City YMCA London
| Jurisdiction | UK Non-devolved |
| Judgment Date | 17 December 2021 |
| Neutral Citation | [2021] UKFTT 477 (TC) |
| Court | First-tier Tribunal (Tax Chamber) |
[2021] UKFTT 477 (TC)
Dr Heidi Poon
Value added tax – Characterisation of supply – Provision of accommodation to homeless young people – Land exemption for the leasing or letting of immovable property – Whether supply a licence to occupy land within VATA 1994, Sch. 9, Grp. 1 land exemption – Legal classification by reference to exclusive possession and Community law criterion to the exclusion of all others – Whether supply falls within Directive hotel exclusion – A functional approach and purposive construction for similar establishment under Item 1(d) exclusion from land exemption – Appeal allowed.
The FTT held that when a charity provided accommodation to homeless young people it was granting licences to occupy sleeping accommodation and that it was a similar establishment to a hotel, inn or boarding house. The charity's supplies were therefore standard rated but the majority qualified to be reduced in value because almost all residents stayed for longer than 28 days.
City YMCA is a charity which provides temporary accommodation to homeless young people aged 16–34 years. Residents must apply for their place. As well as demonstrating that they are homeless, or at risk of homelessness applicants are vetted for suitability and might be rejected because of convictions for arson or because they have a serious mental health condition which cannot be managed in this setting.
The facilities are described in the decision in detail. In summary, in return for rent payments (which are largely funded from the young person's Housing Benefit or Universal Credit) the resident receives:
- Sleeping accommodation in a single bedroom;
- Continental breakfast, access to wifi and TV licence; and
- Access to communal facilities including television lounge, kitchen, courtyard and laundry facilities.
The bedrooms are subject to occupancy restrictions, e.g. no guests under the age of 16, overnight guests are only permitted for a maximum of 3 nights per week and must be approved.
In 2011, following enquiries, HMRC determined that City YMCA was making a supply of sleeping accommodation in a “hotel, inn, boarding house or similar establishment” which was standard rated under VATA Sch. 9, Grp. 1, Item 1(d). Its supplies were therefore reduced in value by 80% when residents had stayed for more than 28 days under VATA Sch. 6, para. 9. This was beneficial to the charity because it enabled it to recover input tax on all of its costs whilst only accounting for VAT on approximately 20% of its income (all of its residents stayed for longer than 28 days).
In 2019, following a subsequent enquiry, HMRC concluded that City YMCA should account for VAT on all of its income. HMRC determined that its supplies did not fall into VATA Sch. 9, Grp. 1 because it was not granting any “interest in or right over land or licence to occupy to land”. Therefore, the valuation provisions in VATA Sch. 6 did not apply and it should be accounting for VAT on all of its income. In the alternative, if City YMCA's supplies fell within VATA Sch. 9, Grp. 1, HMRC argued that they were exempt because it was not a “hotel, boarding house, inn or similar establishment” (and, as a consequence, City YMCA should suffer a significant loss of input tax recovery).
The FTT considered the question of whether or not City YMCA was making a supply of land which was exempt under Sch. 9, Grp 1, item 1 separately to the question of whether it was hotel or similar accommodation which was excluded from the exemption by item 1(d).
HMRC based its argument that City YMCA was not making a supply of land on the contract signed by the residents which included clauses specifying that the contract was not “intended to confer exclusive possession on the licensee [i.e. the resident] or to create the relationship of landlord and tenant between the parties”. HMRC also maintained that, because City YMCA retained the right to enter rooms and could move residents between rooms, the residents had not been granted the exclusive rights which are characteristic of VAT exempt rights over land (para. 64–66).
The FTT reviewed jurisprudence from the ECJ regarding the scope of the exemption for rights over land. It concluded that, although City YMCA was not granting an interest in or right over land (para. 105), it was granting a licence to occupy. The FTT disagreed with HMRC's analysis of the contract between the parties. It concluded that, not only was the contract a contract for a licence to occupy (para. 115), the commercial and economic reality of the relationship was that a licence to occupy had been granted.
City YMCA's evidence was that it provided temporary accommodation for homeless young people. The contractual stipulation regarding the non-creation of a tenant-landlord relationship was intended to ensure that residents could not argue that a short hold tenancy had been created. It also advised the FTT that it needed a right to access rooms primarily for maintenance reasons and that a resident would only be asked to move rooms in exceptional circumstances, e.g. because their room was more suitable for a new resident with special needs.
When considering the second question the FTT concluded that ECJ jurisprudence on whether an establishment was “similar” to a hotel was that the purpose of the accommodation provision was the important factor (para. 139–141). It further noted that, in VAT terms, the critical distinction was between long term lettings of residential accommodation and short term accommodation in the hotel sector (para. 142). Although it noted other similarities with the hotel sector, e.g. regular cleaning, the temporary nature of the accommodation provided by City YMCA was, the FTT found, the “very essence” of the supply (para. 143).
City YMCA was therefore operating a “similar establishment” and its supplies fell within VATA Sch. 9, Grp 1, Item 1(d) and, by extension, the reduced valuation provisions in VATA Sch. 6, para. 9.
The appeal was allowed.
The FTT's decision provides a useful review of ECJ case law concerning the definition of a right over land for VAT purposes, and how interpret constraints and conditions put into contracts which relate to rights over land.
[1] This is a VAT appeal by City YMCA London (“CYL”) against the respondents' (“HMRC”) decision in respect of the classification of the supply of service made by CYL to young people with hostel accommodation in return for payment (“the Supply”).
[2] The substance of the decision of HMRC under appeal is contained in a letter dated 1 March 2019, which was upheld on statutory review by letter dated 18 July 2019 (“the review conclusion” or “the liability decision”), with the result that VAT was held to be chargeable on the “normal” full value of the Supplies at the standard rate.
[3] The crux of the issue is whether the recipient of the Supply gains “exclusive possession of the property” in question for the supply to be “a licence to occupy land” within the terms of Item 1 of Group 1 in Schedule 9 to the Value Added Tax Act 1994 (“Item 1” and “VATA”). HMRC's decision is that the recipient of the Supply does not gain exclusive possession for the Supply to be a “licence to occupy land”. Consequently, VAT is chargeable on the full value of the supply at the standard rate.
[4] If CYL wins on the principal issue, then a secondary issue arises, in that the appellant contends that its Supply is eligible for the “reduced value supply rule” as CYL is a “similar establishment” to a hotel. In reply, HMRC contend that the reduced value concession does not apply to the Supply made by CYL, as it is not an establishment similar to a hotel.
[5] By email dated 2 March 2021, the respondents stated that as a result of the liability decision, notices of assessments were issued on 26 March 2020 and 2 October 2020. These assessments are not matters under appeal. The matter under appeal concerns HMRC's decision on the classification of the Supply, and the Tribunal's decision is a decision in principle.
[6] For the appellant, Dr Gillian Bowen gave witness evidence as the present Chief Executive Officer of CYL. She was also the CEO at all material times to this appeal. Her evidence was led by Mr Mantel, and she answered supplementary questions from the Tribunal in a direct and straightforward manner. I find Dr Bowen a reliable and credible witness, and accept her evidence as to matters of fact.
[7] The respondents adduced no witness evidence. In relation to witness evidence for the appellant, HMRC intimated by email dated 2 March 2021 that they did not intend to cross-examine Dr Bowen. Where Dr Bowen has expressed her views, such as how the Supply should be characterised, HMRC notified their disagreement with those views. I have set aside Dr Bowen's opinions, whether stated in writing or given in her parole evidence.
[8] The provisions under VATA relevant to this appeal are as follows:
- Section 19 defines Value of supply of goods or services to be:For the purposes of this Act the value of any supply of goods or services shall, except as otherwise provided by or under this Act, be determined in accordance with this section and Schedule 6, and for those purposes subsections (2) to (4) below have effect subject to that Schedule.
- Section 31Exempt supplies and acquisitions provides under subsection (1)11The version of s 31 applicable in this appeal was the version in force from 17 July 2012 to 30 December 2020.:A supply of goods or services is an exempt supply if it is of a description for the time being specified in Schedule 9 …
- Section 96Other interpretative provisions, inter alia:(9) Schedules 7A, 8 and 9 shall be interpreted in accordance with the notes contained in those Schedules; and accordingly the powers conferred by this Act to vary those Schedules include the power to add to, delete or vary those notes.
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