The case concerned the treatment for VAT purposes of fees paid for stalls and pitches at events organised by a company called Craft Carnival (the trading name of Kati Zombory-Moldovan) in and around Dorset. The fairs took place at weekends, typically close to a stately home or historic property, and attracted between 40 and 110 stalls, with between 1,200 and 3,500 paying visitors attending.

HMRC argued that the fees paid for a stall or pitch at such fairs were liable for VAT. However, the FTT disagreed on the basis that the relevant supplies are exempt supplies of licences to occupy land, and the HMRC took an appeal to the Upper Tribunal. [Commissioners for Her Majesty’s Revenue and Customs and Kati Zombory-Moldovan trading as Craft Carnival, [2016] UKUT 433, UT/2015/0119].

The FTT arrived at this decision having heard evidence that an indoor pitch at events, which is selected by approximately 60% of stallholders, is generally inside a marquee or occasionally a building and consists of an area ten feet by six feet. It is demarcated by a trestle table which is made available with two folding chairs to each stallholder, but the stallholder is not required to use this and may have their own display fittings and furniture within the space provided. Stallholders are also given an option of having an electricity supply point at a fixed cost and approximately 20% of them take up this offer.

Nothing is provided to the stallholders who take an outdoor pitch. This consists of a 20 foot square patch of ground demarcated by posts with a sign stating the name of the stallholder who is free to erect a tent or gazebo and arrange their items for display. The argument put forward at the FTT was that the company was simply alerting stallholders to what was available.

The Upper Tribunal said that in arriving at its decision, the FTT rejected submissions on behalf of HMRC to the effect that Craft Carnival was contractually obliged to organise craft and garden shows.

The FTT said: ‘The reference to the show or event in the terms and conditions does not, in our view, impose any organisational requirements on Mrs Zombory-Moldovan but merely sets out the context of the agreement, i.e. there will be a craft fair.’

On this basis, as there was no contractual obligation to organise fairs, the FTT argued that the supply to the stallholders did not fall within the categories of activities as being industrial or commercial, and so was not liable for VAT.

In its findings, the Upper Tribunal disagreed with this view, saying that there was evidence of a contract between Craft Carnival and stallholders, not least because one of the terms and conditions sent after booking were made stated that Craft Carnival ‘reserves the right to cancel the show.’

The Upper Tribunal said: ‘The natural inference is that Craft Carnival would otherwise be obliged to provide the “show”. In addition, the judges said this was not a passive action, such as making space available for a car boot sale, since the company organised pitches for stallholders and allocated spaces.

The Upper Tribunal concluded: ‘In our view, the land exemption does not apply to the relevant supplies and the fees paid for stalls and pitches are, accordingly, subject to VAT.’

David McGeachy, a partner and VAT specialist at Saffery Champness, said: ‘The Upper Tribunal on appeal has now determined that the principal service provided to the pitch holder was the right to offer goods and services for sale at an organised event. HMRC now has two Upper Tribunal decisions in its favour, and HMRC inspectors have been raising the issue at VAT inspections.

‘However, HMRC’s own public notice is still potentially misleading, as it gives an example of granting traders a pitch in a market or at a car boot sale on unopted land as being exempt. So, uncertainty still remains after this decision as to whether pitches granted on unopted land for stalls can be exempt at more informal events that involve little or no advertising, and less planning and organisation.’

Given this background, McGeachy advises that owners of land hiring pitches on unopted ground for stalls at events they are organising, for example game fairs or Christmas events, should now add VAT at 20% to the hire. Where they have been running events and hiring pitches for a number of years without charging VAT they should be aware that there is historical exposure to pay VAT to HMRC going back up to four years.

Commissioners for Her Majesty’s Revenue and Customs and Kati Zombory-Moldovan trading as Craft Carnival is here.