Capernwray Missionary Fellowship of Torchbearers v Revenue and Customs

Factual and Procedural Background

This opinion concerns an application jointly made by the Appellant, referred to as Capernwray, and the Respondents, Her Majesty's Revenue and Customs ("HMRC"), seeking an order for a reference to the Court of Justice of the European Union ("CJEU") for a preliminary ruling on questions arising in an ongoing appeal. The appeal challenges a decision of the First-tier Tribunal ("FTT") dismissing Capernwray's appeal against HMRC's ruling that supplies made during the construction of a conference hall were not zero-rated for VAT purposes. The FTT found that the building was not used solely for a relevant residential or charitable purpose under the Value Added Tax Act 1994.

Capernwray's appeal to the Upper Tribunal is confined to whether the FTT erred in law by dismissing the claim that the conference hall was used for a relevant charitable purpose, specifically addressing the interpretation of "business" or "economic activity" under EU VAT law. The parties agree that the concept of economic activity is unclear in this context and jointly request a preliminary ruling from the CJEU before the substantive hearing proceeds.

Capernwray is a UK charity advancing the Christian faith, operating a Bible School for full-time students during part of the year and shorter Christian courses and conferences at other times. The FTT found that Capernwray operates on a cost recovery basis, relies on volunteers and donations, employs staff at below-market remuneration, and reinvests any surpluses into its facilities. The FTT concluded that while some religious activities were not economic in nature, the provision of board, lodging, activities, surroundings, and teaching for payment constituted an economic activity under VAT principles.

Legal Issues Presented

1. Whether the activity of Capernwray in operating the conference hall and related services constitutes an "economic activity" for VAT purposes under Article 9 of the Principal VAT Directive.
2. Whether the Upper Tribunal should refer questions of EU law concerning the definition and scope of "economic activity" to the CJEU for a preliminary ruling at this stage of the appeal.
3. Whether specific factors, such as the charitable nature of Capernwray, reliance on volunteers and donations, and the non-commercial purpose of activities, affect the classification of the activity as economic.
4. Whether the tribunal can with complete confidence determine the relevant EU law issues without a reference to the CJEU.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal considered whether it was necessary to refer questions of EU law to the CJEU at this preliminary stage. It acknowledged the parties’ joint application but emphasized that the discretion to refer lies with the Tribunal, which must be satisfied that a decision from the CJEU is necessary for it to give judgment and that it cannot resolve the issues with complete confidence.

The Tribunal applied the "complete confidence" test from established case law, particularly the principles summarized in ex parte Else. It noted that the Tribunal hearing the substantive appeal has not yet considered all arguments and that premature referral could cause unnecessary delay and expense.

Reviewing the relevant EU VAT jurisprudence, the Tribunal found that the existing case law comprehensively addresses the criteria for economic activity, including permanence, receipt of remuneration as consideration, and the economic nature of the activity. It concluded that the substantive Tribunal is likely able to apply this body of law with complete confidence without a preliminary ruling.

The Tribunal examined the draft questions proposed for referral, which concerned the sufficiency of permanence and remuneration to establish economic activity, the relevance of purpose and commercial considerations, the impact of charitable status and volunteer support, and whether activities inherently marketable affect the classification. The Tribunal found that these issues involve the application of established principles to facts rather than novel questions of EU law requiring CJEU interpretation.

Accordingly, the Tribunal refused the joint application for a preliminary reference, leaving open the possibility that the substantive Tribunal may refer questions if it later deems it necessary.

Holding and Implications

The Tribunal REFUSED the joint application by the parties to make a preliminary reference to the CJEU at this stage of the appeal.

The direct effect of this decision is that the appeal will proceed without a preliminary ruling, with the substantive Tribunal tasked with applying existing EU VAT law principles to the facts. No new precedent was set by this decision regarding the interpretation of "economic activity" under EU law. The ruling preserves the discretion of the Tribunal hearing the substantive appeal to refer questions to the CJEU if it later determines that it cannot decide with complete confidence.