Monthly Archives: February 2015

VAT Treatment of goods historically supplied with new houses

In the First-tier Tribunal (Tax) case of Taylor Wimpey PLC v Revenue & Customs [2014] the Claimant Companies had been selling cookers and other white goods (‘Claim Items’) on the sales of new homes which were themselves zero rated. So they argued that the Claim Items were also zero rated. The Claimant Companies said that this followed from the rules on single and multiple supplies.

The supply of freeholds in new homes have always been zero rated. This is now covered by Group 5 of Schedule 8 to the Value Added Tax Act 1994 (‘VATA’).

However under a series of regulations known as “the Builders’ Block”, VAT was only permitted to be recovered on ‘core’ fixtures, as Parliament had not intended VAT on fittings to be recovered at all except where and to the extent that those fittings were materials, builders hardware, or sanitary ware.

The zero rate was intended to apply to what was properly seen as the house. Parliament’s intent was that the builders’ input VAT recovery on fittings and non ‘core’ fixtures would be blocked by the Builders’ Block.

The Claimant Companies’ case was that the Claim Items were not incorporated into the houses that were sold and that therefore, while a part of a single supply with the house, their ability to recover the input tax incurred on the Claim Items was not blocked by “the Builders’ Block” as a matter of UK law because the Claim Items were not “incorporated” into the houses.

The Tribunal found that as a matter of UK law, ‘incorporates’ meant anything physically attached to the house, even if merely plugged or plumbed in, to the extent it was a part of the zero rated supply of the house. It did not only refer to items incorporated as a fixture, although it obviously included them.

All the Claim Items, as they were at the very least operational and attached to the houses’ power supply, were incorporated for the purpose of the Builders’ Block to the extent that they were a part of the single zero rated supply of the new build.

In fact all the Claim Items were a part of a single zero rated supply and the Claim Items were all “incorporated” within the meaning of the Builders’ Block.

Had the Claimant Companies been right and “incorporated” meant only incorporated as a fixture:

– only the plugged in free standing white goods were not fixtures; and
– so only those goods would be outside the Builders’ Block; and
– the supply of them should have been standard rated. This would mean that the Claimant Companies would be, in principle, entitled to recover the input tax claimed, but it left unresolved whether the output tax, that would be due from the Claimant Companies to HMRC, must be offset against the reclaim.

The Claimant Companies had secondarily argued that the Claim Items were excepted from the Builders’ Block as being items “ordinarily installed” by builders as fixtures.

The first issue was the time at which “ordinarily installed” should be measured. The Tribunal settled for the date of the legislation. However, the legislation was re-enacted so “ordinarily” should be measured at the time of each re-enactment.

What was ordinarily installed increased over time. So, although some amendments removed specified items from the exclusion to the Builders’ Block, the effect was that the scope of the UK’s zero rate was increasing over time. Such an increase in scope might appear to be unlawful under EU law but the Tribunal was inclined to find that it was not an infringement of EU law.

If an item was installed as standard by house builders then it was ‘ordinarily’ installed within the meaning of the Builders’ Block. But the reverse was not true. The fact an item was not installed as standard it would not necessarily mean that it was not ordinarily installed. The legal test was only that they should be ‘usually’ or ‘commonly’ installed. ‘Ordinarily’ means no more than the item in question was more likely to be installed than not.

During the period of the claim high specification appliances and carpets were never ‘ordinarily’ installed in dwellings. This meant that as a matter of UK law they were never within the exclusion to the Builders’ Block.

That conclusion remained good whether they were fittings or fixtures: if they were fittings they could never benefit from the “ordinarily exclusion”. If they were fixtures, they could never benefit from the ordinarily exclusion because they were never ‘ordinarily’ installed in the claim period.

So far as low specification appliances were concerned, they only became ‘ordinarily’ installed in the 1990s. So as a matter of UK law they had never been able to benefit from the exclusion to the Builders’ Block. They were not ‘ordinarily’ installed when in 1984 white goods were specifically removed from the exclusion. So by the time they became ‘ordinarily’ installed, the law had been altered to specifically remove them from the exclusion to the Builders’ Block. Though as a matter of HMRC practice, low specification split level cookers were able to benefit from the exclusion to the Builders’ Block from 1975 to 1984.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Planning Appeal: Inspector should have been told of planning refusal

In Carroll v Secretary of State for Communities and Local Government & Ors [2015] the Defendant applied for planning permission to change use from office use Class B1 to residential use Class C3. This was refused.

At the time of the refusal the site was in B1 office use, but by the appeal at the centre of this case the offices had been converted to storage under permitted development rights and the building was now in B8 use.

The Defendant made a second planning application for demolition of the existing building and change of use of the land from B8 storage to C3 residential. A planning officer report on the application concluded that the current use was probably B8 and that planning permission should be granted. The council’s agents sent that report to the Planning Inspectorate.

But the Inspectorate was not informed that council members had subsequently rejected the officer recommendation and resolved to refuse the application on the grounds that the scheme was contrary to the Strategic Objective CO2 of the Core Strategy which sought to protect B1 use of floorspace notwithstanding the exercise of permitted development rights.

The Inspector knew of the second planning application for a change of use from B8 to C3, having received a copy of the Officer’s Report enclosed with the council’s agents’ letter. However he was unaware that the Officer’s recommendation was rejected, and that the Second Defendant refused the application or of the reasons for that decision.

The Planning Court ruled that the decision to refuse planning permission for the change of use from B8 to C3 and Strategic Objective CO2 of the Core Strategy were material considerations to which the Inspector should have had regard.

Since the Inspector proceeded to determine the appeal as a B8 to C3 change it was material that the council had just refused a planning application at the Property for just such a scheme. However the Inspector was unaware that the Officers’ recommendation had been rejected and that the Committee had refused the application or why. If the Inspector had seen the council’s decision on the second planning application he would have seen mention of policy CO2 and would have been obliged to have had regard to it.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Planning Appeal: mistake of fact gave rise to mistakes of law

The case of Ecotricity Next Generation Ltd v Secretary of State for Communities and Local Government & Anor [2015] was an application made under s.288 of the Town and Country Planning Act 1990 to quash the decision of the Inspector to refuse an appeal to grant planning permission for a wind energy development including the erection of one wind turbine.

In East Northamptonshire DC v Secretary of State for Communities and Local Government [2014] , the Court of Appeal gave guidance on the approach under Section 66 of the Planning (Listed Buildings and Conservation Areas) Act 1990:

“Parliament’s intention in enacting s.66(1) was that decision makers should give ‘considerable importance and weight to the desirability of preserving the setting of listed buildings when carrying out the balancing exercise’.”

A failure properly to understand and apply a relevant policy will constitute a failure to have regard to a material consideration, or will amount to having regard to an immaterial consideration and will, therefore, be an error of law, open to challenge in the courts.

In the Ecotricity Next Generation Ltd case the local church was a Grade 1 listed building. The Inspector mistakely found that the church tower would be seen in the same views as the turbine and so “the turbine would be apparent in the setting of this heritage asset.”

Whether or not “the church tower would be seen in the same views as the turbine” was not a matter of planning judgment within the exclusive domain of the decision maker.

A decision maker is under a duty to properly inform himself of the information relevant to his decision.

A mistake on an established fact which was uncontentious and objectively verifiable giving rise to unfairness is a separate head of challenge on a point of law if it can be shown that the mistake had played a material, though not necessarily decisive, part in the tribunal’s reasoning.

The Inspector’s finding that “the church tower would be seen in the same views as the turbine”, was “a mistake as to an established fact which was uncontentious and objectively verifiable” and played a material part in the Inspector’s reasoning.

The error gave rise to unfairness to the Claimant and amounted to an error of law.

Or it could be said that the Inspector fell into error by failing to properly inform herself of evidence indicating only one location at which there could be a view of the church tower, behind the proposed turbine – and then only distant.

Having regard to section 66(1) of the Planning (Listed Buildings and Conservation Areas) Act 1990, there was at least the possibility that the overall balance would have been different if the Inspector had proceeded to determine the appeal on the correct factual basis. Accordingly the High Court quashed the Inspector’s decision to refuse the appeal.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Presence of right of way ruled out any discharge of anti fencing covenant

Clarke & Ors Re 5 and 7 Hillend Lane [2015] was an application under sub-paragraphs (a), (aa), (b) and (c) of Section 84(1) of the Law of Property Act 1925 (“the Act”) to discharge a restriction preventing the erection of fences and other structures on part of amenity land, owned by the applicants, on a small housing estate in Cheshire.

The applicants erected fences in 2012 and enclosed the parcels of land into their domestic gardens. They said that the relevant part of the amenity land had fallen into neglect, and was unused.

The majority of the other residents entitled to use the land objected saying that the amenity land should be kept in common use and that in any event they had a right of way over the land which they had been prevented from exercising by the erection of the fences.

The Upper Tribunal (Lands Chamber) said in the background to the individual considerations under grounds (a), (aa), (b) and (c) was the effect of the easement.

Even if the restriction should otherwise be discharged under an individual ground of Section 84(1) of the Act, that would have been negated by the existence of the easement which would have remained in place even if the restriction had been discharged. The presence of the easement would have led the Tribunal to refuse to exercise its discretion to discharge the restriction in favour of the applicants.

The discharge of the covenant would remove one impediment to the enclosure of the amenity land, but it would not legitimise interference with the objectors’ easement.

In those circumstances it would be inappropriate to discharge the restriction.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Building Contracts: Act quickly if you wish to challenge a Final Certificate

JCT Forms of Contract try to ensure that, when works have been completed, outstanding disputes can be rapidly and finally resolved.

In part this is by the employer’s agent issuing a Final Certificate, whereupon the contractor (and sometimes the employer) has 28 days to challenge it.

In the absence of a challenge, the Final Certificate becomes conclusive evidence for a wide range of issues, including defects, delays and outstanding cash disputes.

In the High Court case of Marc Gilbard 2009 Settlement Trust (trustees of) v OD Developments and Projects Ltd [2015] the claimant employed the defendant contractor to carry out works. The contract incorporated the JCT Standard Building Contract, Without Quantities, Revision 2 (2009).

The Contract Administrator issued a Final Certificate showing the defendant owing the claimant £232,153.54 plus VAT.

Within the relevant 28 day period, the defendant issued Part 7 proceedings in the Technology and Construction Court disputing the validity and correctness of the Final Certificate. Those proceedings had proceeded so slowly that, 13 months on, the first Case Management Conference had yet to be scheduled.

The defendant now wished the issues raised in the Part 7 claim to be referred to adjudication.

The court said the real interpretation issue was whether clause 1.9.3 of the contract envisaged:

1. one set of proceedings (whether adjudication, arbitration or court proceedings) issued within the 28 days to challenge the Final Certificate, or

2. an initial set of proceedings in which the relevant “matters” could be raised, but then allowed the challenger to commence other proceedings, beyond the 28 days, which would be equally legitimate so long as those same matters were raised in those later proceedings.

The court ruled that interpretation 1 was the correct interpretation. The purpose of clause 1.9.3 was to limit issues for which the Final Certificate was not conclusive to matters raised in any proceedings issued within the 28 days of that certificate.

The clause assumed that the party challenging the Final Certificate could choose the venue in which that was to be done. It could choose one of adjudication, arbitration or other proceedings (that’s to say in court).

The clause did not envisage more than one set of proceedings.

Nothing in clause 1.9.3 allowed a series of subsequent proceedings, with the first being commenced within 28 days, and the others starting months or years afterwards.

However if adjudication is the first option of a challenger under clause 1.9.3:

A. a challenger under clause 1.9.3, can within the 28 days issue simultaneous protective arbitration or court proceedings. This would protect the challenger’s position if they have messed up the reference to adjudication or the outcome of adjudication was no decision or a decision which is unenforceable; and/or

B. clause 1.9.4 of the JCT provisions allows 28 days more for a party to issue arbitration or court proceedings to challenge an adjudicator’s decision as to the Final Certificate.

But, if arbitration or court proceedings are the first option of the challenger, or if the challenger messes up the reference to adjudication, a party may end up out of time to challenge the Final Certificate.

Subject only to the qualifications at A and B above, the challenger has to challenge the Final Certificate in one set of proceedings, and those proceedings are the only means by which the Final Certificate can be challenged.

The JCT Design and Build Contract has a provision very similar to clause 1.9 which additionally and usefully allows the employer or contractor, before the final date for payment, to give notice “disputing anything in the Final Statement”.

The moral of this case is, if you are thinking of challenging a Final Certificate, to act without delay within the 28 day period to secure your position as above.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Former or current lease guarantor can give guarantee on transfer back to former tenant

In UK Leasing Brighton Ltd & Ors v Topland Neptune Ltd & Anor [2015] a lease was granted to T1. T1’s lease obligations were guaranteed by G.

The lease was a new tenancy under the Landlord and Tenant (Covenants) Act 1995 (“the 1995 Act”).

T1 transferred the lease to T2 in breach of a covenant. As a result T2 became liable under the tenant covenants in the lease.

Since the transfer was in breach of covenant, T1 as the original lessee and G as the guarantor were not released under the 1995 Act from their liabilities in respect of the tenant covenants in the lease.

The parties were united in their wish to revest the lease in T1 with G again guaranteeing the tenant’s obligations under the lease.

The 1995 Act seemed to lay various obstacles to this.

There was a concern that if T2 re-assigned the lease to T1 a fresh guarantee by G would be void under the 1995 Act.

The tenants suggested T2 assigned the lease to an associated company (“Newco”). Then (a day or so later), Newco assigned the lease to T1 and G entered into a fresh guarantee of T1’s obligations as tenant under the lease. However, the landlord imposed a pre-condition that Newco T1 and G first commit to the landlord that thereafter the term would be assigned by Newco to T1 and that G would enter into a fresh guarantee.

But the court ruled that such an agreement would itself be invalidated by the 1995 Act. The suggested agreement would frustrate the operation of section 24(2) of the 1995 Act.

The operation of the relevant provisions of the 1995 Act had been considered in the decision of the Court of Appeal in K/S Victoria Street v House of Fraser [2012] (“Victoria Street”). From Victoria Street the High Court Judge extrapolated the following propositions:

1. Whilst section 25(1) of the 1995 Act invalidated any agreement which involved a guarantor of the assignor guaranteeing the assignor’s assignee, if the assignor gave the landlord an authorised guarantee (“AGA”), in respect of the assignee, the guarantor of the assignor (whilst the assignor was the tenant) could also give a guarantee in relation to the assignor’s liability under that AGA.

2. If a tenant assigned with landlord’s consent and the tenant and the tenant’s guarantor were thereupon released, there is nothing to stop that guarantor becoming a guarantor again on a later assignment whether the subsequent assignee is a new party or is an earlier tenant whose liabilities were previously guaranteed by that guarantor. The Court of Appeal felt able to reach this conclusion because:

2.1 section 24(2) of the 1995 Act said the Guarantor was thereby released “to the same extent as the tenant is released from that tenant covenant” and because, strictly speaking and viewed somewhat in isolation, the operation of those words was not frustrated for the purposes of section 25 of the 1995 Act, even if the price of the assignment being consented to was G freshly guaranteeing T1; and

2.2 It produced a “sensible commercial result in the circumstances.”

Accordingly, it was open to the parties to proceed with a direct assignment by T2 to T1 with T1’s obligations being guaranteed by G.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.