Leeds Cricket Football & Athletic Co Ltd – business with attached goodwill disposed of

In The Leeds Cricket Football & Athletic Company Ltd v HMRC [2019] UKFTT 0568 (TC), the First-tier Tribunal (FTT) has held that the freehold in a cricket ground involved the disposal of a business with attached goodwill and was not simply a disposal of land with attached income streams.

Background

Leeds Cricket Football & Athletic Company Ltd (the taxpayer) owned the freehold of Headingley Cricket ground (Headingley). 

The taxpayer leased Headingley to Yorkshire County Cricket Club (YCCC), whilst maintaining the right to carry out three distinct activities: hospitality, catering and advertising (the Operations), which included selling corporate hospitality packages to business customers and employing 19 full time catering staff on cricket days.  

On 30 December 2005, the taxpayer transferred the freehold in Headingley to YCCC. The catering business was licenced back to the taxpayer by YCCC for an annual fee.

HMRC was of the view that a large chargeable gain arose on the disposal of the freehold. This was because the transaction involved the disposal of land with attached income streams which were not capable of existence without the land and no business was carried on. Alternatively, even if a business was carried on, HMRC was of the view that no goodwill attached to any such business.

The taxpayer was of the view that no such gain arose as the sale involved a disposal of a business with attached goodwill. The taxpayer appealed to the FTT. 

The issue before the FTT was  whether the sale involved a disposal of a business with attached goodwill, or whether there was only a disposal of land with attached income streams subject to capital gains tax. 

FTT decision

The appeal was allowed. 

The first question to be considered by the FTT was whether the taxpayer's activities, prior to the transfer, had constituted a business. 

The FTT concluded that each of the three activities which had been carried on by the taxpayer prior to the transfer, amounted to businesses (the business). These income streams continued despite cricket being played at grounds other than Headingley and were therefore not ancillary to the land. Applying the test in Ramsay v HMRC [2013] UKUT 226 TCC, the FTT concluded that the Operations were serious undertakings earnestly pursued with reasonable or recognisable continuity giving rise to turnover. 

The FTT further noted that the business did have goodwill attached to it which had been generated over time by hard work and effort. The business had an established client base and reputation which would distinguish it from similar newly established operations. The Operations did not have a connection with Headingley per se, but rather with the staging of major cricket spectacles there. 

In the view of the FTT, there was a business capable of transfer. This business was sold by the taxpayer and at the same time, a licence was granted allowing the taxpayer to continue operating its catering business for an annual fee. Significant steps were therefore taken by the taxpayer following the transfer to ensure that YCCC could carry on the Operations without interruption. 
The FTT concluded that the Operations carried out by the taxpayer had goodwill associated with them and this was also transferred at the same time as the transfer of the freehold in Headingley to YCCC.

Comment

The FTT rejected HMRC's argument that the Operations were income streams ancillary to the land and not capable of existence without the land. It noted, however, that even if the income streams had been ancillary to the land, this would not automatically mean that a business was not being conducted. 

HMRC's arguments in this case, that there was no business capable of transfer and that there was no goodwill in any event, are similar to those it unsuccessfully relied upon in Villar v HMRC [2019] UKFTT 117 (TC). 

Hopefully, this decision will encourage HMRC to review its position regarding goodwill and the sale of businesses. 

The decision can be viewed here.