HM Revenue and Customs v Lt Cmdr Colin Stone 'the Kei'
| Jurisdiction | England & Wales |
| Judge | SIR ANDREW PARK,Sir Andrew Park |
| Judgment Date | 05 June 2008 |
| Neutral Citation | [2008] EWHC 1249 (Ch) |
| Docket Number | Case No: CH/2007/APP/0526 & 0660 |
| Court | Chancery Division |
| Date | 05 June 2008 |
[2008] EWHC 1249 (Ch)
Sir Andrew Park
Case No: CH/2007/APP/0526 & 0660
Tim Eicke (instructed by the Solicitor to HM Revenue & Customs) for the Appellants
Eamon McNicholas for the Respondent
Hearing dates: 23 and 24 April 2008
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Abbreviations, etc
These are as follows:
Introduction and overview
| Customs & Excise | HM Customs & Excise, the United Kingdom government department originally responsible for VAT. |
| Everett; the Everett case | Everett v CCE,:LON/92/1912A; a VAT appeal decided by the Tribunal in 1994. |
| ECJ | The Court of Justice of the European Communities. |
| FA | Finance Act; e.g. FA 1972 is the Finance Act 1972. |
| Grieve; the Grieve case | Grieve v HMRC, a VAT appeal decided by the Tribunal. The reference number of the case is 20149, and the decision was released on 16 May 2007. The full text of the decision is available in a transcript. I am informed that it is also available on-line at www.bailii.org/uk/cases/UKVAT/V20229.html. |
| Group 8 item 1 zero-rating | Expression used in the judgment from time to time to refer to the zero-rating category now provided for by VATA 1994 Schedule 8 Group8 item 1. |
| HMRC | Her Majesty's Revenue and Customs; the United Kingdom government department now responsible for VAT, in succession to Customs & Excise. |
| Tribunal, the | The VAT and Duties Tribunal. |
| VAT | Value added tax. |
| Value Added Tax Act; for example VATA 1994 is the Value Added Tax Act 1994 |
This is an appeal by HMRC against a decision of the VAT and Duties Tribunal (Chairman: Miss JC Gort). It is a comparatively unusual case because, unlike most VAT appeals, it does not concern whether VAT is payable on a supply of goods or services, but rather whether VAT is payable on an importation of goods into the United Kingdom. The taxpayer is Lt Commander Colin Stone. In 2005 he acquired a boat from a supplier in the Netherlands, and sailed it to the United Kingdom. The boat was a newly made replica Dutch barge, the Kei. The issue is whether as a matter of law VAT was payable by Commander Stone when he brought the vessel into this country.
The principal VAT-charging section in United Kingdom law is s.1(1) of the VATA 1994:
1 Value added tax
(1) Value added tax shall be charged, in accordance with the provisions of this Act –
(a) on the supply of goods or services in the United Kingdom (including anything treated as such a supply)
(b) on the acquisition in the United Kingdom from other Member States of any goods, and
(c) on the importation of goods from places outside the Member States,
and references in this Act to VAT are references to value added tax.
Apart from the issue raised on his appeal Commander Stone, when he brought the Kei into this country, would have been liable to pay VAT on its value by virtue of s.1(1)(b).
However, s.30 of the Act introduces Schedule 8, whereby certain kinds of goods and services are zero-rated, and s.30(3) provides as follows:
(3) Where goods of a description for the time being specified in that Schedule … are acquired in the United Kingdom from another member State or imported from a place outside the Member States, no VAT shall be chargeable on their acquisition or importation, except as otherwise provided in that Schedule.
One description of goods described in Schedule 8 covers, as I shall explain in more detail later, 'any ship of a gross tonnage of not less than 15 tons which is neither designed nor adapted for recreation or pleasure'. This is contained in item 1 of Group 8 of the Schedule, and from time to time in the course of this judgment I shall refer to it as the Group 8 item 1 zero-rating. Commander Stone says that The Kei came within it. HMRC say that it did not. The tribunal agreed with Commander Stone, and allowed the appeal. HMRC have appealed to the High Court. However, I agree with the result reached by the tribunal, though perhaps for more elaborate reasons than the tribunal gave. I will therefore dismiss the appeal.
It is not really possible for me to encapsulate my reasoning in short form here. I will develop it as this judgment progresses. But the following points may help a reader to follow the thread of what follows.
i) On the natural reading of the Group 8 item 1 zero-rating the Kei would in my opinion be a zero-rated vessel. The tribunal was right in that respect.
ii) However, HMRC contend that the words in the United Kingdom statute should be construed as having a different effect and as not covering the Kei. HMRC's reason for the contention is that the domestic statute should be construed so as to produce a result which (a) brings within it vessels which are covered by different wording found in article 15.5 of the Sixth Directive, and (b) excludes from it vessels which are not covered by that wording. The Kei is not covered by article 15.5. HMRC accept that the sub-article is not directly applicable in the United Kingdom, but they say that, so far as possible, United Kingdom provisions should be given meanings which are consistent with it. They also say that it is possible to construe the Group 8 item 1 zero-rating in such a way that it does not apply to the Kei.
iii) If it is relevant (which in my view it is not), I agree that the Kei is not covered by the words found in article 15.5. For the purposes of this judgment I will assume that, if the United Kingdom statute (the Group 8 item 1 zero-rating provision) does have to be construed, if possible, so as not to apply to the Kei, such a construction is just possible: it is an unnatural interpretation, but it may not be quite outside the bounds of what is possible.
iv) However, in my judgment HMRC's argument that article 15.5 is in point in this case is incorrect. The argument that it is rests on a misunderstanding of the VAT history of the United Kingdom legislation, and in particular of the history which lies behind the Group 8 item 1 zero-rating provision. There is a provision of the Sixth Directive which is relevant to the continuance in force of that zero-rating category, but that provision is not article 15.5. Rather it is article 28.2, pursuant to which the Group 8 item 1 zero-rating provision, the natural meaning of which covers the Kei, remains in force unless and until the United Kingdom legislature removes it. Further, against the background of article 28.2 and on the footing (which I believe to be correct) that article 15.5 has nothing to do with this case, the United Kingdom provision should be given its natural meaning; it should not bear a forced meaning driven by a misconceived notion that it ought, if at all possible, to be construed so as to accord with article 15.5.
Before I become immersed in the details of the case there is a special feature of the events leading up to it which I should mention. In paragraph 2 above I wrote that the issue was whether as a matter of law VAT was payable when Commander Stone brought the Kei into the country. I included the apparently superfluous words 'as a matter of law' because, as I understand the position, HMRC have accepted that, because of statements made by officers of Customs & Excise in letters to Commander Stone when he was making arrangements to acquire the vessel, they will not require him to pay the VAT even if they are successful in their appeal. (Customs & Excise were the predecessor department within the United Kingdom Government with responsibility for VAT.) HMRC are, however, anxious to have the question determined. As I will explain later there has been, in a case called Grieve v HMRC, another decision of a differently constituted tribunal where, on similar facts, the opposite conclusion was reached. And for Commander Stone the outcome of the appeal could make a difference to the VAT consequences of future expenditure on the vessel on matters such as repairs and maintenance.
The facts
I begin by quoting paragraph 11 of the tribunal's decision.
“11. Mr Stone, as a naval officer, was used to, and enjoyed, living in ships, as did his wife. They had at some time lived in Holland where they had seen Dutch barges. In anticipation of his retirement, which will be in about 2009, Mr Stone decided that he would like to spend his retirement living in a suitable boat which would be principally moored in the United Kingdom, but which he would be able to take to the canals of Europe from where he would be able to practise as a marine surveyor of small crafts. He had spent some time prior to the Tribunal hearing qualifying as a marine surveyor, and he intended to use the ship as the basis for his practice. The Kei was therefore intended for use both as living accommodation and as an office. Having seen Dutch barges when he lived in Holland, Mr Stone considered that one would provide sufficient room for his purposes, as they were practical and attractive ships.”
Other paragraphs of the decision give much information about the construction and design of the Kei. Any reader of this judgment who is interested in the details can refer to the decision. For present purposes I think that it is sufficient for me to extract the following points.
i) The vessel was specially designed for Commander Stone by a Dutch designer, and was built to that design.
ii) Despite being called a 'barge', it is not designed for the carriage of cargo, and is not intended to be used for that purpose.
iii) It is designed to be lived in as a permanent home.
iv) Given that Commander Stone also intended...
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