Harley Scott Commercial Ltd (Formerly Store First Midlands Ltd)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 October 2021 |
| Neutral Citation | [2021] UKFTT 368 (TC) |
| Court | First-tier Tribunal (Tax Chamber) |
[2021] UKFTT 368 (TC)
Judge Anne Scott, Member: John Woodman
Michael Firth, counsel appeared for the appellant
Isabel McArdle, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Exemptions – Whether lease of immoveable property – Long lease – Whether supply of part of a building – Yes – Exempt in terms of art. 135(1)(j).
The FTT found that long leases granted by the appellant to investors who would sublet the pods were VAT exempt leases of immoveable property.
The appellant (“HSCL”) purchased the freehold of a building and fitted it out as a self-storage facility by installing a number of “storage pods”. It granted leases over the pods to investors who could either use the pod themselves, sublet them to a third party or lease them back to HSCL. 99% of the investors leased the pods back to HSCL which then leased the pods to customers for use as storage facilities.
HSCL had not opted to tax the building and treated the leases to the investors as exempt from VAT. HMRC assessed it for VAT on the leases on the grounds that either a) the leases were automatically standard rated under VATA Sch. 9, Group 1, Item 1(lka) or b) HSCL was making a composite supply which was taxable because the storage pods were not immoveable property within the meaning of art. 135(1)(j) of the Principle VAT Directive (because the assessments related to pre-31 December 2020 periods, the terms of the PVD applied).
The FTT dismissed HMRC's argument that VATA Sch. 9, Group 1, Item 1(ka) which standard rates the supply of “self storage facilities”, applied. It referred to the consultation document released by the government before Item 1(ka) was enacted and to VAT Information Sheet 14/12, both of which stated that Item 1(ka) applied to self storage facilities supplied to the end user, and noted that the investors were not end users (para. 48).
In relation to HMRC's secondary argument, that the storage pods were not immoveable property, on the basis of the evidence before it, the FTT concluded that they were part of the building (para. 59). The FTT stated that “Frankly, on even a superficial basis, we had difficulty with HMRC's argument” (para. 58).
[1] The appeal is allowed save to the extent, if any, that any Investor used the Store Pod personally. It is remitted to the parties to quantify that, if so minded.
[2] This is an appeal against the review conclusion decision dated 30 April 2018 upholding the decision dated 13 February 2018 rejecting the appellant's claim that supplies it made in the relevant periods were exempt. HMRC had issued VAT assessments dated 13 February 2018 as follows:
- Period 11/14 in the sum of £638,305.17
- Period 12/15 in the sum of £13,205.50
- Period 12/16 in the sum of £1,064.53
[3] The substantive issue is how the grant of long leases of, what are described as, Store Pods is correctly characterised for VAT purposes.
[4] The appellant contends that it is the supply of part of a building within article 135(1)(j) of the Principal VAT Directive1 (“PVD”) and thus exempt, or, alternatively if the grant of the leases fall within article 135(1)(l) of the PVD, then they did not fall within any exclusion from the exempt treatment that thereby applies (in particular Item 1(ka) of Group 1 of Schedule 9 of Value Added Tax Act 1994 (“VATA”)).
[5] HMRC contend that it is a single composite supply of storage facilities taxable at the standard rate. Alternatively, if the supply is found to be the leasing or letting of immoveable property in terms of article 135(1)(j) of the PVD then they are supplies that do fall into the exception to the land exemption for the grant of facilities for the self-storage of goods being Item 1(ka) referred to above.
[6] The other issue is whether HMRC's decision to issue assessments for periods 11/14 and 12/15 is out of time.
[7] At the outset of the hearing, Ms McArdle intimated that Mr Firth, that morning, had provided what she described as a supplementary Skeleton Argument, and he described as a speaking note, and having read that, she now wished to cross-examine the appellant's witness, Mr Chris Parkinson, on a very limited basis in relation to the nature of the storage units. Mr Firth objected vigorously. Having heard argument, we, having identified in pre-reading that the specification of the storage units in the contractual documentation did not accord with Mr Parkinson's evidence, decided that he should give evidence on that aspect. He did.
[8] In addition to Mr Parkinson's evidence on that aspect, we also heard from Officer Currie for HMRC. We had a joint bundle of authorities to which was added Leichenich v Peffekoven2(“Leichenich”). We had Skeleton Arguments for both parties and the appellant's speaking note.
[9] In the course of the hearing, we drew the parties' attention to Sibcas Ltd v R & C Commrs3(“Sibcas”) because it authoritatively reviewed the other authorities to which we had been referred and both parties subsequently lodged written submissions in that regard.
[10] Section 73(6) VATA provides as follows:–
An assessment under subsection (1), (2) or (3) above of an amount of VAT due for any prescribed accounting period must be made within the time limits provided for in section 77 and shall not be made after the later of the following:–
- 2 years after the end of the prescribed accounting period; or
- One year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of an assessment, comes to their knowledge …
[11] In this case the disputed assessments for periods 11/14 and 12/15 were made on 13 February 2018.
[12] The dispute between the parties is quite simple. The appellant alleges that the information provided by Mr Parkinson, in an email with an attached spreadsheet dated 21 October 2016, had furnished HMRC with sufficient information to enable them to raise an assessment to best judgement.
[13] By contrast, HMRC argue that the information in that spreadsheet did not suffice and that it was only on 23 February 2017, when Mr Parkinson confirmed that there had been errors in several of the square footage figures provided, that they were in a position to consider raising an assessment.
[14] The spreadsheet set out the square footage, the first date available for sale, the acquisition date, the value including VAT and the fit out cost for 20 storage locations across the UK. This Tribunal and the assessments in question are concerned only with Nottingham. The square footage for Nottingham was shown as being 3,234 and the value was £1.144m with a fit out cost of £1,100,402.71. The appellant argued that if that was compared with two locations specified in Liverpool, both of which were stated to be approximately 32,000 square feet with values of £1.2m and fit out costs of £736,718 it should have been clear to HMRC that there was a problem and that there must have been a typographical error.
[15] On 10 February 2017, Officer Riley had emailed Mr Parkinson stating:
However, I have started my review of the further information that you kindly provided in your mail (sic) of 21 October 2016. I have attached an extract – Tab A(SFL request for information) and would be grateful if you could confirm or otherwise my assumed corrections to typos re the sq/ft for storage shown as a factor in red of 10 x and in purple 100 x as indicated?
[16] The Nottingham square footage was shown as 32,340.
[17] Mr Parkinson replied on 23 February 2017, stating:–
I have reviewed the attached and can confirm that the square footage is in fact incorrect by the multiples that you have indicated
[18] In summary, the appellant's argument was that whilst Mr Parkinson's confirmation may have been helpful, it was not necessary for HMRC to be able to raise their assessment as the error was clear on the face of the document and HMRC had identified it and corrected it for themselves. HMRC would clearly have had sufficient evidence to raise precisely the same assessment as was ultimately raised. That was more than a year before the assessment was raised and accordingly it was out of time.
[19] Officer Currie's witness statement was not challenged. She had taken over from Officer Riley and she was aware that he had asked for information from the appellant and the response from Mr Parkinson on 21 October 2016 had only been partial.
[20] She conceded in cross-examination that the figure for Nottingham might be considered unlikely but it was not impossible. She pointed out that there was a figure for Burnley which showed 3,171 square feet with a value of £1,033,497 and that that was in the same range as the figures for Nottingham. She was very clear that she did not think that it was possible to make a best judgement decision based on that table alone and that the assumption that Officer Riley had made was only one of a number of possible assumptions that could have been made. She did not consider that a decision based on that assumption would, or should, have been made without further investigation.
[21] When we looked at the table, we could see that, quite apart from that argument about Burnley there were two locations in Rochdale where the value per square foot was roughly equivalent to the ones for Nottingham and Burnley. Those were in the range of approximately £300 to £353 per square foot. By contrast the Liverpool values were a mere £32 per square foot. We observe that Ellesmere Port had a value of almost £950 per square foot whilst Glasgow was approximately £13 per square foot.
[22] In summary, we agree with Officer Currie that it would not be a decision to best judgement to guess the degree of typographical error. It might not have been a typographical error and it might not have been the error...
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