was not a tax advantage for the Partnership.

The FTT rejected the taxpayers’ submissions. In the FTT’s view, the Partnership could not make exempt supplies of the remainder of the golf course when in reality it was acting as proprietor of the Club and this was the abuse in this case. The Partnership did not cease to act as proprietor (and the Club did not, in reality, become a non-profit making organisation) when the new arrangements were introduced in 1998. The FTT considered that the facts found clearly showed that the Partnership continued to behave, and be regarded, as the Proprietor. On the evidence before it, the FTT concluded that the arrangements put in place with effect from 1 February 1998 were wholly artificial.

The taxpayers’ representative submitted that in the case of Chobham11 the tribunal had held that similar arrangements were effective. In the FTT’s view, that case had been superseded by the CJEU’s judgment in Kennemer Golf and Country Club12 and Halifax.

The FTT also decided, in answer to question (2) above, that the essential aim of the arrangements was to obtain a tax advantage. This conclusion was based on the clear evidence of Mr Hearn’s motive in approaching tax advisors regarding the arrangements and implementation of the proposals, together with the nature of the arrangements. The artificiality of the arrangements they believed supported its conclusion.

Finally, neither party suggested that there were any special features that should prevent the Halifax principle from applying to the arrangements under consideration and the FTT could not find any such features.

Accordingly, the FTT held that the arrangements entered into in 1998 should be redefined so as to re-establish the situation that would have prevailed if they had never been implemented and that the agreements entered into in February 1998, and supplies made pursuant to them, should be disregarded. Accordingly the Partnership was regarded as making standard rated supplies of the provision of the facilities for playing on a golf course to the members of the Club and the appeals were dismissed.


This decision represents a further re-statement of the Halifax principle within the context of comparatively low-level and not particularly complex planning. There is a degree to which the principle, like that in Ramsey, has gradually expanded and this decision will make many who have engaged in what would once have been considered efficient reorganisation, think again. Of further note is the FTT’s analysis of the taxpayers’ subjective motivation in, and involvement of, tax advisors in the development of the structure. The second leg of the Halifax test ought to be objective, however, it is often difficult to separate subjective and objective motivation when determining the “essential aim” of a transaction which in turn can lead to instances where the subjective tail may end up wagging the objective dog.

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