Lester Aldridge (A Firm)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 December 2004 |
| Date | 08 December 2004 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
Ashfield District Council v C & E CommrsVAT [2002] BVC 212
Bird Semple & Crawford HerronVATNo. 2171; (1986) 2 BVC 205,488
C & E Commrs v GlassborowVAT (1974) 1 BVC 4
C & E Commrs v Redrow Group plcVAT [1999] BVC 96
C & E Commrs v Reed Personnel Services LtdVAT [1995] BVC 222
College of Estate Management v C & E CommrsVAT [2004] BVC 813
Crompton Enterprises LtdVATNo. 7866; [1992] BVC 1,540
Cutter v Eagle Star Insurance Co LtdUNK [1998] 4 All ER 417
EC Commission v FranceVAT (Case 50/87) (1990) 5 BVC 205
Gabalfrisa SL v Agencia Estatal de Administración Tributaria (Case C-110/98) [2000] ECR I-1577
Glasse BrosVAT No. 3716; (1989) 4 BVC 689
Gregg v C & E CommrsVAT (Case C-216/97) [1999] BVC 395
Halifax plc v C & E CommrsVATVAT [2002] BVC 370; No. 17,721 [2003] BVC 4,012
Re HoffmannVAT (Case C-144/00) [2005] BVC 41
Weiser v Caisse Nationale des Barreaux Francais (Case C-37/89) [1990] ECR I-2395
Input tax - Partnership of solicitors took lease of office premises in name of nominee company and acted as guarantor - Partnership paid rent and reclaimed VAT thereon - Whether supply to partnership - Whether VAT on rent was input tax of partnership - Value Added Tax Act 1994, s. 24(1) and Sch. 10, para. 8(1); Law of Property Act 1925, s. 34(2).
The issue was whether the appellant, a firm of solicitors, could recover as input tax the VAT paid on rent where the relevant lease was granted to a nominee of the appellant.
The appellant negotiated a lease of office premises in Bournemouth for 25 years. As a partnership, the appellant had the choice of taking the lease in the names of no more than four of the partners or of procuring another entity to hold the lease for its benefit. The appellant chose to acquire the lease in the name of a nominee company, Lester Aldridge Nominees Ltd (LANL), and that company allowed the appellant to occupy the premises. The appellant acted as guarantor for the nominee company and undertook to pay the rent to the landlord. Since the landlord had elected to waive exemption in respect of the leased property, VAT was chargeable on the rent. The appellant recovered the VAT as input tax, but the commissioners decided that the appellant could not deduct input tax on the rent paid and assessed tax and interest in the sum of £123,701.
The appellant argued that the supply made by the landlord was properly regarded as a supply to the partnership and that it was used in the partnership's business. Further, the appellant contended that the blocking of input tax by the commissioners amounted to discrimination against partnerships of individuals, which were obliged to adopt this type of arrangement because of the constraints of English land law. The appellant argued that such discrimination was contrary to Directive 77/388, the sixth VAT directive. It submitted that LANL, which was not registered for VAT, held the lease on its behalf, as nominee or bare trustee. This was simply a technical or conveyancing device in circumstances where, in law, the partnership could not in itself take a grant of the lease so that, in domestic VAT law, it was the appellant alone which had the right to recover as input tax the VAT charged.
The commissioners argued that, by the terms of the lease, the relevant supply was made exclusively to LANL, so that that company alone was entitled to recover as input tax the VAT charged on the rent. In the view of the commissioners, there was no requirement in domestic law to take account of any nominee or bare trust arrangement in these circumstances. LANL could have registered for VAT and waived exemption in respect of the premises. Had it done so and granted a licence to the appellant to occupy the premises, the appellant, as a fully taxable business, would have been able to recover the VAT charged on the licence and there would have been no net VAT cost to LANL. The commissioners denied that there was any discrimination against partnerships when partnerships could arrange their affairs so as to ensure full recovery of input tax relating to their occupation of premises used for their business purposes.
Held, allowing the firm's appeal:
1. Viewing the arrangements in their entirety, the tribunal found that the appellant could rightly be regarded as receiving for VAT purposes a taxable supply of goods for which it made payment, and the goods so supplied were used for the purposes of the business carried on by the appellant.
2. Since the appeal was decided on the basis of the transaction entered into by the appellant, it was unnecessary to consider the alternative ground of appeal, namely infringement of the principle of non-discrimination. However, by way of general comment, the tribunal expressed its caution in applying such a general principle in a case such as this where the difficulties arise only indirectly and by virtue of English land law.
3. There was no dispute as to whether the goods, in the form of a leasehold interest, were used for the purpose of the appellant's business. The appellant entered into the lease arrangements in order to make provision for office accommodation for its practice as solicitors and, accordingly, the goods were used for the purpose of the business carried on by the appellant. The dispute related to whether there was a supply by the landlord to the appellant and, in the judgment of the tribunal, there was such a supply. It followed that VAT paid on the rent was input tax of the appellant.
1. This is an appeal by the firm of Lester Aldridge which is a partnership practicing as solicitors ("the Appellant") against a decision of the Commissioners of Customs and Excise ("the Commissioners") dated 3 October 2003 and Notices of Assessment of VAT dated 10 August 2002 and 22 January 2004. The amount of VAT (and interest) in dispute is £123,701.11. The matter in dispute is whether the Appellant is entitled to recover as input tax under section 24(1) of the Value Added Tax Act 1994 ("VATA") the VAT paid on rent where the relevant lease was granted to a "nominee" of the Appellant.
2. In 1990 the Appellant formed a company with a nominal share capital, Lester Aldridge Nominees Limited ("LANL"). The Appellant negotiated a lease for a term of 25 years of office premises in Bournemouth which the Appellant wished to occupy for the purposes of its business. As a partnership, and having regard to the terms of the Law of Property Act 1925, the Appellant had the choice of taking the grant of the lease in the name of no more than four of the partners or of procuring another entity (in this instance LANL) to take the grant of the lease to hold it for the benefit of the Appellant. The Appellant, with the agreement of the landlord, chose the latter route, so that the lease of the premises was granted to LANL on terms whereby the landlord permitted LANL to allow the Appellant to occupy the premises, and the Appellant joined in the lease to guarantee to the landlord the performance by LANL of the tenant's covenants and to give certain other covenants to the landlord. The Appellant paid the rent and took such other action as was required to ensure compliance by the tenant with the terms of the lease.
3. The grant of the lease by the landlord is a taxable supply for VAT purposes (the landlord having exercised its right to waive exemption under the relevant provisions), and the Appellant claims to recover as input tax the VAT charged by the landlord on the rent payable under the lease. The Appellant argues that LANL (which is not registered for VAT) holds the lease as nominee or bare trustee for the Appellant, simply as a technical or conveyancing device in circumstances where in law the Appellant cannot itself take a grant of the lease, so that, under domestic VAT law it is the Appellant alone which has the right to recover as input tax the VAT charged on the rent. The Appellant also argues that if the domestic law does not give this result it is contrary to the relevant European Directive on the grounds that it discriminates against partnerships of individuals, which must, uniquely amongst business entities, adopt such an arrangement because of the constraints of English land law.
4. The Commissioners argue that, by the terms of the lease, the relevant supply is made exclusively to LANL, so that LANL alone is entitled to recover as input tax the VAT charged on the rent. They deny that domestic VAT law requires them to take account of any nominee or bare trustee arrangement in these circumstances. They argue that LANL could have registered for VAT, and could have granted the Appellant a licence to occupy the premises, on terms whereby that grant was rendered a taxable supply: had that been the case there would have been no "net" VAT cost to LANL, and the Appellant would have been entitled to recover as input tax the VAT charged to it by LANL under the licence terms. The Commissioners deny that there is any discrimination against partnerships when partnerships can arrange their affairs in this way so as to ensure full recovery of input VAT relating to their occupancy of premises used for their business purposes.
5. It is our decision to allow the appeal. In our view the true nature of the arrangements between the landlord, LANL and the Appellant are such that, for VAT purposes, the landlord can properly be regarded as making a supply to the Appellant, so that the VAT paid by the Appellant on the rent is input tax, being VAT on the supply of goods used for the purposes of the Appellant's business, and as such is recoverable by the Appellant.
6. There was no dispute between the parties as to the facts, although the Commissioners questioned the relevance of some of the factual points made by the Appellant, and there were differences of view as to the inferences to be drawn from certain of the facts. We...
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Ashtons Legal (A Partnership)
...are the recipient of the supply for which they are paying.’ (as quoted at para. 38 of this decision). In Lester Aldridge (a firm) [2005] BVC 2231 the VAT Tribunal had considered a similar scenario in which, to accommodate the Property Act 1925 a firm of solicitors had used a nominee company......