Grimsby College Enterprises Ltd v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 May 2010 |
| Date | 07 May 2010 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Upper Tribunal (Tax Chamber).
Briggs J.
Keith Gordon and Ximena Montes Manzano (instructed by Grimsby Institute of Further & Higher Education) for the appellant.
James Puzey (instructed by the Solicitor for HM Revenue & Customs) for the respondents.
The following cases were referred to in the judgment:
Belgium v Temco Europe SAECASVAT (Case C-284/03) [2007] BVC 308; [2004] ECR I-11237
Beynon & Partners v C & E CommrsUNKVAT [2004] UKHL 53; [2005] BVC 3
Brambletye School Trust LtdVAT No. 17,688; [2003] BVC 2,015
Byrom (t/a Salon 24) v R & C CommrsUNKVAT [2006] EWHC 111 (Ch); [2006] BVC 279
C & E Commrs v Sinclair Collis LtdUNKVAT [2001] UKHL 30; [2001] BVC 378
Edwards (HMIT) v BairstowTAXELR (1955) 36 TC 207; [1956] AC 14
Newnham College Cambridge v R & C CommrsUNKVAT [2008] UKHL 23; [2008] BVC 452
R & C Commrs v DenyerUNKVAT [2007] EWHC 2750 (Ch); [2008] BVC 694
Sinclair Collis Ltd v C & E CommrsECASVAT (Case C-275/01) [2003] BVC 374; [2003] ECR I-5965
Somma v HazelhurstWLR [1978] 1 WLR 1014
Street v MountfordTAXELR [2008] BTC 7,094; [1985] AC 809
Tumble Tots (UK) Ltd v R & C CommrsUNKVAT [2007] EWHC 103 (Ch); [2007] BVC 179
Value added tax - Input tax - Land - Exempt supply - Academic institute with commercial subsidiary company - New engineering centre constructed and equipped - Company received supply of equipment so that VAT paid was input tax in company's hands - Institute leased new building to company - Company granted institute "licence to use facilities" - Company contended that supply of use of equipment and building not licence to occupy land and therefore not exempt supply - Licence properly to be characterised as grant of right of occupation of building - Taxpayer's appeal dismissed - Value Added Tax Act 1994, Sch. 9, Grp. 1, Value Added Tax Act 1994 schedule 9 group 1item 1.
This was an appeal by the taxpayer company against a decision of the First-tier Tribunal ([2009] UKFTT 167 (TC); [2009] TC 00129) that a "licence to use facilities" was properly characterised as a right of occupation of a building and hence an exempt supply for VAT purposes.
The taxpayer was the wholly-owned subsidiary of an educational institute. It was set up in 1993 for the purpose of undertaking commercial profit-making activities designed to provide the institute with additional funding. The taxpayer's business consisted of supplying engineering and vocational courses to third parties. The taxpayer had no employees of its own, relying exclusively on the services provided from time to time by employees of the institute for the carrying on of its administrative and commercial activities. The teachers were employees of the institute, whose contracts of employment required them to teach the taxpayer's students as well as the institute's students, as and when directed by the institute as their employer.
In 2001, the institute decided to construct a new engineering block within the precincts of the main campus of the institute and entered into contracts with a building company and building consultants. Having been informed that VAT would be chargeable on the services, the institute entered into a scheme whereby the existing contracts would be novated to the taxpayer and the taxpayer and the institute would enter into formal arrangements for the use by them of the new building. A 20-year lease was later granted by the institute to the taxpayer and at the same time a "licence to use facilities" was granted by the taxpayer to the institute, giving it the right to share the engineering block facilities on a non-exclusive basis.
The engineering centre consisted of a new building erected at a cost of £2m and equipment installed therein at a cost of approximately £475,000 (in both cases net of VAT). The taxpayer sought to recover input tax paid in respect of the building of the new centre and the equipment for it. The First-tier Tribunal held that in the circumstances the supply of the construction work was made to the institute rather than to the taxpayer, but that the taxpayer had purchased the equipment. Thus the VAT paid in connection with the equipment was input tax in the taxpayer's hands. The ability of the taxpayer to recover the input tax in full depended on it showing that the supply of the use of the equipment and building under the licence to use facilities was not an exempt supply of land.
The tribunal concluded that the true nature of the licence granted by the taxpayer to the institute was a letting of immovable property within Council Directive 77/388, art. 13(B)(b) and a licence to occupy land within VATA 1994, Sch. 9, Grp. 1, item 1 and was therefore an exempt supply ([2009] UKFTT 167 (TC); [2009] TC 00129). The taxpayer appealed against that conclusion, arguing that the tribunal was wrong to conclude that the licence conferred a right of occupation of the building upon the institute and that the tribunal should have characterised the nature of the supply conferred by the licence as essentially a right for the institute to use the equipment, the implied right of entry to the building for that purpose merely being an ancillary or subordinate part of the supply. In support of the first of those two grounds, the taxpayer maintained that, having acquired exclusive possession of the building pursuant to the lease, it remained thereafter in occupation of it by its students, by the staff and by the equipment.
Held, dismissing the appeal:
1. The licence was plainly drafted with a view to avoiding constituting a letting of immovable property or licence to occupy land under the Directive and statute respectively. Its provisions were designed to provide by way of contract that the institute was to have nothing more than the shared use, rather than occupation of the building, with such others, including the taxpayer, as the latter should specify from time to time. The licence was designed to attract categorisation as the provision of a service consisting of use of the machinery, access to the building being merely ancillary to that primary purpose. However, the tribunal's findings of fact about the arrangements actually put into place with regard to the use, control and management of the building, and the conduct of the courses provided both to the taxpayer's and the institute's students within it, demonstrated that those provisions of the licence did not in fact represent the real bargain made between the parties. The wording of the licence was an attempt artificially to convert what was an exempt supply of leasing or letting of immovable property into a taxable supply. It could properly be described as a sham. (Somma v Hazelhurst [1978] 1 WLR 1014 and Street v Mountford [2008] BTC 7094; [1985] AC 809 considered.)
2. From start to finish, the arrangement was that the institute should be in control, through its employed staff, of the whole of the conduct of the educational activities within the building, for the education both of its own and the taxpayer's students. The institute's staff supervised and controlled all educational activities within the building. It could not properly be said that they did so as agents of the taxpayer. Nor could it be said that the taxpayer remained in occupation through its students. (Brambletye School Trust Ltd Decision 17,688; [2003] BVC 2015 and Newnham College Cambridge v R & C Commrs [2008] UKHL 23; [2008] BVC 452 considered.)
3. The facts found by the tribunal clearly demonstrated that the reality of the arrangement masked by the provisions of the licence was that the taxpayer granted the institute a right of occupation of the building, rather than merely a right of use, either of the building or of the machinery.
4. As for the second main ground of appeal, the judge was entitled to conclude that the equipment was incidental to the main purpose of the building, that is the teaching of engineering courses by the institute. The fact that the contrary might be asserted by way of argument did not begin to afford a basis upon which the tribunal's conclusion to that effect could be upset on appeal.
Briggs J: Introduction
1. This is an appeal against part of the decision of...
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UK Storage Company (SW) Ltd
...entitled to exclusive possession. 52.We were referred by Mr. Conlon to the case of Grimsby College Enterprises Ltd v R & C Commrs VAT[2010] BVC 1517 which further clarified the concept of a "right to occupy". This case concerned a tax avoidance scheme where input tax on construction and fit......