Customs & Excise v Liverpool Institute for Performing Arts
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE CARNWATH |
| Judgment Date | 30 January 1998 |
| Judgment citation (vLex) | [1998] EWCA Civ J0130-3 |
| Docket Number | CO/3709/96 |
| Court | Court of Appeal (Civil Division) |
| Date | 30 January 1998 |
[1998] EWCA Civ J0130-3
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
CROWN OFFICE LIST
Royal Courts of Justice
Strand
London WC2
Mr Justice Carnwath
CO/3709/96
MR K PARKER to MR N PAINES QC (Instructed by Customs & Excise, 3 Stanley St, Salford M60 9LB) appeared on behalf of the Applicant.
MISS S BEAMS for MR R BARLOW (Instructed by Crockers Solicitors, 10 Gough Sq, London EC4A 3NJ) appeared on behalf of the Respondent.
( )
Friday, 30th January 1998
This is an appeal from the decision of the VAT Tribunal given on 10th October 1996 in respect of a ruling of the Commissioners that certain supplies made by the school ("LIPA") were not to be treated as taxable supplies for the purpose of calculating the deductible proportion of input tax. That decision was given by letter dated 24th July 1995 and was confirmed by letter dated 29th August 1995. The relevant facts, which are not in dispute, were summarised as follows by the Tribunal:
"5. LIPA provides educational services in the field of performing arts from premises at Mount Street, Liverpool 1. It is common ground that those services are exempt supplies of education falling within item 1 of Group 6 of Schedule 6 to the Value Added Tax Act 1983 ('the 1983 Act'), now item 1 of Group 6 of Schedule 9 to the Value Added Tax Act 1994 ('the 1994 Act'). LIPA did not open its doors to students i.e. did not provide any educational services, until September 1995, but on 23 February 1993 entered into a written three-year sponsorship agreement commencing on 1 January 1993 with Grundig Aktiengesellschaft (which I shall refer to as 'Grundig AG') whereby Grundig AG agreed to pay LIPA a very substantial sum of money over a period of three years in return for LIPA providing supplies of advertising and publicity to Grundig AG. Grundig AG paid £25,000 as part of that sum to LIPA before LIPA registered for VAT on 25 March 1993.
6. It is also common ground that the supplies of advertising and publicity made by LIPA under its agreement with Grundig AG are supplies of advertising services, and that by art. 16 of the Value Added Tax (Place of Supply of Services) Order 1992 ('the 1992 Order'), all the necessary conditions being satisfied, the place of supply of such services is Germany, the country to which Grundig AG belongs for VAT purposes".
The dispute concerns the correct treatment of the input tax, attributable to LIPA's general overheads. LIPA accepted that some of the input tax, incurred in the period before it started to make exempt supplies of education, was nonetheless attributable to such future exempt supplies, and therefore not included in the present claim.
In the course of the argument it became apparent that it was necessary to distinguish between three different periods for the purpose of the analysis:
1. 1st March to 31st May 1993. In this period the only supplies made were those to Germany (referred to in argument as "out of country supplies"). During this period, LIPA did not provide any educational services ("exempt supplies"), nor any taxable supplies within the United Kingdom ("taxable supplies").
2. 1st June 1993 to 31st May 1995. In these periods LIPA made both out of country supplies and taxable supplies, but no exempt supplies. Although the Tribunal found that the only taxable supplies made amounted, in value, to £6 in 1993 and £4 in 1994 (see decision para 29), the Commissioners do not contend that these can be disregarded as de minimis.
3. 1st June 1995 onwards. During this period LIPA made taxable, out of country and exempt supplies. The respondent contends that this period is not the subject matter of the appeal, since the decision was given on 24th July 1995, before the end of the current tax period which ended on 31st August. In practice, however, the issues relating to that period are closely tied up with those which I have to decide in relation to the other periods, and must therefore be addressed.
The relevant statutory provisions at the material time were to be found in the Value Added Tax Act 1983 and the VAT (General) Regulations 1985, as amended from time to time. Those provisions gave effect to the European Court Sixth Directive (77/388/EEC).
By section 2(2) of the 1983 Act —
"A taxable supply is a supply of goods or services made in the United Kingdom other than an exempt supply."
Thus, it is clear that in general the term "taxable supply" refers to supplies within the United Kingdom, not outside the United Kingdom. Section 15 provided that a taxpayer may recover:
"so much of the input tax for the period… as is allowable by or under regulations as being attributable to supplies within subsection (2) below".
Subsection (2) included both "taxable supplies" and "supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom." Thus, in principle, the fact that supplies are made outside the United Kingdom does not by itself detract from the right to deduct input tax which is attributable to those supplies. The supplies to Grundig are services which would be taxable supplies if made within the United Kingdom and therefore fall within section 15(2)(b).
Section 15(3) of the Act provided that the Commissioners may make regulations for securing "a fair and reasonable attribution of input tax to supplies within subsection (2) above"; and, inter alia, that those regulations may provide for determining a proportion by reference to which input tax is to be —
"provisionally attributed to supplies for any prescribed accounting period and for subsequent adjustment of the proportion for a longer period comprising two or more such periods."
Part V of the 1985 General Regulations sets out the rules for determining the attribution of input tax to taxable supplies. The material regulations in the present case are to be found in regulations 30, 31 and 32. The relevant parts are as follows:
"Attribution of input tax to taxable supplies
30. (1) Subject to regulation 31 below, the amount of input tax which a taxable person shall be entitled to deduct provisionally shall be that amount which is attributable to taxable supplies in accordance with this regulation.
(2) In respect of each prescribed accounting period:
(a) goods imported or acquired by and goods or services supplied to the taxable person in the period shall be identified;
(b) there shall be attributed to taxable supplies the whole of the input tax on such of those goods or services as are used or to be used by him exclusively in making taxable supplies;
(c) no part of the input tax on such of those goods or services as are used or to be used by him exclusively in making exempt supplies, or in carrying on any activity other than the making of taxable supplies, shall be attributed to taxable supplies;
(d) there shall be attributed to taxable supplies such proportion of the input tax on such of those goods or services as are used or to be used by him in making both taxable and exempt supplies as bears the same ratio to the total of such input tax as the value of taxable supplies made by him bears to the value of all supplies made by him in the period.
Use of other methods
31. (1) Subject to paragraph (1A) and regulation 32 below the Commissioners may approve or direct the use by a taxable person of a method other than that specified in regulation 30 above….
Attribution of input tax to foreign and specified supplies
32. (1) Input tax incurred by a taxable person in any prescribed accounting period on goods imported or acquired by, or goods or services supplied to him which are used or to be used by him in whole or in part in making —
(a) supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom;
(b)….
shall be attributed to taxable supplies to the extent that the goods or services are so used or to be used, expressed as a proportion of the whole use or intended use."
I have set those regulations out in their form following amendments which came into effect from 1st December 1994. I did not understand either party to suggest that the amendments made any material difference to the issues arising in this case (see decision para 87).
It is convenient to consider the apparent effect of this group of regulations in general terms before looking at the specific issues.
Regulation 30 embodies what has been referred to as the "standard method" for attributing input tax to "taxable supplies". Paragraph (2) (a) to (d) explain how the attribution is to be carried out. First, the total of goods or services supplied to the taxable person in the relevant period is to be identified (a). Next, insofar as any of those goods or services are used or to be used exclusively in making taxable supplies, the whole of the input tax on those goods or services is to be attributed to taxable supplies (b). Conversely, tax on goods or services used or to be used exclusively in making exempt supplies (or otherwise than for taxable supplies) is excluded (c). Finally, any residual input tax (that is, tax on goods or services used or to be used "in making both taxable and exempt supplies") is apportioned. Residual tax is attributed to taxable supplies in such proportion as "the value of taxable supplies" bears to "the value of all supplies" in that period. This can be expressed by the formula:—
Residual input tax X
value of all supplies
General overheads of a business, as in the present case, are a good example of the kind of inputs which may need to be apportioned under (d), where no part can be exclusively attributed to particular activities (exempt or taxable). In applying...
To continue reading
Request your trial