Category Archives: VAT

VAT Election notified too late to get TOGC Relief

The condition in Article 5(2A)(a) of the VAT (Special Provisions) Order 1995 requires not only that an option to tax has been exercised by the transferee on or before the relevant date but also that notification of that option has been given to HMRC on or before the relevant date. There is no provision to extend the time for that notification.

Where notification is given within the appropriate time limit the option may take effect from the date on which it was exercised. To that extent, and only to that extent, can the notification operate retrospectively.

In the First-tier Tribunal (Tax Chamber) case of Nora Harris v HMRC (2015) Mrs Harris was the Landlady of a Hairdressing Salon. She had opted to charge VAT on the rent. On 1 August 2011 she sold the building to her daughter.

Her daughter had got herself VAT registered in time so had her daughter opted to charge VAT on the property and notified the election to HMRC by 1 August 2011 the sale would have been treated as VAT neutral under the Transfer as a Going Concern VAT relief rules.

Unfortunately she had done neither and her efforts to notify a late election to HMRC were totally undermined because the tribunal ruled that the requirement to notify her VAT election to HMRC before the completion of her purchase was mandatory and that her failure to do so was fatal to the validity of her VAT election and would have been so even if her actual election had been made before completion of the purchase from her Mother.

In fact Mrs Harris’ daughter knew nothing about the relevant VAT rules and even her election to charge VAT was merely inferred from the fact that she charged VAT to the tenant after buying ownership of the freehold from her Mother.

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

VAT: University building was extended rather than continued so no zero rating

Section 30(2) of Value Added Tax Act 1994 (“VATA”) provides that a supply of goods or services is zero-rated if the goods or services are of a description for the time being specified in Schedule 8 VATA.

Item 2 in Group 5 of Schedule 8 VATA specifies:

The supply in the course of the construction of:—

(a) a building … intended for use solely for … a relevant charitable purpose …

of any services related to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity.

Note 16 to Group 5 provides as follows:

For the purpose of this Group, the construction of a building does not include:-

(b) any enlargement of, or extension to, an existing building …”

In the First-tier Tribunal (Tax) case of York University Property Company Ltd v Revenue & Customs [2015] it was decided to build a chemistry building in two phases due to an initial lack of funds to complete the whole building. At the time phase 1 was completed, it was not known when phase 2 would be completed.

Phase 1 was a three-storey building shaped like a rectangle, with a sacrificial wall on one of its short sides.

A donation was made to the University, in 2010, enabling phase 2 to be completed. The University wanted the phase 2 works to be zero rated for VAT.

Phase 2 was in the same style and was of similar size and shape to phase 1, and was joined to phase 1 where the sacrificial wall previously stood.

Following completion of the phase 2 works, there was one single three-storey rectangular building that was double the length of the phase 1 construction. Without looking closely at the building it would now be impossible to tell that the two parts of the building were constructed at different times.

There was no disagreement between the parties that both the phase 1 and phase 2 works related to “a building … intended for use solely for … a relevant charitable purpose” within the meaning of this provision, and HMRC accepted that the phase 1 works fell to be zero-rated on that basis.

Of the precedent cases there had been only one where a second phase of works was found to be a continuation of the original development rather than an extension to a completed building.

The tribunal said the fact that the phase 1 construction contained a sacrificial wall in anticipation of the phase 2 works was of marginal relevance.

In one of the precedent cases the first phase single storey wing included foundations and steel beams of sufficient strength to support the additional storey to be added in phase 2, but this had not affected the tribunal’s conclusion that it was an enlargement of an existing building rather than a continuation.

The only precedent case at all supportive of the University’s argument, that phase 2 was a continuation, was different as it had rested on the finding that the kitchen and laundry block built in the second phase (included in the planning consent) was integral to the development, in that the hospital could not function without it. There had been only an 18 month gap between completion of the first phase and the commencement of the second phase. Moreover, in that case the Commission for Social Care Inspection had required that the kitchen and laundry facilities be built, and had granted an extension of time for that to be done.

In this case the Chemistry Department’s vision could not be achieved until phase 2 was completed, but there was no suggestion that the phase 1 construction could not function and be used for chemistry research until phase 2 was completed.

Phase 1 did so function, as did the Chemistry Department as a whole, for some 9 years until phase 2 was completed in 2013.

Phase 1 could have continued to so function indefinitely, without phase 2. There was no suggestion that any public authority required phase 2 to be completed within any stipulated timeframe, or at all.

So phase 2 of the building was, for purposes of Item 2 in Group 5 of Schedule 8 VATA, an enlargement of or extension to phase 1, rather than a continuation of the original development of the building and so not eligible for zero rating.

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

VAT wrongly invoiced and paid could be recovered from HMRC direct

It sometimes happens that VAT is invoiced by a supplier and paid by a customer, where it should not have been, and the supplier duly pays the VAT over to HM Revenue and Customs (“HMRC”).

HMRC are not allowed to refund the VAT to the supplier, who charged it, where that would “unjustly enrich” that supplier.

Nor would it be right to restore the VAT to the customer if the customer has, in fact, already recovered the amount of the VAT as input credit against the VAT it has charged the “end user”.

In the EU Court of Justice case of Reemtsma Cigarettenfabriken GmbH v Ministero delle Finanze [2008] it was recognised that there may be special circumstances where the customer or the end user should have the right to reclaim the wrongly paid VAT back direct from HMRC.

This was endorsed in the UK courts in the Court of Appeal decision of Investment Trust Companies (In Liquidation) v The Commissioners for Her Majesty’s Revenue and Customs [2015] .

In the recent High Court case of Premier Foods (Holdings) Ltd, R (on the application of) v HM Revenue and Customs & Anor [2015] those circumstances where that the supplier had gone into administration so that any refund to the supplier would have been shared by all the creditors of that company, and not just gone back to the out of pocket customer.

The court found those circumstances sufficient to warrant the customer being able to reclaim the wrongly paid VAT direct from HMRC.

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

Non client customer could not recover VAT on invoices

Section 26 of the Value Added Tax Act 1994 allows a taxable person to reclaim ‘input tax’ attributable to the supplies of taxable services by that person.

Third parties often reimburse costs in property transactions and issues arise as to whether they are entitled to a VAT invoice from the original supplier.

In  the First-Tier Tribunal (Tax Chamber) case A Partnership v HMRC [2015]  D,  a former partner of an accountancy firm was seeking dissolution of the partnership.

One of the 3 continuing partners, C,  was taking independent legal advice about this and was invoiced for this.

The other two continuing partners, A and B had been taking independent legal advice to defend that and a claim of bad faith.

HMRC refused to allow the successor accountancy firm to recover the VAT charged on those invoices,

The tribunal agreed that the recovery of VAT is limited to VAT on supplies “to” the taxpayer seeking repayment.

The taxpayer here was the new partnership, but the services of the solicitors were not supplied to the partnership.

The VAT which the appellants sought to recover was not input tax belonging to the new partnership. It was not incurred on a supply made ‘to’ the new partnership and the new did not hold VAT invoices addressed to it.

It was not enough to show that the successor partnership of Messrs A,B and C benefited from the solicitors’ services. The law required the new partnership to show that that partnership was a party to the contract for solicitors services and particularly that it was liable to the solicitors’ firms to pay for those services.

So the question was whether the partnership was liable to pay. It was not.  A and B were the client of one of the firm of solicitors and C was the client of the other firm of solicitors. So (if unpaid) the first firm could have sued Messrs A and B for payment; and the second firm (if unpaid) could have sued  C for payment. But the neither firm could have sued the new partnership for payment.

In practice the partnership may have paid for the supplies because it reimbursed Messrs A, B and C for the solicitors’ fees. But the key point was that it had not been liable to the solicitors’ firms to pay the solicitors’ firms.

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

Input Tax incurred by Property Consultant related to pre VAT registration supplies

For VAT incurred by a taxable person to be input tax recoverable from HM Revenue and Customs, it must relate to an onward supply by that taxable person in the furtherance of their business.

In the First-tier Tribunal (Tax) case of Lissack v Revenue & Customs [2015] the Appellant, a property consultant, was registered for VAT with effect from 1 March 2011.

The Appellant had been involved in a court case about a business dispute that started in 1996 and the VAT charged to the Appellant on the associated legal fees had been reclaimed as input tax.

The dispute related to the multi-million pound restoration of St Pancras Hotel. The onward supply by the Appellant to the developer, Manhattan Loft Corporation Ltd (“MLCL”), had been that of introductory services in 1996.

HMRC disallowed the input tax claimed in respect of the legal fees as they did not relate to the activities of the Appellant’s VAT registered business.

The Appellant made no further supply of introductory services to MLCL in relation to the project after 1996.

The Tribunal said the supply by the Appellant was made at a time when the VAT registration was not effective and so the VAT charged to him on the legal fees was not recoverable input tax.

Whilst the legal fees were incurred on services supplied to him at a time when the Appellant’s VAT registration was effective, they were incurred in the Appellant’s attempt to enforce an alleged agreement entitling him to further payment for the supply of introductory services in 1996 when there was no VAT registration effective.

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

Fountain had sufficient business purpose for input VAT to be recoverable

    In Folkestone Harbour (GP) Ltd v Revenue & Customs [2015], Folkestone Harbour (GP) Limited’s (“FHGP”) business consisted of the Folkestone Seafront redevelopment (“the Project”). It was the Developer within that Project though facilitating and masterminding the development as opposed to developing it itself.

    HMRC disallowed FHGP’s recovery of input VAT claimed on the costs of constructing a “pavement fountain” in Fountain Square, Folkestone.

    However FHGP felt:

    “…it had satisfied the business purpose test within Section 24(1) of the Value Added Tax Act 1994 as there is an obvious and clear link between the fountain… and the business of [FHGP], and that the input tax incurred on the construction of the fountain should be fully recoverable.”.

    HMRC did “… not believe that the fountain which does not lie within the potential harbour redevelopment site, has an obvious business purpose”.

    Accordingly the input tax on the fountain was not incurred for business purposes. so as to be recoverable by FHGP.

    The First Tier Tribunal Tax Chamber disagreed with HMRC. It was effectively a marketing tool not least because it increased the footfall in the area.

    The brand awareness was increased for FHGP. The plaque near the fountain said it was a development by FHGP. But it did not really matter whether the general public made any connection between the fountain and FHGP. The test was a subjective one and the controlling mind and the sole ultimate shareholder of FHGP’s Group always considered the construction of the fountain to be an essential part of the Project.

    Even if the Tribunal was wrong on that finding, no ordinary businessman would have incurred such expenditure on the fountain unless it was for the purpose of the business.

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

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.

VAT: Zero Rating of Works including existing building

In the Upper Tribunal Tax and Chancery Chamber case of HMRC v Astral Construction Limited [2015], “Astral” supplied construction services relating to the development of a nursing home incorporating a redundant church as its office and reception centrepiece with two new 2 storey wings being added.

Astral thought the supplies were zero rated supplies for VAT being in the course of construction of a building designed for use for a relevant residential purpose.

HMRC said the construction works were not the construction of a building but were an enlargement of, or extension to, an existing building and, so, not zero rated. HMRC originally considered that the works were the conversion of the church to a relevant residential purpose chargeable to VAT at the reduced rate of 5% and had assessed Astral on that basis.

The Upper Tribunal said the phrase “construction of a building” in Item 2 of Group 5 of Schedule 8 of the Value Added Tax Act 1994 (“VATA”) is not restricted to the construction of a wholly new structure and is wide enough to include the construction of a new building or buildings connected to and incorporating an existing building if such works are not an enlargement or extension excluded by Note 16 to Group 5 of Schedule 8 to VATA. Indeed, the exception in Note 16(b) was predicated on the assumption that an enlargement or extension, that creates an additional dwelling or dwellings, is capable of being the construction of a building within Item 2 of Group 5 of Schedule 8 to VATA. If “construction of a building” were not to be so construed then Note 16 would be unnecessary.

If the work carried out to create the nursing home was otherwise the construction of a building for the purposes of Item 2 of Group 5 of Schedule 8 to VATA, was it nevertheless excluded from being the construction of a new building for zero rating by Note 16 as being an enlargement of or an extension to an existing building, namely the church?

So the next issue in this case was whether the construction of a new building or buildings connected to the church was an enlargement of or extension to an existing building, namely the church, so as to be excluded from zero rating by Note 16?

Whether or not the work was an enlargement of or an extension to the church was a question of fact, degree and impression. When you considered the size, shape, function and character of the new completed building, i.e. the nursing home, it was so different from the existing building, the church, that it could not be said to constitute an enlargement of or extension to the church.

So the building work carried out by Astral to create the nursing home was the construction of a building for the purposes of Item 2 of Group 5 of Schedule 8 to VATA and not an enlargement of or extension to an existing building excluded from Item 2 by Note 16, and so was zero rated.

Accordingly, HMRC’s appeal was dismissed.

Though no longer relevant the Tribunal went on to ask whether the work was a conversion of the church to a nursing home amounting to a special residential conversion within Group 6 of Schedule 7A to VATA chargeable to VAT at the reduced 5% rate?

The Tribunal concluded that the works were not a conversion of the church to a nursing home.

There was a clear conversion from a church or former church into a fully functioning reception and office area serving a care home.

Conversion there may have been but, as a matter of degree, in no way could it be said that the church had been converted into the care home. The church had been structurally integrated into the care home but formed a proportionately very small area of it in terms of size and function.

As a matter of impression, size, shape, function and character the nursing home was so different from the church that it could not be said to constitute the conversion of the church. This was the application of the same fact and degree test that had been used when considering whether the works were an enlargement or extension within Note 16.

HMRC now also contended that the conversion was not a special residential conversion within Group 6 of Schedule 7A to VATA because the premises being converted, i.e. the church, did not form, after conversion, the entirety of an institution, namely the nursing home, being used for the relevant purpose, as required by Note 7(6) to Group 6.

The Tribunal said the phrase “the premises being converted” could only refer, in this case, to the original church and the use of the words “after conversion” clearly indicated that the test was to be applied to the premises after the conversion works had been completed.

The question was whether the premises that were to be considered in determining whether the condition was satisfied were the pre-conversion premises, i.e. the original church building, or the post-conversion premises, i.e. the nursing home.

The words “after the conversion” did not rule out an increase in the size of the
premises as a result of the conversion. In Note 16 to Group 5 of Schedule 8 to VATA, ‘conversion’ appeared with ‘reconstruction’ and ‘alteration’ and separately from ‘enlargement’ and ‘extension’. That suggested to the Tribunal that conversion was a concept distinct from enlargement and extension for the purposes of Group 5. There was no equivalent distinction in Group 6 of Schedule 7A.

Indeed were HMRC’s interpretation of the condition in Note 7(6) correct then no conversion that increased the size of the building being converted could ever qualify as a special residential conversion. Such a result would be surprising as it would restrict the availability of the reduced rate not according to use, which was the “qualifying criterion”, but by reference to the size of the converted premises.

If that were the intended result. The Tribunal would have expected the condition to be more clearly worded. It would have been simple enough for the draftsman to have made it a condition that the premises after conversion must be no bigger than the premises before the conversion.

The correct approach to the condition in Note 7(6) was to look at the premises after the conversion had been carried out, i.e. the nursing home. The condition was that there had to be an intention that, after the conversion, the converted premises must form the entirety of an institution used for an institutional purpose, as defined.

Accordingly, had it been necessary for the Tribunal to decide it, in this case, it would have said that condition was satisfied as after the conversion, the converted premises formed the entirety of the nursing home i.e. of the relevant institution, and satisfied the condition in Note 7(6) to Group 6 of Schedule 7A to VATA.

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

VAT: the supply of student accommodation was exempt and not standard rated

The First-tier Tribunal (Tax) case of The Principal & Fellows of Lady Margaret Hall v Revenue & Customs [2014] related to the VAT treatment of supplies of term-time accommodation made to students of Lady Margaret Hall, Oxford University (“the College”) and whether those supplies were standard rated, as the College’s Principal & Fellows (the appellant) argued, or exempt as HMRC argued.

The appellant had a subsidiary, LMH Hospitality Services Limited (“LMHHS”) and entered into an agreement with LMHHS whereby LMHHS was to supply accommodation to College students.

How might this help the College?

The College will have a much reduced capacity to recover input VAT on costs as it makes mainly VAT exempt supplies.

The introduction to it’s supply chain of a “subsidiary” capable of, and tasked with, making taxable supplies to the students would facilitate the recovery of input VAT. Costs bearing VAT could be channeled to be incurred by that subsidiary.

But would anything like that work here?

The case is important as other educational institutions have tried this, and variants of the principle. The recent case of HMRC -v- University of Huddersfield [2014] (q.v.) being a case in point.

The issues were:

1. Who supplied the accommodation to the students? Was it LMHHS as the appellant argued or the College as HMRC argued?

2. If (as the appellant had contended) LMHHS made the supply to the students, was it exempt under Schedule 9 Group 1 Schedule 1 of the Value Added Tax Act 1994 (“VATA”) as a licence to occupy land?

Under s31(1) VATA a supply of services is an exempt supply if is of a description specified in Schedule 9 including:

2.1 Schedule 9 Group 1

d) “The grant of any interest in or right over land or of any licence to occupy land….” and

2.2 Schedule 9 Group 6

Item 1

“1. The provision by an eligible body of:

(a) education …

4. The supply of any goods or services (other than examination services) which are closely related to a supply of a description falling within item 1 (the principal supply) by or to the eligible body making the principal supply provided —

(a) the goods or services are for the direct use of the pupil, student or trainee (as the case may be) receiving the principal supply; and

(b) where the supply is to the eligible body making the principal supply, it is made by another eligible body.”

The appellant said that a supply by LMHHS could not be exempt under the education exemption (Schedule 9 Group 6 VATA 1994) because LMHHS was not “an eligible body” even if the College was.

Schedule 9 Group 1, Item 1 provides an exception to the VAT exemption at Schedule 9 Group 1 (see 2.1 above) for:

“(d) the provision in an hotel, inn, boarding house or similar establishment of sleeping accommodation or of accommodation in rooms which are provided in conjunction with sleeping accommodation or for the purpose of a supply of catering;”

A Note 9 to the Schedule provides:

“Similar establishment” includes premises in which there is provided furnished sleeping accommodation, whether with or without the provision of board or facilities for the provision of food, which are used by or held out as being suitable for use by visitors, or travellers.”

If the supply was prima facie exempt within Schedule 9 Group 1, was the appellant correct to say it was nevertheless standard rated because it fell out of exemption under the exception in Item 1(d) of the Schedule covering the provision of accommodation which is provided in an establishment similar to a hotel?

The Tribunal said “no”. Access to academia and library facilities were not found in hotels or similar establishments. Hotels do not have shared eating arrangements but allow guests to be seated at separate tables.

The students were not “visitors” paying visits to the College from home. It cannot necessarily be assumed that students will return to where they came from. They may have left home. Students needed advance permission for parties. Visitors do not normally throw parties for others at the place they are visiting. During term time the College was their home.

3. If the supply was to be taxable under the exception to the exemption at 2.1 above was it necessary for the students to have exclusive possession to fall within Schedule 1 Group 9?

The appellant argued it was not.

The Tribunal disagreed. It was necessary. But the concept of exclusive possession in European case law might differ from “exclusive possession” as English law considered to be a fundamental characteristic of leases. What was fundamental was the ability to exclude others from occupying “as owner”.

Only the student could occupy a room that was subject to the agreement. Though not explicitly, the agreement effectively conferred on the student “the right to occupy property as if that person were the owner and to exclude any other person from enjoyment of such a right”.

4. If exclusive possession was necessary HMRC said LMHHS was not able to grant this to the students because LMHHS had not itself been granted the necessary and adequate land interest under the agreement between the College and LMHHS.

The Tribunal agreed with the appellant that what LMHHS had been granted by the College made no difference. What counted was the nature of the agreement between LMHSS and the students. If that agreement said that the students would get exclusive possession that was an agreement capable of falling within the land exemption (Schedule 9 Group 1) whether or not LMHSS had the necessary legal status to deliver that benefit.

5. If the answer to issue 1. was that the College made the supply, was the supply exempt because it is a supply by an eligible body of something which is “closely related” to the supply of education?

Fatally to the appellant’s overall case, the Tribunal agreed with HMRC that:

– the College supplied the accommodation to the students with LMHHS merely acting as the College’s agent.

The College:

– advertised the rooms;
– received payment;
– through it’s own staff dealt with accommodation issues and complaints;
– effectively created the demand for the supply of accommodation to the College’s students. Under College regulations students were required to get permission if they wanted to live away from College (the “residency requirement”);
– set the terms of the accommodation agreement; and
– effectively controlled the price of the accommodation.

There was no evidence of LMHHS marketing or promoting in respect of a supply being offered by LMHHS as might be expected if LMHHS was the principal.

Applying also the “economic reality test” the factors were more consistent with the College being the person who, in economic reality, made the supply to the students and pointed away from the economic reality being that LMHHS made that supply; and

– that the supply of student accommodation by the College in term-time was “closely-related” to the College supplying education to the students. The residency requirement imposed by the College was a factor strongly indicating this.

In conclusion the supply of student accommodation was by the College and was VAT exempt and not standard rated.

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

Value added services precluded VAT exemption of property based supplies

Supplies may be exempt from VAT being chargeable on them under Value Added Tax Act 1994 (“VATA”), Sch 9, Group 1, Item 1, as being “the grant of an interest in or right over land or of any licence to occupy land.”

That exemption implements Article 135(1)(l) of the Principal VAT Directive (2006/112/EC) which exempts the leasing or letting of immoveable property.

The CJEU in Belgium v Temco Europe SA [2005] said that the leasing and letting of immoveable property was a “relatively passive activity linked simply to the passage of time and not generating any significant added value,” in contrast to “something which is best understood as the provision of a service.”

In the First Tier Tribunal case of Willant Trust Ltd v Revenue & Customs [2014] Willant Trust Limited (“WTL”) owned Ramster Hall (“the Hall”), a stately home in Surrey. The Hall was licensed for civil weddings, and receptions were also held there following weddings in local churches and elsewhere.

The Wedding Brochure stated that the client would have “exclusive use of the halls and courtyard which are yours for the wedding day”

The catering was provided not by WTL but by WTL’s nominee caterer Jacaranda. Other services including alcohol, photography and overnight accommodation were provided by third parties.

Clause 9 of the terms and conditions (“T&C”) stated that the Hirer was responsible for “the effective supervision of the Premises” including “the orderly and safe admission and departure of persons to and from the Premises” and the “orderly and safe evacuation of the Premises in case of emergency”, ensuring that no obstacles were placed by any corridors or exits, the safety of the Premises and “the preservation of good order and decency in the Premises.”

The T&C stated that the Hirer was not allowed to use the Premises for any purpose other than that described in the Hiring Agreement, sublet the Premises, move or alter any electrical, light or power appliance or fitting which was in the Premises or assign the agreement.

The WTL argued that the payment they got was not linked to the passage of time, because if there was no booking on the previous day, WTL allowed clients access to the rooms on that earlier day.

However, the tribunal said:

– this was at the discretion of WTL and not a term of the contract – early access depended entirely on whether there was another booking; and

– one of the key issues to be decided was the quality and quantity of contact between the clients and WTL before the wedding took place and at the wedding i.e. what was promised and what was delivered.

The tribunal found that the nature and extent of the services supplied by WTL meant that WTL were not undertaking “a relatively passive activity.”

WTL’s representative and her PA actively co-ordinated and planned the weddings with clients, and did not simply hand out a list of approved suppliers. Also they were routinely present at the weddings to greet the guests and make sure it all went according to plan. They were not simply there for 20-30 minutes to satisfy the legal requirement for an approved person to attend the civil ceremonies. WTL also allowed access to the gardens for photographs, provided a list of third party suppliers and arranged for the meetings with those suppliers to take place at the Hall.

Far from WTL being engaged in “a relatively passive activity” there was “significant added value,” with the result that what was being supplied was the provision of a service.

The tribunal found that there was a single supply which did not consist of “the grant of an interest in or right over land or of any licence to occupy land.”

As a result, the supply, by WTL, was standard rated and WTL’s appeal was dismissed.

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