Nevisbrook Ltd v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 02 December 1988 |
| Date | 02 December 1988 |
| Court | Queen's Bench Division |
Queen's Bench Division.
Henry J.
Mr Roderick Cordara (instructed by HH Mainprice) for the taxpayer.
Mr Guy Sankey (instructed by the Solicitor for Customs and Excise) for the Crown.
The following cases were referred to in the judgment:
C & E Commrs v Faith Construction Ltd VAT(1987) 3 BVC 133
C & E Commrs v West Yorkshire Independent Hospital (Contract Services) Ltd VAT(1988) 3 BVC 253
Dann & Roden VATUNK(1986) 2 BVC 208,099; (MAN/85/247) No. 2103
Dormers Builders (London) Ltd v C & E Commrs VAT(1988) 3 BVC 284
Furniss (HMIT) v Dawson & Ors ELRTAX[1984] AC 474[1984] BTC 71
Garforth (HMIT) v Newsmith Stainless Ltd TAX(1978) 52 TC 522
Leigh v IR Commrs ELR[1928] 1 KB 73
Parkside Leasing Ltd v Smith (HMIT) TAX[1985] BTC 25
Ramsay (WT) Ltd v IR Commrs ELR[1982] AC 300
Tenax Steamship Co Ltd v The Brimnes (Owners) ELR[1975] QB 929
Vestey's (Baron) Settlement, Re, Lloyd's Bank Ltd v O'Meara ELR[1951] 1 Ch 209
Value added tax - Alteration of building - Zero-rating withdrawn from 1 June 1984 - Zero-rating available for work done after that date if paid for in advance - Contract price of alteration deposited in builders' bank account before 1 June 1984, only to be withdrawn on signature of director of paying company - Whether deposit constituted payment before 1 June 1984 - Value Added Tax Act 1983, Value Added Tax Act 1983 section 5 subsec-or-para (1)sec. 5(1).
This was an appeal by the taxpayer company against a decision of the VAT tribunal (1987) 3 BVC 615; (LON/86/480) No. 2427) that a sum paid before 1 June 1984 by a developer to a builder was not advance payment for work done after that date and was taxable at the standard rate.
In his Budget statement for 1984 the Chancellor of the Exchequer warned that all building alteration (hitherto zero-rated) would be standard-rated for VAT from 1 June 1984. An explanatory note was issued by the commissioners on 13 March 1984 stating that if advance payment was made before 1 June 1984, the whole job would be zero-rated.
A contract for alterations to a building was made between the taxpayer company ("Nevisbrook") as builder and a developer in May 1984. In order to take advantage of zero-rating the whole contract price was paid by the developer into a bank account in the sole name of Nevisbrook on 29 May 1984. Nevisbrook was entitled to the interest earned by the money in the account but it was agreed that Nevisbrook was to be able to make withdrawals only on the signature of N, a director of the developer. It was common ground that the money would be released to Nevisbrook as the work progressed.
The commissioners did not accept that payment had in fact been made on 29 May because Nevisbrook had not then acquired control of the money.
The VAT tribunal dismissed an appeal by Nevisbrook on the ground that some equitable interest in the money remained in the developer after the money was paid into Nevisbrook's account.
Nevisbrook appealed to the High Court contending that a payment was made on 29 May 1984 and the only possible recipient of that payment was Nevisbrook.
The commissioners contended that payment was only received by a supplier of goods or services when the money was received free of restrictions and therefore the payment into Nevisbrook's account on 29 May 1984 to be withdrawn only on the signature of N did not constitute payment for the work carried out later. Further, to qualify for zero-rating the payment must have been for the supply of services, and this payment was not for any supply but for the avoidance of tax.
Held, allowing Nevisbrook's appeal:
1. Payment was made, as was intended, on 29 May 1984 when the money was paid into Nevisbrook's account. Although it was only to be released on the signature of N, it was an asset in Nevisbrook's balance sheet against which they could have borrowed. (C & E Commrs v West Yorkshire Independent Hospital (Contract Services) LtdVAT(1988) 3 BVC 253 and Dormers Builders (London) Ltd v C & E Commrs VAT(1988) 3 BVC 284, followed.)
2. Consideration for the payment was the supply of services for which payment could be made in advance, as the Value Added Tax Act 1983,Value Added Tax Act 1983 section 5 subsec-or-para (1)sec. 5(1) and the commissioners' explanatory note made clear. The payment remained payment for the supply of services even if the motive for the early payment was to take advantage of zero-rating.
By a notice of motion dated 23 July 1987 the taxpayer company ("Nevisbrook") appealed against a decision of the VAT tribunal given on 5 July 1987. The grounds of the appeal were:
1. The time of supply of certain services involving the alteration of a building was after 1 June 1984.
2. In holding that the payment of £23,400 by Batleyville Ltd into a deposit account at the National Westminster Bank East Twickenham in the name of Nevisbrook did not amount to the receipt of a payment until the money was transferred from the deposit account of the appellant company into its current account at the same bank.
3. In arriving at its conclusion in law on grounds which were not advanced by the Commissioners of Customs and Excise at any time before or during the hearing of the appeal and without affording Nevisbrook the opportunity of being heard on those grounds.
4. In holding that some unspecified equitable right in favour of Batleyville Ltd attached to the payment so that it did not amount to the receipt of payment for the purposes of the Value Added Tax Act1983, Value Added Tax Act 1983 section 5 subsec-or-para (1)sec. 5(1).
5. In failing to hold that the entry of the said sum as a credit in the books of account of Nevisbrook amounted to a receipt of a payment sufficient for the purposes of Value Added Tax Act 1983 section 5 subsec-or-para (1)sec. 5(1).
Henry J: This is an appeal by the taxpayer Nevisbrook Ltd against a decision of the VAT tribunal ((1987) 3 BVC 615) sitting in London dated 5 July 1987. This is the latest in a series of cases arising out of the Chancellor of the Exchequer's statement in his Budget for 1984 that all building alteration work (hitherto zero-rated) was to be standard-rated for VAT from 1 June 1984.
An explanatory notice was issued by the Commissioners of Customs and Excise on 13 March 1984 dealing with that announcement, which contains the sentence:
Alternatively if your customer agrees to pay for the whole job before 1st June, then the whole job attracts the zero rating.
This leaflet is based on the wording of the statute and the statutory instrument, which establishes as a tax point the moment when payment is received for the supply of services.
Developers about to proceed with the alteration of buildings naturally did not want to pay VAT on those works if payment of such tax could be avoided. Nor (except no doubt where the developers and the builders were not commercially at arm's length) did they wish to make unconditional payment in advance for work not yet started.
Accordingly they sought to achieve the desired early payment, without its unattractive downside features of lessening the builder's incentive, in one of two ways: either by a circular payment, where the sum simply went round in a circle, leaving its mark on the balance sheets of both borrower and lender, but at the end of the day not affecting the amount of money either company had to spend or, alternatively, a conditional payment method where, though the money was received by the payee, the conditions governing such receipt prevented it from being spent by him.
Whichever method of those two was used, the builder only had the money to spend at the time normal in building contracts, namely when the...
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