Moulsdale v Commissioners for HM Revenue and Customs
| Jurisdiction | Scotland |
| Judgment Date | 20 May 2021 |
| Docket Number | No 14 |
| Court | Court of Session (Inner House) |
[2021] CSIH 29
First Division
Upper Tribunal (Tax and Chancery Chamber)
Revenue — Value added tax — Option to tax — Whether option to tax made by taxpayer in respect of land was disapplied by provisions in sch 10 to the Value Added Tax Act 1994 — Whether land was intended or expected by taxpayer to be a relevant capital item in hands of purchaser — Value Added Tax Act 1994 (cap 23), sch 10, Pt 1, para 13(4)
Paragraph 12 of Pt 1 of sch 10 to the Value Added Tax Act 1994 (‘VATA’) provides that (1) a supply is not, as a result of an option to tax, a taxable supply if (a) the grant giving rise to the supply was made by a person (‘the grantor’) who was a developer of the land, and (b) the exempt land test is met. Paragraph 13(2) provides that a grant made by the grantor in relation to any land is made by a developer of the land if (a) the land is, or was intended or expected to be, a relevant capital item, and (b) the grant is made at an eligible time as respects that capital item. The land is a relevant capital item if it is a capital item in relation to the grantor (para 13(3)). The land was intended or expected to be a relevant capital item if the grantor intended or expected that it would become a capital item in relation to him or any relevant transferee (para 13(4)). A grant is made at an eligible time as respects a capital item if it is made before the end of the period provided in the relevant regulations for the making of adjustments relating to the deduction of input tax as respects the capital item (para 13(6)).
In May 2001, the taxpayer purchased commercial office premises in Cumbernauld, and exercised an option to tax in respect of the property in terms para 2 of sch 10 to VATA. In September 2001, he let the property to a company, Optical Express (Westfield) Ltd (‘Optical Express’) with which he was connected. In September 2014, he sold the property to Cumbernauld SPV Ltd (‘Cumbernauld’), with which neither the taxpayer nor Optical Express was connected. No part of the purchase price of £1,149,374.35 was attributed to VAT, and the taxpayer did not account to the Commissioners for HM Revenue and Customs (‘the Commissioners’) for VAT output tax on the supply to Cumbernauld.
On 25 November 2016, the Commissioners issued a decision notice and notice of assessment that VAT of £191,562 was due in respect of the supply to Cumbernauld. The assessment treated the purchase price as a VAT inclusive figure. On 22 December 2016, the taxpayer sought a review of the decision. On 16 March 2017, the Commissioners upheld the decision notice. Appeals by the taxpayer to the First-tier Tribunal (Tax Chamber) and Upper Tribunal (Tax and Chancery Chamber) were dismissed. The FTT held that, as a matter of fact, at the date of the grant, the taxpayer knew that the supply would not be, and could not be, taxable. The option to tax was therefore not disapplied as the taxpayer could not have intended the property to become a capital item in the hands of Cumbernauld.
The parties were agreed that: the taxpayer was ‘the grantor’ in respect of the supply; at the time of the grant the property was not a capital item in relation to him because more than ten years had elapsed since he purchased it; Cumbernauld was a ‘relevant transferee’; and the ‘exempt land test’ was met. The question was whether the taxpayer intended or expected that it would become a capital item in relation to Cumbernauld at the time of the grant.
The taxpayer argued that his intention or expectation required to be determined leaving out of account any intention or expectation that the anti-avoidance provisions would disapply the option to tax and render the supply exempt, otherwise para 13(4) of sch 10 to VATA was circular.
Held (Lord Doherty dissenting) that: (1) for the anti-avoidance provisions to apply, the taxpayer required to demonstrate that the option to tax had been disapplied because, as a matter of fact, he intended or expected the land to be a capital item in the hands of Cumbernauld, but he did not lead any evidence of his expectation or intention; on the basis of the evidence before it, the FTT was entitled to make the finding in fact that it did, the function of the UT was to deal with issues of law and generally not to revisit findings in fact, and there was no ground upon which the court would be justified in reversing the decisions of two specialist tribunals on what was ultimately a matter of fact (paras 16, 21); and appeals refused.
Observed (per Lord President (Carloway)) that the alleged circularity may be avoided and the same result reached if regard was had, when determining whether the grant was made by a developer, to the provisions in relation to time, as the anti-avoidance provisions applied to capital items during an intended, expected or actual adjustment period; the time-limit is the end of the period provided in the relevant regulations for the making of adjustments relating to the deduction of input tax as respects the capital item, and that period had long since passed before the sale of the land to Cumbernauld (paras 17, 18).
Dissenting (per Lord Doherty) that both the FTT and the UT had erred in law in their construction of para 13(4) of sch 10 to VATA and in their application of that provision to the facts: the language of the provision was apt to encompass capital items created at the date of the grant or at a later date and, provided it was accepted that the punctum temporis was the time of the grant as opposed to some time before it, the appellant's construction that, for the purposes of para 13(4), the granter's intention or expectation required to be determined leaving out of account any intention or expectation that the anti-avoidance provisions would disapply the option to tax and render the supply exempt, was an available construction of para 13(4) and it was a sensible one which avoided the circularity which would arise if account were to be taken of an option to tax being disapplied because the grant by a developer condition was satisfied; the tribunals had rejected the appellant's construction by proceeding on the basis that he believed that the option to tax would be disapplied, and plainly he did, but a necessary and integral part thereof was his belief that the grant by a developer condition was satisfied, that is he intended or expected that the property would become a capital item in relation to the third-party company, the matters were inextricably linked and the tribunals had erred in losing sight thereof; both tribunals had treated (i) the purpose of limiting the circumstances in which the option might apply, and (ii) the purpose of anti-avoidance, as being opposing purposes, when in fact disapplication of the option to tax was the means by which the legislative anti-avoidance purpose was to be achieved (paras 48–57).
PGPH Ltd v Revenue and Customs Commissioners [2018] SFTD 546 considered.
Advocate General for Scotland v Murray Group Holdings Ltd sub nom Murray Group Holdings Ltd v Revenue and Customs Commissioners [2015] CSIH 77; 2016 SC 201; 2015 SLT 765; 2016 SCLR 485; [2016] STC 468; [2015] BTC 36
Bloomsbury International Ltd and ors v Department for Environment, Food and Rural Affairs sub nom Bloomsbury International Ltd v Sea Fish Industry Authority [2011] UKSC 25; [2011] 1 WLR 1546; [2011] 4 All ER 721; [2011] 3 CMLR 32; 161 NLJ 883
Newnham College (Principal and Fellows of), University of Cambridge v Revenue and Customs Commissioners [2006] EWCA Civ 285; [2006] STC 1010; [2006] BTC 5420; [2006] BVC 483; [2006] STI 1144; [2006] NPC 37
Newnham College (Principal and Fellows of), University of Cambridge v Revenue and Customs Commissioners [2008] UKHL 23; [2008] 1 WLR 888; [2008] 2 All ER 863; [2008] STC 1225; [2008] BTC 5330; [2008] BVC 452; [2008] STI 1231; [2008] 16 EG 152 (CS); 158 NLJ 592; 152 (17) SJLB 29; [2008] NPC 45; The Times, 17 April 2008
PGPH Ltd v Revenue and Customs Commissioners [2017] UKFTT 782; [2018] SFTD 546; [2017] STI 2284
R (on the application of Edison First Power Ltd) v Central Valuation Officer [2003] UKHL 20; [2003] 4 All ER 209; [2003] 2 EGLR 133; [2003] RA 325; [2003] 16 EG 101 (CS); 147 SJLB 536; The Independent, 19 May 2003
David Moulsdale t/a Moulsdale Properties appealed against a decision of the Commissioners for HM Revenue and Customs, dated 16 March 2017, that the sale of a property was a taxable supply for the purpose of Value Added Tax as the requirements of para 12 of sch 10 to the Value Added Tax Act 1994 were not met. On 15 June 2018, the First-tier Tribunal (Tax Chamber) (Judge Scott) dismissed the taxpayer's appeal ([2018] UKFTT 309 (TC)). The taxpayer appealed.
On 12 March 2020, the Upper Tribunal (Tax and Chancery Chamber) (Lord Ericht and Judge Dean) dismissed the taxpayer's appeal ([2019] UKUT 72 (TCC)). The taxpayer appealed to the Court of Session.
Revenue and Customs (HM), HMRC Internal Manual — VAT Land and Property (HMRC, London, April 2016), VATLP23500 (Online: https://www.gov.uk/hmrc-internal-manuals/vat-land-and-property/vatlp23500 (1 August 2021))
Scammell, M, VAT on Construction, Land and Property (Bloomsbury Professional, Haywards Heath, 2021), para H16.4.4
The cause called before the First Division, comprising the Lord President (Carloway), Lord Menzies and Lord Doherty, for a hearing on the summar roll, on 17 March 2021.
At advising, on 20 May 2021—
Lord President (Carloway)— [1] I am grateful to Lord Doherty for setting out the facts, issues and submissions in this appeal. Ultimately, I consider that the Upper Tribunal correctly refused the appeal from the First-tier Tribunal and that therefore these appeals ought also to be refused.
[2] A central principle of value added tax is that the incidence of tax should rest primarily with the final consumer in the supply chain. In May 2001 the appellant bought land, on...
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