Commissioners of Customs and Excise v Faith Construction Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE PARKER,LORD JUSTICE BINGHAM,LORD JUSTICE MANN |
| Judgment Date | 26 May 1989 |
| Judgment citation (vLex) | [1989] EWCA Civ J0526-1 |
| Date | 26 May 1989 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 89/0488 |
[1989] EWCA Civ J0526-1
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
Royal Courts of Justice
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR. JUSTICE SIMON BROWN)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR. JUSTICE HENRY)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR. JUSTICE McNEILL)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR. JUSTICE HENRY)
Lord Justice Parker
Lord Justice Bingham
Lord Justice Mann
89/0488
MR. JOHN MUMMERY AND MR. GUY SANKEY (instructed by the Solicitor for the Customs and Excise) appeared for the Appellants in each case.
MR. RODERICK CORDARA (instructed by H. H. Mainprice, Esq.) appeared for the Respondents Faith Construction Limited, Dormers Builders (London) Limited and Nevisbrook Limited.
MR. RODERICK CORDARA (instructed by Messrs. Hammond Suddards, Bradford) appeared for the Respondents West Yorkshire Independent Hospital (Contract Services) Limited.
We have before us four appeals in respect of Value Added Tax (VAT). The appellants are in each appeal H.M. Commissioners of Customs & Excise. The respondents are four building companies named respectively Faith Construction Ltd. (Faith), West Yorkshire Independent Hospital (Contract Services) Ltd. (West Yorkshire), Dormer Buildings (London) Ltd. (Dormer) and Nevisbrook Ltd. (Nevisbrook).
The four judgments from which the Commissioners appeal are reported as to Faith at [1988] 3 W.L.R. 500 (Simon Brown J.); as to West Yorkshire at [1988] S.T.C. 443 (Henry J.); as to Dormer at [1988] S.T.C. 735 (McNeil J.) and as to Nevisbrook at [1989] S.T.C. 193 (Henry J.).
In the case of Faith and West Yorkshire appeals by the Commissioners against decisions of a VAT Tribunal in favour of the companies were dismissed. In the cases of Dormer and Nevisbrook appeals by the two companies from decisions of a VAT Tribunal in favour of the Commissioners were allowed.
The background to each appeal is the same. On 13th March 1984 the Chancellor of the Exchequer announced in his budget speech that, as from 1st June 1984, VAT in respect of building alteration services, which at that time were zero rated, would be charged at the standard rate. Section 1 of the Value Added Tax Act 1983 (the Act) provides that VAT shall be charged on any supply of goods or services and section 2(3) that tax on the supply of goods or services is the liability of the person making the supply and (subject to provisions about accounting and payment) becomes due at the time of supply. Sections 4 and 5 deal with the ascertainment of the time of supply. So far as immediately material they provide:
"4. (1) The provisions of this section and section 5 below shall apply for determining the time when a supply of goods or services is to be treated as taking place for the purposes of the charge to tax.
…
(3) Subject to the provisions of section 5 below, a supply of services shall be treated as taking place at the time when the services are performed.
5 (1) If, before the time applicable under subsection (2) or subsection (3) of section 4 above, the person making the supply issues a tax invoice in respect of it or if, before the time applicable under paragraph (a) or (b) of subsection (2) or subsection (3) of that section, he receives a payment in respect of it, the supply shall, to the extent covered by the invoice or payment be treated as taking place at the time the invoice is issued or the payment is received."
The purpose of section 5(1) is plainly to accelerate the date for payment of tax. It is, in the absence of a change in rating, for the benefit of the Revenue in that it will recover tax earlier. It will also be for the benefit of the Revenue if, subsequent to tax invoice or receipt of payment by the supplier, the rate of tax is reduced. If, however, the rate goes up between receipt of payment and performance, whilst the Revenue will still get the benefit of early payment, it will lose the amount of the increase and the supplier of the services and the building owner will benefit to the extent of the increase.
In the present cases the four appellants sought, not surprisingly, to achieve the benefit of advance payment and receipt. The question for determination is whether they have succeeded in doing so.
As the facts of all cases are fully set out in the reports of the judgments under appeal, I do not propose to rehearse them here. I shall state only the bare essentials.
In each case it is common ground that, prior to 1st June 1984, the building owner paid money into a bank account of the builder in respect of building services to be supplied thereafter.
In two cases, Faith and West Yorkshire, the money was so paid pursuant to arrangements whereby the same amount was either directly or indirectly to be and was in fact forthwith lent back either to the building owner or to a company closely associated with the building owner, the loan to be repayable against architects' certificates as the work proceeded.
In the other two cases, Dormer and Nevisbrook, the money was paid into a deposit account of the builder under arrangements whereby it was only to be released to the builder against architects' certificates.
In the former two cases the loan was in fact repaid against architects' certificates and in the latter two cases the monies in the deposit accounts were in fact released against architects' certificates. All such repayments and releases occurred after 1st June 1984.
The foregoing statement represents a considerable simplification of complicated arrangements but is sufficient for present purposes for the dispute between the parties falls within a narrow compass. On behalf of the Commissioners Mr. Mummery put the matter this way in his skeleton argument:
"The central features of the contractual arrangements made in each case before 1st June 1984 were that
(1) a sum of money was credited before 1st June 1984 to a bank account bearing the name of the builder, but subject to terms and conditions;
(2) no sums would be released to the builder in respect of the services supplied by him until architects' certificates were produced in respect of the services performed by him after 1st June 1984.
The Commissioners' contention is that no payments were received by the builders in respect of the services performed by them until the relevant sums in respect of those services were in fact released to the builder on production of the architects' certificates.
All 'payments' by way of credit into a bank account in the name of the builder before 1st June 1984 were conditional or qualified only and were not therefore payments received by the builder in respect of services supplied until those payments became unconditional or unqualified."
In the course of argument the submission was refined somewhat and put in the following form:
"A payment in respect of a supply is not a payment received by the person making the supply within the meaning of section 5(1) of the Value Added Tax Act 1983 to the extent that it is conditional upon the monies not being available for use by or for the benefit of the person making the supply until the supply has been made.
The point at issue is a short one depending wholly on the construction of section 5(1) of the Act. Before considering it, I should mention that no criticism was or could be made of either the builders or the contractors for attempting to take advantage of the continuance of zero rating up to 1st June by making advance payment for services to be supplied thereafter. Not only was it apparent from the budget speech and the terms of section 5(1) that the opportunity to do so existed and would be to their mutual benefit but, in addition, the Commissioners had at the same time issued a notice which was a positive invitation to do so. Paragraph 14 of that notice was in the following terms:
"14. The transitional rules for registered builders not using a retail scheme are as follows:
(a) Work completed before 1 June. You need not charge tax even if you do not invoice your customer until after that date.
(b) Work not started before 1 June. This is liable to the tax except to the extent that the customer pays before 1 June. (The issue of an invoice prior to 1 June for work which, if carried out before that date, would have been zero-rated is not a tax invoice and has no effect.)
(c) Work in progress at 1 June. Provided that you can apportion the supply in a realistic way, you are entitled to zero rate that part of the job done before 1 June and charge at 15% for the balance. Alternatively if your customer agrees to pay for the whole job before 1 June, then the whole job attracts the zero rate."
The accuracy of the words in parenthesis in sub-paragraph (b) is questionable and the last sentence of sub-paragraph (c) was admitted by Mr. Mummery to be wrong but no point arises on this on these appeals. What is of some importance is that the notice brought home to builders the benefit of securing payment from the customer before 1st June in respect of work to be done thereafter.
I turn to the construction of section 5(1). I have already observed that it is clearly designed for the benefit of the Revenue by the advancement of the tax point. It is also...
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