A sporting chance: how sweat and exertion matter

On 12 February a tax tribunal hearing determined that contract bridge did not qualify as 'sport' for the purposes of VAT legislation and that the English Bridge Union could not therefore reclaim VAT paid on competition entry fees.

This is particularly interesting when one considers the finding of the Charity Commission in relation to the Hitchin Bridge Club application for charitable registration.

The tribunal's findings

It was generally accepted by the tax tribunal that playing bridge involved the use of high level mental skills, such as logic, lateral thinking, planning, memory and sequencing. Research was produced that showed that playing bridge regularly helped promote physical and mental health and reduced the chance of developing Alzheimer's and other mental conditions.

Value added tax

Under VAT legislation the supply of certain services by a non-profit making organisation is exempt from VAT where they are closely linked to "sport or physical education". The key question before the tribunal was simply "What is sport?"

The tribunal held that 'sport' should be given its normal English meaning, which requires:

• the application of some significant element of physical activity;

• that such physical activity is itself an aim, or that it will have a direct effect on the outcome of the activity; and

• that physical skill is important to the outcome

To the tribunal's mind, 'sport' normally suggests a game with a physical element, rather than simply a game. On this test, contract bridge was a game and could not be considered a sport. For the tribunal, sweat and exertion matter, for VAT purposes.

Comparison with charity legislation

The finding in the English Bridge Union case that bridge is not a sport contrasts with the Charity Commission's finding, in the Hitchin Bridge Club application for registration, that bridge was indeed a sport.

The Charity legislation is however more detailed in providing a partial definition of 'sport' for charity purposes. The Charities Act 2011 states that sport: "means sports or games which promote health by involving physical or mental skill or exertion."

Against this definition, it is easy to see why the Charity Commission concluded bridge was a sport. In light of the research into bridge, which is clearly a game which promotes mental skill or exertion.

What the future holds

We are left in an interesting situation where bridge is accepted as a 'sport' under Charity legislation but not for VAT legislation. The Charity Commission aims for inclusion. All forms of exercise, whether mental, spiritual or physical are beneficial to the nation when looking at the wide definitions offered in section 3 of the Charities Act 2006. Charity legislation expressly defines mental exertion as so, whereas the tribunal believed the directive required sport to have physical activity.

This will, of course, be particularly concerning to bridge clubs registered as charities who will be able to enjoy exemption from, for example, income or corporation tax but not from VAT on services supplied. Clearly the decision does not just affect bridge clubs but will also be relevant to other mental games. This raises the interesting question of how much exertion is necessary?

The European approach

The tribunal opted not to make a reference to the Court of Justice of the European Union, being satisfied that its interpretation of the EU directive was correct. However, it acknowledged that if other member states made different interpretations of the directive in other languages then a referral should be made. Therefore, unless the directive is broadened to include a specific reference to games involving mental skill, the discrepancy will remain that bridge is considered a 'sport' for charity purposes but not for VAT.

Darren Hooker is a solicitor in the Charity and Social Enterprise Team at Stone King