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VAT Tribunal Decisions; Nonsensical conclusion - Allison Plager summarises six recent VAT tribunal cases.

17 January 2001 / Allison Plager
Issue: 3790 / Categories:
VAT Tribunal Decisions; Nonsensical conclusion

Allison Plager summarises six recent VAT tribunal cases.
VAT Tribunal Decisions; Nonsensical conclusion

Allison Plager summarises six recent VAT tribunal cases.

In September 1998, the appellant converted a public house into two dwellings and claimed zero rating for the 'supply' (presumably the sale to purchasers) of the two dwellings. This depended upon the application of the zero-rating provision of Group 5 of Schedule 8 to the VAT Act 1994: construction of buildings and in particular (under Item 1(b)) the sale of dwellings converted from a non-residential building. The issue for the tribunal to decide was whether the words in Note (7) to Group 5 of Schedule 8 to the VAT Act 1994 (non-residential means 'neither designed nor adapted for use as a dwelling') were to be taken in their normal sense or in the restricted sense in Note (2) (where a dwelling is defined as self-contained living accommodation. The law was not clear as to whether Note (2) governed Note (7). The appellant contended that it did, and that the previous living accommodation in the public house was not a 'dwelling' because it was not self-contained. Customs, however, said that Note (2) did not govern Note (7), and that the living accommodation at the public house was designed or adapted for use as a dwelling as a matter of fact and thus there was no conversion of a non-residential building.
The tribunal 'with the greatest reluctance' opted for Customs' version. Note (2) was meant to refer to a building after construction or conversion, while Note (7) referred to it before its Item 1(b) conversion.
The tribunal also considered the possible application of Note (9) (conversion of partly residential buildings must create an additional dwelling), but ruled this out. It decided that this note was intended to restrict Item 1(b), so that conversion of a non-residential part of a building is not to qualify if the building contained a residential part, unless an additional dwelling had been created. The conversion in question did not fall within Item 1(b), as it was a conversion of the whole building, both non-residential and residential parts.
The tribunal chairman, Paul de Voil, noted that its conclusion was absurd, and that to say that no part of a new dwelling may incorporate any domestic element of the original building in order to prevent tax avoidance was using a sledgehammer to crack a nut.
Unfortunately, the appeal had to fail, the supply was exempt and no related input tax was recoverable.
(Calam Vale Ltd (16869).)
Deferred and determined
Gray Dunn, a manufacturer of chocolate and biscuits, was acquired by its existing board in 1997. In February 1999, the company was experiencing difficulties and engaged a firm of accountants specialising in company restructuring to advise it. The company's VAT debt was restructured so that it would be paid in instalments; this was agreed verbally with the Large Payers Unit, and then by letter. The aim was to allow the company to restructure the debt with new lenders so that it did not have to cease trading. However, the company could not meet the deadline for the first instalment, so the arrangement was successfully renegotiated.
Eventually, new finance was obtained by the company, but the company was still unable to meet the VAT deferred payment deadlines, and the deal was again renegotiated. Matters came to a head when a Customs officer imposed a default surcharge for late payment of the VAT due for the quarter to March 1999. This was despite the fact that agreement had been obtained by telephone from Customs that payment by cheque posted on 30 April 1999 would be acceptable to Customs and no penalty would be raised. The tribunal said that the officer concerned had acted carelessly, and that it was clear that the company had intended to pay the VAT and keep Customs informed. There was no intention of avoiding VAT. The company had a reasonable excuse, and the appeal against the default surcharge was allowed.
(Gray Dunn & Co Ltd (16839).)
Private use inevitable
The appellants, father and son, were in business as a partnership as farmers and hauliers. In January 1996, the partnership leased a Cherokee jeep in part exchange for an old Land Rover which had been used only on the farm. The salesman told the appellants that they would be able to reclaim the input VAT on the lease rent of the new vehicle.
The appellants were adamant that the jeep was used only on business, and that it was not suitable for private use. Furthermore there was no need to use it privately, as other vehicles were available. It would not even be used in an emergency.
Customs, however, disallowed 50 per cent of the input tax claim on the grounds that the vehicle was technically available for private use. It was not relevant that it was in fact not so used and they cited paragraph 16 of Notice 700/64 in support.
The tribunal looked at the considerable amount of case law, including Martinez (16320), Levett-Scrivener and the European Court of Justice decision in Royscot Leasing Ltd v Commissioners of Customs and Excise [1999] (Case C-305/97) STC 998, and concluded that despite the appellants' avowed intention that the vehicle would never be used privately, the appeal had to fail. The legislation in Articles 7(2E) and 7(2G) in the VAT (Input Tax) Order 1992 made it clear that an objective view had to be taken. Technically, private use was a possibility, and the legislation had been drawn to restrict the relief to a narrow field. The claim for input tax had to be restricted accordingly.
(Dennis Walter Bevan and Andrew Dennis Bevan trading as D W Bevan & Son (16830).)
Phantom supplies?
The issue before the tribunal in Ladbroke (Palace Gate) Property Services Ltd was the nature of the supplies made by the appellant under the terms of various agreements dated 30 June 1997, and whether VAT was chargeable on the fees paid to the appellant under those agreements. However, during the course of the appeal it became apparent to the tribunal that another issue for it decide was whether any supplies had been made at all.
The facts in brief were that the administrative functions of the Ladbroke Group were to be centralised in one head office building at 71 Queensway. This building required extensive refurbishment, and Ladbroke (Palace Gate) Property Services Ltd was instructed to carry this out in return for various payments made by other companies in the group as outlined in a number of agreements made in June 1997. Ladbroke (Palace Gate) was outside the Ladbroke Group VAT group.
The appellant contended that the supplies it made under the agreements were taxable supplies of office facilities, and VAT was chargeable on licence fees paid by the operating companies under the agreement. Because Ladbroke (Palace Gate) was not a member of the Ladbroke Group VAT group and was making taxable supplies, it was registrable, and thereby could recover the input tax paid on the refurbishment expenses.
Customs argued that the input tax on the refurbishment supplies made to Ladbroke (Palace Gate) was not attributable to any taxable supply made by the appellant. It made no taxable supplies for the purpose of section 26(2)(a), VAT Act 1994 to which input tax could be attributable, and its registration should be cancelled.
The tribunal decided that it was not satisfied that Ladbroke (Palace Gate) had done or would do anything in consideration for the payments made under the agreements. Nor was it satisfied that any supplies were to be made by the appellant. There was no evidence of details of the terms under which any refurbishment was to be carried out. Customs were right to cancel the appellant's registration.
(Ladbroke (Palace Gate) Property Services Ltd (16666).)
Protected status
The appellants, a firm of planning and development consultants, were instructed by Mr and Mrs Dutton, the owners of The Mere, a listed property, to prepare and oversee a development within the grounds of the property. The work to be done included the construction of a detached bungalow for Mrs Dutton's mother, and a detached garage. These works were accepted as being standard rated and were not in dispute. However, other work to be carried out included the conversion of an outbuilding to a games and changing area and the construction of an adjoining indoor swimming pool. The appellant claimed that these were approved alterations to a protected building and qualified for zero rating.
The tribunal said that there was not sufficient physical connection between the house and the outbuilding. A wall which linked them did indeed form a physical link, but it was ornamental and served no structural purpose, as required in Group 6 of Schedule 8. Thus the outbuilding was a freestanding structure in the context of the legislation.
Next the tribunal considered how to apply the statutory test of a protected building. In its view a protected building was defined by reference to listing, with the purpose being to alleviate the financial burden on the owners. This financial burden extended to work carried out on structures within the curtilage of the listed building. The point in the instant appeal was whether or not the outbuilding was part of the protected building. Customs accepted that the outbuilding was within the curtilage of the listed building, and therefore it had to fall within the definition of listed. There needed to be no integration between buildings.
The outbuilding was a protected building within the definition in note (1), and the conversion work did qualify for zero rating. The appeal was allowed.
(Zielinski Baker & Partners (16722).)
Theatrical event
Ledbury Amateur Dramatic Society appealed against a Customs' decision that a newly built theatre should not be zero rated. The society was a registered charity and not registered for VAT. Until April 1999, it had used various buildings but, in particular, it had a lease from the parish church on a corrugated iron building. This building was burnt down in April, and so the society decided to proceed with a scheme for a new building. Eventually, enough money was raised to build a theatre; the total cost was some £300,000. It was designed to be used by any local group for performing arts.
The appellant said that the building was there to serve the local community, and that its purpose was similar to that of a village hall.
Customs, however, said that the relevant supplies were made to the appellant's trustees, who carried on an economic activity by charging entrance fees to the public who wished to attend theatrical performances. The building was not similar to a village hall, because ownership and management of it was vested in the Ledbury Amateur Dramatic Society. A village hall would be owned and managed by local village hall trustees.
The tribunal said that the issue was primarily one of fact: did the building come within the description of a village hall? The requirement was that the activities carried on in the building should be similar to those carried on in a village hall; they did not have to be the same. Clearly, the building could be used for a wide range of activities, which meant that all members of the community would be likely to use it.
The trustees were subject to strict requirements laid down by the district council as to the uses that the building could be put to, and did not come within the normal meaning of the final consumer. They were acting to benefit the whole community, rather than with a view to making a profit.
The tribunal accepted the appellant's view that the building was operated in a similar way to a village hall and should be zero rated. The appeal succeeded.
(Ledbury Amateur Dramatic Society (16845).)

Issue: 3790 / Categories:
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