Cottingham Park Lodges Ltd

JurisdictionUK Non-devolved
Judgment Date30 December 2016
Neutral Citation[2017] UKFTT 10 (TC)
Date30 December 2016
CourtFirst Tier Tribunal (Tax Chamber)
[2017] UKFTT 010 (TC)

Judge Richard Thomas

Cottingham Park Lodges Ltd

Mr Richard Lacey of Harris Lacey and Swain (Chartered Accountants) appeared for the appellant

Mr Bernard Haley, Presenting Officer, appeared for the respondent

Value added tax – Sales of a licence to occupy land (a pitch), a lodge (a qualifying caravan) and its removable contents – (1) Whether the part of consideration attributed to removable contents was properly attributable where all profit was made on only the licence – Held – Yes – Grant of only a licence if customer provided own lodge – (2) Whether grant of that licence was (a) standard-rated under – Value Added Tax Act 1994 (VATA 1994), Sch. 9, Grp. 1, item 1(f) and notes (14) and (14A) or (b) zero-rated as part of composite supply by two suppliers – Held – Standard-rated – (3) Whether assessment breached time limit – No – Company's appeal allowed in part.

The First-tier Tribunal (FTT) allowed the appeal against HMRC's decision that the contents of a wooden lodge had not been sold on at only cost. The Company successfully claimed that it sold the lodges and their contents at the same price as it paid to the manufacturer and so it made a profit on only the land (pitch) element of the sale.

Summary

The Company sold lodges, i.e. wooden buildings which are moveable, for which it granted for a lump sum a licence to occupy a pitch on land that it owned. The lodges qualified as caravans within VATA 1994, Sch. 8, Grp. 5. Generally, the lodges were acquired from manufacturers and then were equipped with the removable contents, as specified by the customer. The manufacturer's invoice showed a small amount of VAT, being the VAT charged on the removable contents element of the whole lodge, as calculated by the manufacturer. The supply of the lodge was zero-rated. The Company received a discount of at least 30% on the price the manufacturer charged to retail customers, who bought directly from it. The Company invoiced its customers for the same amount of VAT on the removable contents as the manufacturer had charged to it.

All but one of the assessments on the Company tried to recover VAT, which HMRC said that the Company should have accounted for on its sale of the removable contents of the lodges that it supplied to customers (the removable contents issue). The other assessment concerned VAT, which HMRC said should have been accounted for on the grant of a licence for a pitch on the Company's land (the single plot issue).

The removable contents issue

The FTT considered what part of the overall consideration for the sale of the lodge was consideration for the removable contents of the lodge. This was significant, because the supply of the lodge itself was zero-rated, but the supply of the removable contents was standard-rated.

The FTT considered whether the Company's method of calculating the VAT on its sales attributed a proper part of the consideration for the overall supply to the removable contents. Notice 701/20 (Caravans and houseboats (2013 edn)) at para. 8.1 requires the attribution to give a result that is fair and reasonable and at para. 8.2 states that where the caravan and the contents are advertised at separate prices and the customer may the caravan at the lower price without the removable contents, then the advertised price for the contents may be used instead of a formula. That Notice lacks the force of law.

HMRC argued that:

  1. 1) the value of the removable contents should be calculated on a cost proportion basis (as in Notice 701/20, para. 8.2), unless the Company's calculation gives a reasonable result; and

  2. 2) the Company's calculation did not give such a result, as all the profit in the supply was assigned to a non-taxable element, i.e. the land.

The FTT distinguished this dispute from Colaingrove Ltd TAX[2013] TC 02701, where the company did not sell both land and chattels, just caravans and removable contents.

The FTT held that HMRC's figures attributed no value to the land and the infrastructure and were not a proper application of the method in Notice 701/20. In the light of that finding, the FTT accepted the Company's method unless it was clear that it did not give a fair and reasonable result (para. 59 and 60 of the decision).

The Company's business model was that, as a landowner, it sought to make a profit from only the land element when it sold a package of land and infrastructure, lodge and contents, and not to mark up the cost of the lodge and contents. Thus, it passed on the manufacturer's discount to the customer. In order to determine the sale price for the package, the Company calculated the cost of the infrastructure (about £15,000 per plot) and added a profit of about £40,000 to arrive at the price for the cost of the licence to the purchaser of about £55,000. To that was added the cost of the lodge and contents, as charged to the Company by the manufacturer. The customer was not aware of the breakdown between the land/infrastructure and the lodge/contents elements of the sale price. The invoice for a lodge showed a total price, but did not show the VAT element for the contents.

The evidence, which convinced the FTT, that the business model was not a ploy to save VAT, was that the consideration for the grant of a licence without a lodge on Plot 19 was £55,000, the figure which was shown as the profit element of all the lodge sales. This was verifiable evidence of the putting into practice the business model in an arm's length transaction (para. 62 of the decision).

The FTT held that the Company's method was fair and reasonable and properly attributed the appropriate part of the consideration to the removable contents (para. 64 of the decision).

The single plot issue

One grant of a licence was made without the Company at the same time selling a lodge to the purchaser. Plot 19 was a plot-only sale, i.e. the customer supplied his own lodge. The customer liked the site at Plot 19 and wished to buy the pitch there, so that he could put his own lodge on it.

HMRC assessed this grant on the basis that the grant of the licence without the sale of a lodge was standard-rated. The amount of VAT charged by HMRC was £9,166. If grossed up at 20%, that shows a sale price of £55,000 (para. 28 of the decision).

It was agreed that the pitch was a seasonal pitch for a caravan within VATA 1994, Sch. 9, Grp. 1, item 1(f) and notes (14) and (14A) and so, if the supply of the pitch had to be considered separately, it was not exempt, but standard-rated.

The FTT upheld that assessment of the licence, as the Company had not shown that it was incorrect (para. 86 of the decision).

The out of time assessment issue

If a global assessment is made and if one period is out of time, then the whole assessment falls.

The Company submitted that the assessment was a global assessment, out of time and therefore invalid.

HMRC argued that the assessment was not a global assessment, as the assessments were made on a period-by-period basis and not globally. The assessments were made within one year of the time when they had obtained all the evidence required to make them (para. 95 of the decision).

The FTT held that there was no global assessment, as the assessment referred to five separate prescribed accounting periods (para. 96 of the decision).

There was no assessment for a period if the document simply reflected an unclaimed credit for input tax for that period, so the time limits for making an assessment were not relevant for such a period (para. 101 of the decision).

Decision

Thus, the assessments made regarding the removable contents were cancelled (as the FTT upheld the Company's appeal on only this issue), but the assessment regarding the sale of pitch was upheld and it was made within the time limit (para. 116 to 118 of the decision).

Comment

Apportioning the consideration between the lodge and the removable contents of the lodge was important, because the supply of the lodge itself was zero-rated, but the supply of the removable contents was standard-rated. Most customers presumably could not recover any of the VAT that was charged. It can be difficult to apportion a single charge for a multiple supply if there is both a positive-rated supply and a zero-rated supply (or an exempt supply). A simple and rational basis for the apportionment is often difficult to agree with HMRC. Thus, the FTT had to decide the matter as a question of fact.

DECISION

[1] This was an appeal by Cottingham Park Lodges Ltd (the appellant) against assessments to Value Added Tax (VAT) made by the Commissioners for Her Majesty's Revenue and Customs (HMRC), the respondents in this case.

[2] The assessments appealed against were made, in all but one case, to recover additional VAT which HMRC said that the appellant should have accounted for on the sale by it of the removable contents of the lodges it supplied to customers (the contents issue). In the other case the assessment sought to recover VAT which HMRC said should have been accounted for on the grant of a licence for a pitch on the appellant's land (the pitch issue).

[3] I should add here that it was not until 13 October 2016, the day before the hearing, that the appellant filed a skeleton argument. Had this simply followed the grounds of appeal and the Statement of Case and list of authorities filed by the appellant with the Tribunal on 5 July 2016, I would not, unless HMRC raised the point, said or done anything about the lateness. However the appellant's skeleton mentioned a case in support of its arguments on the contents issue which had not been previously mentioned. It also raised a wholly new point, that a global assessment made to recover VAT was made after the time limit for making it and was therefore invalid (the time limit issue).

[4] Because of the new points I asked Mr Haley if he wished to apply for a postponement to enable him to deal with the points. He was happy to start the hearing as...

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