A VILLAGE cricket club faced financial ruin when it was hit with a huge fine following a VAT mix-up.

Volunteers at Westow Cricket Club found themselves involved in a David and Goliath-style battle with HMRC which could have crippled the Ryedale amateur club.

Independent Tax, near Selby, went to their aid and helped secure a victory for the club, saving it from potential closure.

The case related to the development of the club’s new pavilion, which is also used for other community events.

Volunteers had asked HMRC if the club’s status as a community amateur sports club (CASC) enabled it to issue a zero-rated VAT certificate to help meet construction costs.

HMRC responded by saying that the new pavilion appeared to qualify for zero rating. However, that advice would only have applied if the club had been a registered charity.

A CASC is eligible for various tax reliefs but, they are not eligible for VAT relief on the construction of new buildings, such as clubhouses or pavilions.

Based on the advice given, the club raised enough funding to cover the cost of the project through grants and donations, and work on the pavilion began.

Soon after, HMRC issued a penalty of £20,937; the sum of VAT that should have been charged.

At a tribunal hearing, the club appealed against the penalty, on the grounds that it had a ‘reasonable excuse’ because of the advice. HMRC contested that a letter sent to the club was not ‘definitive’ and should not have been relied upon.

The tribunal criticised HMRC for its ‘unhelpful’ advice, but the decision initially went against the club.

With the help of Michael Firth, counsel of Gray’s Inn Tax Chambers, the club appealed against the decision at an upper tribunal hearing, on the grounds that it had a ‘reasonable excuse’ and that the penalty ‘infringed on human rights for proportionality’.

The appeal was successful and the tribunal found the club had a reasonable excuse for incorrectly issuing the zero-rate VAT certificate.

An HMRC spokesman said: “We are disappointed with the outcome of the upper tribunal, however we accept the decision that the club had a reasonable excuse for claiming VAT relief and will not pursue this case further.”

Gary Brothers, managing partner of Independent Tax, said: “We’re delighted to have played our part in scoring a really fantastic result for this tiny village cricket club.The volunteers who run the club faced the wrath of HMRC’s investigative arm for issuing an incorrect VAT certificate, even though they had cleared it first by contacting a HMRC helpline for advice and being told it was OK to issue it.

“The amount of penalty involved would have been far outstripped by the costs that have been incurred in defending this appeal. As a result of the club’s success at the upper tribunal, HMRC will be required to stump up the costs incurred by the club throughout these proceedings. It has evidently been an expensive case for HMRC to take such a principled view of, and significant amounts of taxpayers’ money will have been used to fund this ultimately unsuccessful defence.”