Polo Farm Sports Club
| Jurisdiction | UK Non-devolved |
| Judgment Date | 04 October 2021 |
| Neutral Citation | [2021] UKFTT 360 (TC) |
| Court | First-tier Tribunal (Tax Chamber) |
[2021] UKFTT 360 (TC)
Anne Scott, Gill Hunter
Mr Graeme Macdonald, appeared for the appellant
Ms Sarah Black, of counsel, appeared for the respondents
Value added tax – Whether contribution was consideration for the grant of a lease – Yes – Whether all the contract documents should be read together and treated as a single transaction – Yes – VATA 1994, s. 19 – Appeal dismissed.
The First-tier Tribunal (FTT) dismissed the appeal and found a payment received by the appellant was consideration for the grant of a lease and was subject to VAT.
Polo Farm Sports Club (PFSC) was a non-profit club that provided facilities for sport. Over an extended period of time they had discussed a collaboration, with Canterbury Christ Church University (CCCU), to develop an indoor sport centre known as “the Hub” to be used by both of them and the local community. The development was expected to cost £4m to be funded by equal contributions of £2m from PFSC and CCCU.
Following protracted negotiations, and several revisions of the Heads of Terms, an Agreement for Lease was entered into between PFSC as landlord and CCCU specifying a £2m “Tenant's Contribution”, and a Counterpart Lease describing the payment of the £2m as a premium in consideration of the landlord letting the property to the tenant. An occupational Underlease was granted back to PFSC who then provided CCCU with priority access to the facilities. The £2m payment from CCCU to PFSC, who undertook the development of the Hub, was paid in 4 instalments against valuation certificates.
HMRC argued the payment of £2m represented consideration for the grant of the leasehold interest and was subject to VAT. The appellant claimed CCCU did not account for the £2m as a premium for the lease, and so it couldn't be for that. Alternatively, under the Agreement for the Lease the appellant made no supplies and the payments made by both CCCU and PFSC amounted to the sharing of costs incurred in the development. HMRC had relied on the Counterpart Lease in their decision. The appellant submitted the Agreement for Lease was separate and could not be looked at together with the other contractual documents.
The FTT held that no evidential weight could be attributed to CCCU's accounts and therefore dismissed the first of the appellant's arguments.
On the alternative ground, the FTT noted that the decision in Mydibel SA v État belge (Case C-201/18) [2019] BVC 22 made it explicit it was for the national court to assess if, notwithstanding the contractual structure, there was a single transaction. More recently, the Supreme Court, in Balhousie Holdings Ltd v R & C Commrs [2021] BVC 5 had also found that a series of transactions may have to be looked at in aggregate.
While the grant of the Counterpart Lease and Counterpart Underlease were not contemporaneous with the Agreement for Lease, as soon as the Agreement for Lease was signed it was known the other contractual documents would be signed. The deal was done as a package and should be read together as such.
On that basis, the payment of £2m and the grant of the lease were inextricably linked on an economic and commercial basis and the appeal had to be dismissed.
Much of the appellant's arguments were incoherent or irrelevant despite several preliminary hearings. In any event however, following the recent decision of the Supreme Court in Balhousie Holdings Ltd v R & C Commrs [2021] BVC 5, it was unlikely the FTT was going to reach any other decision in this case.
[1] This is the appellant's appeal against a decision of the respondents (“HMRC”) dated 30 October 2018 and upheld on review in a letter dated 11 January 2019 wherein HMRC determined that the funds received by the appellant from Canterbury Christ Church University (“CCCU”), in relation to the development of a new indoor sports centre, prior to entering into a counterpart lease with the appellant, constituted consideration for the grant of a leasehold interest in the development, and were therefore standard rated pursuant to the Value Added Tax Act 1994 (“VATA”).
[2] We heard only submissions from Mr Macdonald and Ms Black. We had the Substantive Bundle extending to 1245 pages and the Authorities Bundle from the previous hearing. We had no less than three iterations of Authorities Bundles supplied for this hearing, the last of which extended to 1139 pages. We also had an Additional Hearing Bundle extending to 139 pages.
[3] We had a Statement of Agreed Facts to which we refer at paragraph 11. We also had Skeleton Arguments from both parties.
[4] In the course of the extensive correspondence both before and after the Notice of Appeal was lodged, and in the course of the previous hearing and this hearing, Mr Macdonald advanced many disparate arguments which were at times incomprehensible to both us and HMRC and which were not inherently consistent.
[5] This appeal has had what can only be described as an unhappy procedural background which is to an extent set out in a summary decision issued by me on 30 November 2020.
[6] That decision covered the appellant's February 2020 application to serve witness evidence and exhibits out of time and HMRC's objection to that, HMRC's February 2020 application to strike-out the appeal and the appellant's objection to that, and the appellant's further application dated October 2020 for permission to amend the Grounds of Appeal and introduce further evidence out of time and HMRC's objection to that.
[7] Having heard Mr Macdonald at considerable length in the hearing on those applications and objections, I decided that:
- The two applications for admission of late evidence were refused on the basis of relevancy.
- One witness statement was excluded on the basis of relevancy.
- The other, being that of Mr Macdonald was admitted only in part, again on the basis of relevancy.
- The appellant's application to amend the Grounds of Appeal was refused on the basis of relevancy.
- The strike-out application was not granted on the basis that I had come to the view that the sums involved were large and, scattered disparately through the voluminous correspondence, Mr Macdonald had advanced various arguments which taken together might amount to a possible stateable Ground of Appeal.
[8] I have made explicit at every stage that I simply pulled together some of the more credible and arguable points made by Mr Macdonald. The Ground of Appeal drafted by me for him should read (I have corrected some typographical errors):
The use of the word “premium” in the contractual documents has as its derivation a letter dated 11 October 2012 from Furley Page LLP, the appellant's solicitors, to CCCU. That letter referenced a meeting where proposed Heads of Terms had been discussed. The key features of that letter are as follows:–
The essence of the proposed arrangement is that Canterbury Christ Church University (“CCCU”) wants to make a capital contribution of £2 million towards development costs of a new sports hub at Polo Farms. The trustees of the Polo Farms Sports Club (“the Club”) will also contribute £2 million pounds (sic), and carry out the development …
The Club is concerned to retain the freehold of the ground and to retain control over the facilities. It is also keen to ensure the £250,000 annual fee which CCCU has agreed to pay going forward.
CCCU on the other hand need some security for the considerable capital investment and the annual fee and wants to be assured of continuing use of the facilities.
The usual way of securing a capital payment would be a first legal charge registered over land but the Club has already indicated that it cannot grant a charge in this case.
There is a great desire by both parties to find a solution which gives them comfort in relation to their individual concerns and some heads have been prepared …
Not only the draft Heads of Terms but also the documentation which implemented those fall to be read within the context of that letter. It is clear, and always has been, that at all times CCCU were making a capital contribution to the development costs. The leases were simply a mechanism. They were not leases per se.
Support for that can be found, for example, in the audited accounts of CCCU which show that the payments that they made under the Lease were neither a premium, in the conventional sense of that word, nor a payment of rent in any form. They are recorded as being expenditure on buildings and the payments have not been amortised.
More pertinently the terms of the contractual documents point to this being a landlord and tenant relationship in name only. For example, clauses 15.6 to 15.8 of the Agreement for Lease make it explicit that the relationship is one where CCCU is funding the development works. There are other clauses in the documentation which also support that argument.
[9] In that summary decision I issued a number of Directions because, as I had recorded in the decision, Mr Macdonald had laboured under a number of misapprehensions and neither the law nor the procedure had been understood notwithstanding the issue by me on 1 October 2020 of very detailed Directions explaining the relevant law (“the October Directions”).
[10] In particular, I directed that the appellant could not put forward any further documentary or witness evidence without the permission of the Tribunal and that a Statement of Agreed Facts drafted by HMRC should be lodged.
[11] HMRC timeously complied with the latter Direction and the Agreed Statement of Facts is set out at Appendix 1 and, of course, that forms part of this decision. We have adopted that unusual course of action because it is very long and, as HMRC correctly argue, it includes many facts on which the appellant insists, but those facts are not in HMRC's, or our, opinion relevant to the Ground of Appeal. We make our own key findings in fact below.
[12] On...
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