Snow Factor – Tribunal applies Halifax principle to redefine supplies of winter sports training

19 February 2020

In Snow Factor Ltd and Snow Factor Training Ltd v HMRC [2019] UKFTT 0664 (TC), the First-tier Tribunal (FTT) found that certain VAT arrangements were abusive within the scope of the Halifax principle, and redefined supplies of winter sports training by a non-profit making company as a supply by its profit making parent and therefore as falling outside the education exemption in Item 1, Group 6, Schedule 9, Value Added Tax Act 1994 (VATA).


Snow Factor Ltd (SF) operates an indoor snow sport resort at a site in Glasgow (the Snow Dome).

On 18 May 2012, Snow Factor Training Ltd (SFT) was incorporated as a company limited by guarantee. Mr Smith, the managing director of SF, was a director of SFT, and SF's finance director was SFT's company secretary.

On 1 June 2012, SF entered into a Business Transfer Agreement (the BTA) with SFT, pursuant to which SFT purchased, for consideration of £1, the business of ice and snow sports training and tuition carried on by SF at the Snow Dome, and the assets of SF (subject to an exclusion for items which did not specifically relate to training).

On the same day, SF entered into a Training Services Agreement (the TSA) with SFT, whereby SFT would provide training services, as defined, at the Snow Dome.

The TSA provided that the entire income of SFT would be paid to SF plus the costs incurred, but this provision was not implemented. Instead, SF collected all the income from the tuition services and remitted it to SFT, with monies being extracted from SFT via costs and management charges. The net result of this arrangement was the same, with SFT having a profit of nil, and all monies going to SF in the first instance and ultimately to SF's shareholder.

SF and SFT treated the supplies of winter sports training (the tuition services) as exempt from VAT, on the basis that they were provided by SFT and fell within the exemption from VAT contained in Item 1, Group 6, Schedule 9, VATA (the provision by an eligible body of education or vocational training).

HMRC challenged the arrangements on the basis that:

a) the tax advantage sought under the arrangements fell to be disallowed under the general principle of EU law preventing "abuse of rights" (the Preferred Decision); and

b) if the Preferred Decision was incorrect, SFT was not an "eligible body" for the purposes of Item 1, Group 6, Schedule 9, VATA, in accordance with Note 1(e) to the Items.

Both of the above arguments were based on SF being regarded by HMRC as the supplier for VAT purposes.

HMRC assessed SF and SFT for VAT in the sum of £382,074, in respect of the tuition services.

SF and SFT appealed to the FTT.

FTT decision

The appeals were dismissed.

In finding against SF and SFT, the FTT applied the ECJ's decision in Halifax plc v HMRC (Case C-255/02), which sets out the general principles to be applied when considering VAT avoidance arrangements.

In the view of the FTT, although the BTA purported to transfer the tuition services to SFT, the reality was that, with effect from 1 June 2012, apart from book keeping entries between the companies and the creation of a bank account for SFT (which was part of a group banking facility) "nothing very much really changed".

In reaching this conclusion, the FTT noted that SF's website and publicity made no mention that SFT provided the tuition services; customers paid SF and, although the receipt showed the exempt supplies, there was no mention of SFT; the instructors had every reason to consider SF to be their employer; and SF provided all of the administrative support.

The FTT found that the primary driver for the restructuring was to achieve exemption from VAT on tuition services, and that none of the other purported non-tax drivers had any substance.

The FTT also found that the essential aim, or purpose, of the creation and interposition of SFT into the supply chain was to achieve a VAT advantage by ensuring the tuition services were exempt from VAT. The arrangements therefore represented an abusive practice within the scope of the Halifax principle. The FTT upheld the Preferred Decision and redefined the supplies of the tuition services as supplies made by SF.

The FTT also considered whether, if it had made supplies of tuition services, SFT could have been an "eligible body", which is defined in Note 1(e) to Group 6 as: "a body which (i) is precluded from distributing and does not distribute any profit it makes; and (ii) applies any profit made from supplies of a description within this Group to the continuance or improvement of such supplies".

The FTT concluded that SFT was incorporated with the sole intention of being an eligible body and, for that reason, its Articles of Association prohibited it from paying or transferring its income or property to its members. However, in the view of the FTT, it was not a determining factor that no profits were distributed and that that the aim was to enrich those with a financial interest. Accordingly, SFT was not an eligible body.


This case illustrates the factors that the FTT are likely to take into account when considering the application of the Halifax principle to what HMRC consider to be VAT avoidance arrangements.

In this case there was little evidence of the commercial reality of the arrangements, leading the FTT to comment that SFT was "so far below the radar screen that it was virtually invisible to anyone other than Mr Smith and the companies which he controlled". The FTT was particularly critical that the transactions between SFT and SF were not on arm's length terms and that there were no board minutes evidencing the purpose of the arrangements.

If taxpayers are to successfully resist a challenge from HMRC based on the Halifax principle, it is imperative that they maintain full, accurate and contemporaneous documentation when implementing business arrangements. A lack of cogent evidence will reduce the chances of a taxpayer persuading the FTT that the arrangements under challenge were not artificial tax avoidance arrangements subject to the Halifax principle.

A copy of the decision can be viewed here.

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