Macaw Properties Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 01 March 2012 |
| Neutral Citation | [2012] UKFTT 167 (TC) |
| Date | 01 March 2012 |
| Court | First-tier Tribunal (Tax Chamber) |
[2012] UKFTT 167 (TC)
John Walters QC, Sonia Gable
Rupert Baldry QC and Oliver Conolly, Counsel, instructed by Smith & Williamson LLP, for the Appellant
Denis Edwards, Counsel, instructed by the Solicitor for HMRC, for the Respondents
Value Added Tax - whether tax on supplies was input tax on the basis that it was tax on goods or services to be used for the purpose of a business to be carried on by the Appellant - whether (and when) the Appellant had formed the intention of carrying on a business - Rompelman v Minister van Financïen considered and applied - declared intention by the Appellant that it had formed the intention on the acquisition of an historic estate - whether (and from when) there was objective evidence to support such declared intention - evidence considered - appeal allowed in part
The First-tier Tribunal decided that, in relation to a taxpayer's acquisition of an historic estate in 1999, the taxpayer had the intention of making taxable supplies in relation to the stable block before 23 October 2004, and had the intention of making taxable supplies in relation to the main house on and after 1 January 2006. The quantum of input tax under the Value Added Tax Act 1994 (VATA 1994) that could be recovered in consequence of this decision would need to be agreed by the parties or by the Tribunal at a resumed hearing in default of any such agreement.
The taxpayer appealed against an assessment raised by HMRC to recover amounts paid to the taxpayer as input tax for certain VAT periods and HMRC's decisions to refuse input tax claims made by the taxpayer. In total £421,926.15 of VAT was in issue.
The taxpayer company was incorporated in 1999 for the purpose of acquiring the freehold of an estate of some 83 acres ("the Wentworth Woodhouse estate"), which included a mansion house, Wentworth Woodhouse ("the Main House"), a stable block incorporating an indoor riding school ("the Stable Block") and some college buildings ("the College Buildings") as well as some smaller structures, gardens and parkland. The purchase price was £2.1 million and carried no VAT, the supply pursuant to which the estate was purchased being exempt for VAT purposes. The Main House was of the highest architectural quality and historical importance, but was in a state of relative dilapidation.
The taxpayer contended that it had at all relevant times intended to use the Main House and the grounds in the estate for the purposes of a high class hotel and the Stable Block for the purposes of a taxable letting business, by conversion of the Stable Block into commercial premises. The Main House was used, and the taxpayer intended to continue to use it, also for the purposes of exempt lettings of specified parts of the Main House (particular suites of rooms) as dwellings used by members of the family that owned the taxpayer company. The taxpayer did not intend to claim any tax referable to this use. The claim for input tax principally referred to the intended use of the rest of the Main House (and grounds) as a high class hotel. The taxpayer produced evidence showing that it possessed the intention to make taxable supplies from the date of the purchase of the freehold of Wentworth Woodhouse and its estate onwards.
HMRC opposed the input tax claims on the basis that the taxpayer had failed to provide sufficient objective evidence to confirm its alleged intention to use the estate for the purpose of making taxable supplies. According to HMRC, the evidence provided by the taxpayer did not objectively confirm an intention to operate a hotel from the Main House. HMRC emphasised the fact that no application for planning permission for the conversion or use of the Main House to a hotel had yet been made, arguing that the project was not viable and describing it as "pie in the sky". HMRC drew attention to the fact that the Main House continued to be used as a private dwelling, which was the only use which could be made of it in light of its development status.
(2) Whether, at the times it received the supplies made to it in respect of which it claimed credit for input tax, the taxpayer intended to make taxable supplies for the purposes of VATA 1994.
(3) Whether the taxpayer's declared intention of operating a hotel from the Main House from the time of the acquisition was bona fide and not in practical terms so close to being impossible of achievement that it could be said to be wholly fantastic.
(4) Whether that intention was supported by objective evidence.
(5) Whether there was any objective evidence supporting the taxpayer's declared intention to put the Stable Block and the College Buildings to use in making taxable supplies.
The First-tier Tribunal (John Walters) (allowing the appeal in part) decided that the taxpayer had the intention of making taxable supplies in relation to the Stable Block before 23 October 2004, and had the intention of making taxable supplies in relation to the Main House on and after 1 January 2006. The Tribunal clarified that its decision was one in principle, and the quantum of input tax recoverable in consequence of it would need to be agreed by the parties or by the Tribunal at a resumed hearing in default of any such agreement.
The Tribunal relied on Rompelman v Minister van FinancïenVAT(1985) 2 BVC 200157 in arriving at its conclusion. Rompelman ruled that an intention to make taxable supplies was sufficient to vest a transaction carried out in pursuance of that intention with the character of an economic activity for VAT purposes. Where the transaction was a receipt of a taxable supply of goods and services, the consequence would be that the VAT on the supply would normally be creditable as input tax. It might not be creditable in full if the partial exemption rules or some other applicable rules restricted the amount that was creditable. Rompelman further ruled that the tax administration could require that the declared intention be supported by objective evidence. The Tribunal derived from Rompelman the proposition that a subjective intention must, in order that it could be effective in making transactions carried out in pursuance of it economic activities for VAT purposes, be an intention that was supported by objective evidence showing that the intention was possible (in the sense of not being impossible) of achievement at the time of the transaction in question. The Tribunal also accepted that Rompelman did not lay down that the evidence needed also to show that the intention was commercially viable or even reasonable. It was enough that the intention was bona fide.
Since the taxpayer claimed that it had the subjective intention of operating a hotel from the Main House from the time of the acquisition of the estate in 1999, the Tribunal had to ascertain whether that intention was bona fide and not in practical terms so close to being impossible of achievement that it could be said to be wholly fantastic.
The Tribunal concluded that the taxpayer's declared intention was bona fide, as no serious challenge was mounted by HMRC. Any such challenge would effectively have required a submission that this was a case of fraud or abuse and would have been required to be specifically pleaded. The Tribunal also concluded, based on evidence, that the taxpayer's declared intention was not "pie in the sky". There was evidence showing potential security, funding and structural problems but these difficulties were not insurmountable. Moreover, there was evidence that in 1988 planning permission had been obtained for hotel use in all the relevant buildings, including the Main House, and that third parties had shown interest in converting the Main House and Stable Block for commercial use (including hotel use).
The Tribunal then looked at the extent to which the taxpayer's declared intention of operating a hotel business from the Main House was supported by objective evidence. The Tribunal found evidence in a related litigation and in a correspondence with English Heritage, which showed that at the time of the purchase of the estate in 1999 the taxpayer had the intention that the Main House would be used as a family dwelling. The note of a conference with the taxpayer's counsel on 15 December 2000 provided no objective evidence of the taxpayer's intention to use the Main House as a hotel. Instead, the note proved that any commercial use which the taxpayer might make of the estate was at that point undecided. Moreover, the Tribunal found that the expenditure of significant sums in the early years on repairs and maintenance and additions was not evidence of the taxpayer's intention to operate a hotel business from the Main House.
The Tribunal found that the letter written by the taxpayer to the planning consultants on 3 April 2006 showed an intention to use the Main House as a hotel, or at least seriously to consider such use. Definitive evidence of an intention to operate a hotel business from the Main House was the "Confirmation of Instructions" signed by a director of the taxpayer on 19 April 2007, whereby the taxpayer instructed the planning consultants in the "Design and Planning of Hotel and Business Centre Scheme at Wentworth Woodhouse, Wentworth, Rotherham". This objective evidence supported the proposition that the taxpayer's declared intention of operating a hotel business from the Main House was formed some time before 3 April 2006. The Tribunal concluded that the intention was formed on or around 1 January 2006.
Finally, the Tribunal looked at the evidence to ascertain the taxpayer's declared intention to put the Stable Block and the College Buildings to use in making taxable supplies. It had earlier concluded that as of 15 December 2000 any commercial use which the taxpayer might make of the estate was undecided. There was evidence that in December 2003 the taxpayer engaged the services of a consultant in the...
To continue reading
Request your trial
-
Weekly Tax Update - Monday 2 April 2012
...the beginning of 2006 and the stable block from the date the company was registered for VAT or earlier. www.bailii.org/uk/cases/UKFTT/TC/2012/TC01863.html To read this Update in full, please click The content of this article is intended to provide a general guide to the subject matter. Spec......