Higher Education Statistics Agency Ltd v Commissioners of Customs and Excise

This was an appeal by the taxpayer ("HESA") from a decision of the VAT and duties tribunal (No. 15,917; [1999] BVC 2132) that the "relevant date" by which an election to waive exemption from VAT pursuant to the Value Added Tax (Special Provisions) Order 1995 ("the 1995 order"), SI 1995/1268art. 5(2)had to be made was the date when a deposit was paid to an auctioneer.

On 11 December 1997 HESA contracted at a public auction to purchase a freehold commercial property let to tenants from Royal Sun Alliance Insurance plc ("RSA") for £492,500. The property transferred constituted the assets of a business, or part of a business, as a going concern.

RSA had opted pursuant to the Value Added Tax Act 1994, Value Added Tax Act 1994 schedule 10Sch. 10 to tax the property for VAT purposes so that VAT was chargeable on the sale unless part of a business as a going concern was being transferred. On the same day HESA paid a deposit of £49,250 to the auctioneer as agent for RSA. On 23 December HESA itself made an election to waive exemption in respect of the property and notified Customs. On 8 January 1998 the sale was completed and the balance of the purchase price paid.

The UK exercised the power conferred on member states byeu-directive 77/388 article 5(8)art. 5(8) of the sixth Council directive (Directive 77/388) ("the sixth directive") to take the transfer of the assets of a business out of the scope of VAT. Under the 1995 order the transfer of a business, or part of a business, should be treated as neither a supply of goods nor a supply of services. ButSI 1995/1268 section 5 subsec-or-para (2)art. 5(2) of the order provided that the grant of an interest in land should not be so treated unless the transferee made an election and notified it to Customs before the "relevant date".

The sale of the property by RSA to HESA would therefore only be outside the scope of VAT if an election had been made by the relevant date. BySI 1995/1268 section 5 subsec-or-para (3)art. 5(3) of the order, the relevant date meant "the date on which the grant would have been treated as having been made or, if there is more than one such date, the earliest of them".

The issue was whether, in the circumstances, the relevant date for the purposes of the Value Added Tax (Special Provisions) Order 1995,SI 1995/1268 section 5art. 5 was the date when the deposit was paid on 11 December 1997 or the date of the actual grant on 8 January 1998.

HESA contended that the relevant date within the meaning of SI 1995/1268 section 5 subsec-or-para (2)art. 5(2) of the 1995 order was the date when the grant actually took place on 8 January 1998 when the property was made available to HESA. It was on that date that that chargeable event took place. The words "if there is more than one such date, the earliest of them" in the definition of "relevant date" inSI 1995/1268 section 5 subsec-or-para (3)art. 5(3) of the order did not refer to the earlier of the contract and the grant, but to a number of transfers included in the overall transaction when the election had to bade on or before the earliest of them.

Further, to require a bidder at an auction to make an election before the date of the auction where a deposit might be made if the bidder was successful, was not a necessary measure to prevent distortion required by the second part of eu-directive 77/388 article 5(8)art. 5(8) of the sixth directive. In fact that requirement would rather promote distortion by making it more difficult for sales at auction to qualify as transfers of assets as a going concern and would lead to arbitrary results.

Held, dismissing HESA's appeal:

1. The relevant date was the date when the deposit was paid. To construe the relevant date as being the date of the actual grant would fail to give effect to the hypothesis provided by the order. The words of the definition in SI 1995/1268 section 5 subsec-or-para (3)art. 5(3) referred to the Value Added Tax Act 1994,Value Added Tax Act 1994 section 6 subsec-or-para (4)s. 6(4) which was a deeming provision and provided that if an invoice was issued or payment received before the actual time of supply, "a supply of goods shall be treated as taking place" at the time the invoice is issued or the payment is received.

2. The second sentence of eu-directive 77/388 article 5(8)art. 5(8) of the sixth directive had no relevance to the UK's exercise of the power to treat the supply of assets in the course of a transfer of a business as a going concern as outwith the scope of VAT. The second sentence was intended to prevent distortion where the recipient was not wholly liable to tax. It did not apply to the requirements of purely domestic conditions.