Goldmax Resources Ltd v The Commissioners of Customs and Excise, V 18219
| Jurisdiction | UK Non-devolved |
| Judge | Angus S T E NICOL |
| Judgment Date | 03 July 2003 |
| Respondent | The Commissioners of Customs and Excise |
| Appellant | Goldmax Resources Ltd |
| Reference | V 18219 |
| Court | First-tier Tribunal (Tax Chamber) |
18219
INPUT TAX – Standard-rated purchase of property by Appellant property development company for conversion and sale for relevant residential purpose – Zero-rated sale of that property – Contract between purchaser and another building company – “Management fees” to be paid by builder to Appellant subject to conditions – “Contract” between builder and Appellant said to be contained in letter proposing terms and inviting agreement – Whether VAT paid on purchase of property claimable as input tax attributable to “management fees” – Whether “direct and immediate link” between VAT on purchase and “management fees” – Whether purchase part of “cost component” of “management fees” – EEC First Directive, Art 2 – EEC Sixth Directive, Art 17 – VATA 1994, ss 24(1), 25(2) – VAT Regs 1995, reg 101(2)
LONDON TRIBUNAL CENTRE
GOLDMAX RESOURCES LTD Appellant
- and -
Tribunal: ANGUS NICOL (Chairman)
MR M R JAMES
Sitting in public in Plymouth on 25 March 2003
Mr S Taylor, Chartered Tax Adviser, for the Appellant
Ms S Rahman, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents
© CROWN COPYRIGHT 2003
1. This appeal arises out of an inquiry by the Appellant as to the claim for input tax in respect of the standard-rated purchase of a property. The issue concerns the question whether the Appellant, a partially exempt trader, was entitled to deduct input tax in respect of the purchase of property, and whether that expenditure was incurred exclusively in making taxable supplies, partly taxable and partly exempt supplies, or only exempt supplies. The circumstances surrounding the transactions, some of which are in dispute, are set out below.
The facts
2. The facts are taken from a statement by and the oral evidence of Frank Morrison, a director of Goldmax, and from documents and correspondence produced to the Tribunal.
3. Goldmax is a building and property development company with its offices in Exeter. Mr Morrison was privy to all the negotiations relating to this series of transactions, between Goldmax, Exeter City Council, Signpost Housing Association Ltd (“Signpost”), and Connaught PLC (“Connaught”). On 30 April 2001 Goldmax purchased a lease for three years, together with an option to purchase the freehold, of Marwood House in Exeter. We were shewn what appeared to be draft leases of Marwood House by Abbotsdale Homes Ltd to Goldmax; however, the facts of the lease and option were not in dispute. The purchase price of the freehold was to be £420,000. At the time of the purchase of the lease and option, Marwood House was an office block. It was originally intended that Goldmax should sell Marwood House to Signpost, which wished to convert the building into residential accommodation for the rehabilitation of those dependent upon alcohol or drugs. The conversion was to be carried out by Goldmax. The option to purchase was exercised on 4 March 2002, and Goldmax purchased Marwood House for £420,000 together with VAT of £73,500. Goldmax had elected under paragraph 2 of Schedule 10 to the 1994 Act to waive the exemption to tax in respect of Marwood House. On the same day Goldmax sold Marwood House to Signpost for £460,000, the sale being exclusive of VAT because it was for conversion to a relevant residential purpose within Group 5 of Schedule 8 to the Value Added Tax Act 1994 (“the 1994 Act”).
4. During the negotiations for the sale to Signpost, Signpost made it clear that it required to have clear title to the property before entering into a separate contract for the construction work. That was a requirement of the Housing Corporation, and was a prerequisite of providing funding to a housing society. Furthermore, it was also a requirement that a recognised developer which was a member of Construction Line, a controlling body, should be used to carry out the conversion work. Goldmax was not a member of Construction Line. Mr Morrison said that Goldmax agreed to act as the agent responsible for sourcing and negotiating the building contract. This is one of the points on which there is some disagreement. Goldmax did not produce any written agreement between Goldmax and Signpost for Goldmax to act as agent, nor was any specific evidence adduced as to any term of such an agreement, nor was anyone from Signpost called to give evidence of such an agreement.
5. Mr Morrison said that Goldmax negotiated a contract between Signpost and Connaught for the conversion work to be carried out for a fixed price of £970,000, “but with Goldmax being financially responsible for certain aspects of the works throughout the contract. This was a prerequisite without which Signpost would not have entered into a JCT contract with Connaught. This was based on the costings negotiated by Goldmax.” There was no contract as such between Signpost and Goldmax, nor between Connaught and Goldmax, nor were we referred to any contract between Signpost and any other party of which it was a term that Goldmax would be responsible for certain aspects of the works. There was produced a copy of a letter from Signpost to Goldmax dated 20 August 2001. In view of later correspondence, this letter is of great evidential importance as to the existence of a contract between Signpost and Goldmax, and we therefore set it out in extenso.
“Thank you for your letter dated 13 August 2001 concerning [Marwood House].
Both the costs and grant rates have already been fixed with the City Council and unless all parties are prepared to delay the scheme until the relevant Local Authority Committee can consider increasing the grant I am limited to the original budget.
With relation to the Category 1 items contained within your letter, whilst I would accept that the design fees were not included with the original budget figure, I would not agree that the other items should not be included, because they are essential requirements for any new build or refurbishment scheme.
If the scheme is to be carried out under a design and build contract I may have some leeway above the £1.365 million figure, because a greater share of the risk lies with the Contractor. In such a situation the maximum figure that I could accept is £1.400 million inclusive of all the items contained in Category I and II but excluding design fees.
Should the infrastructure charges of £39,490 prove to be less I would expect the Contract sum to be reduced accordingly.
I have received a valuation on the building of £430,000 and therefore the figure would need to be made up as follows:
Acquisition £430,000
JCT Contract £930,000
Infrastructure charges £40,000
Design fees £40,000
£1,440,000
Should this proposal be acceptable, I would be grateful if you could contact me as soon as possible so that I can arrange a meeting with all interested parties later this week.”
That letter was addressed to Mr Morrison by name, and signed by John Findley, Development Manager of Signpost, whose name does not appear among the list of directors on the headed writing-paper. The letter from Goldmax of 13 August 2001 was not produced in evidence.
6. Mr Morrison said that on 7 March 2002 Connaught contracted to pay to Goldmax a fee, described as the management fee, of 23.26 per cent of the value of the contract between Connaught and Signpost, up to a maximum of £225,631. There were certain conditions: if certain costs in the conversion were more than Connaught had budgeted for, Connaught could recover the excess from Goldmax by deducting it from the management fee. In a letter on behalf of Goldmax, dated 25 September 2002, by Mr Stephen Taylor of Pearce Taylor...
To continue reading
Request your trial