British Eventing Ltd v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 17 August 2010 |
| Neutral Citation | [2010] UKFTT 382 (TC) |
| Date | 17 August 2010 |
| Court | First-tier Tribunal (Tax Chamber) |
[2011] TC 00664
[2010] UKFTT 382 (TC)
Barbara Mosedale (Chairman), Sonia Gable
Mr D Southern, Counsel, instructed by Saffery Champness for the Appellant
Ms R Haynes, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
The following cases were referred to in the judgment:
Abbey National plc v C & E CommrsECASVAT (Case C-408/98) [2001] BVC 581
Aktiebolaget NN v SkatteverketECAS (Case C-111/05) [2007] ECR I-2697
Birkdale School, Sheffield v R & C CommrsVAT [2008] BVC 397
BLP Group plc v C & E CommrsECASVAT (Case C-4/94) [1995] BVC 159
C & E Commrs v Cantor Fitzgerald InternationalECASVAT (Case C-108/99) [2002] BVC 9
C & E Commrs v Mirror Group plcECASVAT (Case C-409/98) [2002] BVC 16
C & E Commrs v Trustees for R & R Pension FundVAT [1996] BVC 348
Don Bosco Onroerend Goed BV v Staatssecretaris van FinanciënECASVAT (Case C-461/08) [2010] BVC 1,084
Dr Beynon and Partners v C & E CommrsVAT [2003] BVC 127
I/S Fini H v SkatteministerietECASVAT (Case C-32/03) [2007] BVC 415
John Dee Ltd v C & E CommrsVAT [1995] BVC 125
Levob Verzekeringen BV v Staatssecretaris van FinanciënECASVAT (Case C-41/04) [2007] BVC 155
Lubbock Fine & Co v C & E CommrsECASVAT (Case C-63/92) [1993] BVC 287
Marks & Spencer plc v C & E CommrsECASVAT (Case C-62/00) [2002] BVC 622
R & C Commrs v IDT Card Services Ireland LtdVAT [2006] BVC 244
Skatteministeriet v HenriksenECAS (Case 173/88) (1990) 5 BVC 140
Skatteverket v AB SKFECAS (Case C-29/08) RDV 62
University of Sussex v C & E CommrsVAT [2002] BVC 297
Land and property - Appellant paying reverse premium on assignment of lease - Whether locus standi to challenge taxable status of reverse premium and/or recover VAT paid on it - Whether reverse premium attributable to assignment of lease and, if not, to what - Whether commissioners' decision to refuse permission to opt leased property wrong in law.
The primary issue was the commissioners' refusal to allow the appellant to opt to tax land and buildings at Tweseldown Racecourse in Hampshire. Since there was no direct right of appeal against a refusal to give permission for opting, the appeal was against the commissioners' refusal of the appellant's claim for input tax credit consequent on opting and, in so far as was relevant, against the commissioners' prior decision to refuse permission for opting.
The facts were not in dispute. Tweseldown Racecourse was owned by the Ministry of Defence (MOD) and the British Horse Society had occupied the racecourse for at least 40 years under an unwritten lease. In 1997, the part of the British Horse Society which dealt with eventing was hived off to a separate company, the appellant. The appellant was the governing body for the sport of horse eventing and became responsible for all affiliated eventing activities and competitions throughout the UK. The appellant took over the occupation of the racecourse. Its manager formed a company, Tweseldown Equisport Ltd (TEL), to carry out the management and in due course this company became a tenant at will of the appellant. The rent charged by the appellant to TEL was equivalent to the rent paid by the appellant to the MOD, both rents being exempt from VAT.
In 2003, the appellant was granted a formal written lease of the premises at an annual rent of £9,000. At some point, the hospitality building was damaged by fire and the appellant received an insurance payment of £140,000. However, the estimated cost of repairs was considerably higher. The appellant commenced negotiations with TEL to assign the lease to it for a nominal amount and to pay a sum to enable TEL to carry out the necessary works. Since the appellant had granted an exempt interest in the property to TEL, it needed the permission of the commissioners to opt to tax. It made such application on 26 October 2007 explaining that the lease assignment would be for £10 and that it would pay the assignee a premium of £200,000 plus VAT in recognition of TEL assuming its obligations under the lease. The commissioners refused permission, stating that since there would be no further taxable supplies by the appellant after the assignment, the input tax sought to be recovered was not attributable to any anticipated taxable supplies from the property.
TEL wrote to the commissioners querying the VAT liability on the payment to them of the £140,000 insurance monies by the appellant and it was informed that the money was consideration for a taxable supply, being the supply of an agreement to take over the responsibility of restoring the building. A licence to assign the lease was entered into, under which the MOD agreed to the assignment of the tenancy, the appellant agreed to assign the lease, and TEL agreed to carry out the programme of works to the property. The lease was assigned by deed on 23 November 2007 for a fee of £10. The appellant agreed to pay TEL £200,000 in consideration for TEL assuming the appellant's repairing obligations under the head lease. VAT of £59,000 was duly charged and accounted for on the total payment of £340,000. The appellant asked the commissioners to review their decision not to give it permission to opt to tax, but they confirmed the decision, stating that the £10 grant created a supply which, if permission to opt were granted, would generate a one-off VAT charge of £1.75 against which at least £35,000 input tax could be recovered. They said that breaking the reverse assignment up in this way produced an unfair recovery of input tax.
The first issue for the tribunal was that of jurisdiction, namely whether it had jurisdiction over a decision by HMRC to refuse permission to opt to tax and whether it had jurisdiction over the appellant's claim to recover the input tax at stake on the ground that there was no taxable supply by TEL. The parties accepted that if the tribunal considered it wrong for the commissioners to refuse permission to opt to tax, even though the tribunal had no jurisdiction as such to consider the refusal, it could allow the appeal against the refusal to allow recovery of the input tax attributable to the supply which would have been taxable had the commissioners given permission. The tribunal acknowledged that it had jurisdiction on this basis, but with the proviso that it could only consider the exercise of discretion to refuse permission in so far as the refusal to repay the input tax at stake was properly dependent on that decision. In other words, it was only if the input tax at stake was attributable to a supply of Tweseldown Racecourse that it could have jurisdiction to consider the refusal of permission to opt to tax the racecourse.
A further issue arose in relation to the tribunal's jurisdiction, which concerned an application by the appellant to amend its notice of appeal to add that the payments on which VAT had been charged arose from the assignment of an exempt lease and, accordingly, that the payments could only have been exempt from VAT. Therefore, the appellant maintained that it had a claim to recover overpaid output tax under the Value Added Tax Act 1994, Value Added Tax Act 1994 section 80 subsec-or-para 1s. 80(1). The tribunal held that it had no jurisdiction to make an award to the appellant under s. 80 even if it were to find that TEL was not liable to account for VAT on the reverse premium. It followed that the application to amend the notice of appeal to include a claim to recover overpaid output tax under s. 80(1) was rejected. However, the tribunal had no objection to the appellant amending its grounds of appeal merely to include a claim that the supply to it by TEL related to the assignment of an exempt lease. Further, the tribunal found that the appellant, although not the taxpayer, was an interested party and had locus standi as the customer to appeal the TEL decision.
In evidence, the appellant put forward a number of grounds on which it considered that the supply by TEL was either exempt or outside the scope of VAT. The tribunal concluded that the monies paid by the appellant to TEL were consideration for a supply, namely TEL agreeing to take on the onerous lease of Tweseldown and in particular to discharge the repairing obligation of the appellant. The tribunal decided that the case was on all fours with the decision in C & E Commrs v Cantor Fitzgerald InternationalECAS (Case C-108/99) [2002] BVC 9. TEL agreed to take on an onerous lease and was paid £340,000 to do so. That supply by it was not the supply of an interest in land and was standard-rated, because there was no other potentially applicable exemption or zero-rating.
The appellant's next line of argument was that its supply of the assignment of the lease for £10 was a single economic transaction with the supply by TEL of its acceptance of the assignment for the combined total of £340,000. Since the commissioners did not permit the option to tax, the assignment of the lease for £10 was exempt. As this was a single economic transaction with the acceptance of the assignment for £340,000, the appellant argued that this must mean the £340,000 was consideration for an exempt supply. The tribunal held that there could not be a single indivisible supply where the suppliers were different persons. Even assuming that the appellant did supply the assignment to TEL and that assignment was exempt, this had no impact on the taxable status of TEL's acceptance of an onerous lease from the appellant. In any event, the appellant did not supply the assignment to TEL. The only VAT supply in the contract between the appellant and TEL was by TEL in agreeing to take on the onerous lease in consideration for £340,000. The tribunal, therefore, rejected the appellant's argument that the supply to it by TEL was not standard-rated.
Having established that the supply by TEL was subject to VAT, the next consideration was to determine the attribution of the input tax to decide whether it was...
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