Principal and Fellows of Newnham College v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lord Justice Chadwick,Lord Justice Lloyd,The Chancellor |
| Judgment Date | 24 March 2006 |
| Neutral Citation | [2006] EWCA Civ 285 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 March 2006 |
| Docket Number | Case No: C3/2005/1283 |
[2006] EWCA Civ 285
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE VAT AND DUTIES TRIBUNAL
LON/03/0913
Royal Courts of Justice
Strand, London, WC2A 2LL
The Chancellor of The High Court
Lord Justice Chadwick and
Lord Justice Lloyd
Case No: C3/2005/1283
Mr David Milne QC and Mr Andrew Hitchmough (instructed by Mills & Reeve, 112 Hills Road, Cambridge, CB2 1PH) for the Appellant
Ms Philippa Whipple (instructed by the Solicitor for the Revenue and Customs, Somerset House, Strand, London WC2R 1LB) for the Respondents
This is an appeal from a decision of the VAT and Duties Tribunal (Dr Kameel Khan, chairman, and Miss Sheila Wong Chong FRICS) released on 14 February 2005. The Tribunal upheld the decision of the Commissioners of HM Customs and Excise that an election to waive exemption made by the Principal and Fellows of Newnham College, Cambridge, under paragraph 2 of schedule 10 to the Value Added Tax Act 1994 (" VATA 1994") in respect of land upon which the College proposed to rebuild (in part) and refurbish its library was of no effect by reason of sub-paragraph 2(3AA) of that schedule. If the decision stands the College is unable to recover the value added tax which it has paid on the cost of the works which it has carried out.
The statutory framework
Value added tax ("VAT") is charged on any supply of goods or services made in the United Kingdom which is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him – section 4(1) VATA 1994. "Input tax", in relation to a taxable person, includes VAT on the supply to him of any goods or services – section 24(1) ; "output tax" means VAT on supplies which he makes – section 24(2) VATA 1994. A taxable person is required to account for and pay VAT by reference to prescribed accounting periods – section 25(1) ; and he is entitled at the end of each prescribed accounting period to credit for, and to deduct from any output tax due from him, so much of his input tax as is allowable—section 25(2). If the amount of the credit to which he is entitled exceeds the amount of the output tax for which he must account, he is to be paid the excess by the Commissioners. He is entitled to require payment of the "VAT credit" – section 25(3) VATA 1994.
Input tax is allowable for that purpose only if attributable to supplies which the taxable person makes in the course or furtherance of his business – section 26(1) ; and then only if those supplies are themselves taxable supplies – section 26(2) VATA 1994. Generally, a person will have no ability to recover the tax charged on supplies made to him if the supplies which he does make in the course of his business are not taxable supplies – because, in such a case, his input tax will not be allowable ( section 26(2) VATA 1994). That will be the position where the supplies made by him are exempt supplies within section 31 and schedule 9 VATA 1994. The provision of education by an eligible body is an exempt supply – item 1 in Group 6 of schedule 9. An eligible body includes a United Kingdom university and a college of such a university – note (1) (b) to item 1, Group 6.
It follows that an eligible body whose business is the provision of education and who carries out works to a building will, generally, bear the burden of the VAT charged on the supply of goods and services in connection with those works. The VAT on the supply of those goods and services (input tax) will not be allowable under section 26(2) VATA 1994 because it will not be attributable to taxable supplies made by that body in the course of its business. Further – absent an election under paragraph 2 of schedule 10 VATA 1994—it would not make a taxable supply if it were to let the building for educational purposes. That is because – absent an election – a lease of the building would be the grant of an interest in land within item 1 in Group 1 of schedule 9 and would not be taken out of that item by the exceptions described in paragraphs (a) to (m). The grant would, itself, be an exempt supply.
Sub-paragraph 2(1) in schedule 10 VATA 1994 is in these terms (so far as material) :
"Subject to sub-paragraphs (2), (3) and (3A) and paragraph 3 below, where an election under this paragraph has effect in relation to any land, if and to the extent that any grant made in relation to it at a time when the election has effect by the person who made the election… would (apart from this sub-paragraph) fall within Group 1 of Schedule 9, the grant shall not fall within that Group."
If an effective election can be made under paragraph 2 of schedule 10, the grant of a lease of the building will not be treated as an exempt supply by virtue of section 31 and schedule 9 VATA 1994. The grant will be a taxable supply. The input tax on goods and services supplied in connection with the development will be attributable to that supply; and so the input tax will be allowable. The person making the election will be entitled to receive payment of a VAT credit. It is that result which the College sought to achieve by the arrangements which I shall describe in a subsequent section of this judgment.
Whether that result has been achieved in the present case turns on the application of sub-paragraph 2(3AA) in schedule 10 VATA 1994 to those arrangements. The sub-paragraph is in these terms (so far as material) :
"Where an election has been made under this paragraph in relation to any land, a supply shall not be taken by virtue of that election to be 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) at the time of the grant… it was the intention or expectation of –
(i) the grantor, or
(ii)…
that the land would become exempt land (whether immediately or eventually and whether or not by virtue of the grant) or, as the case may be, would continue, for a period at least, to be such land."
Paragraph 2(3AA) in schedule 10 VATA 1994 must be read with paragraphs 3A(7), 3A(9) and 3A(13) :
"3A(7) For the purposes of paragraph 2(3AA)… land is exempt land if…–
(a) the grantor,
(b)…, or
(c) a person connected with the grantor…
is in occupation of the land without being in occupation of it wholly or mainly for eligible purposes.
…
3A(9)… a taxable person in occupation of any land shall be taken for the purposes of this paragraph to be in occupation of that land for eligible purposes to the extent only that his occupation of that land is for the purpose of making supplies which –
(a) are or are to be made in the course or furtherance of a business carried on by him; and
(b) are supplies of such a description that any input tax of his which was wholly attributable to those supplies would be input tax for which he would be entitled to a credit
…
3A(13) For the purposes of this paragraph a person shall be taken to be in occupation of any land whether he occupies it alone or together with one or more other persons and whether he occupies all of that land or only part of it."
It is common ground that, if the College is in occupation of the land in respect of which it is the grantor, it is not in occupation of that land wholly or mainly for eligible purposes – because its occupation would be for the purpose of making supplies (educational services) which would be exempt supplies within Group 6 of schedule 9 VATA 1994.
The issue is whether the College remained in occupation after the grant of the lease. If so, the land is exempt land within paragraph 3A(7) ; and is exempt land for the purposes of paragraph 2(3AA). Notwithstanding the election under paragraph 2(1) of schedule 10 VATA 1994 the grant of the lease is not to be taken as a taxable supply.
The underlying facts
The College is a body corporate established by Royal Charter. Although within the University of Cambridge, it is autonomous in relation to the management of its own property. The educational services which it provides are exempt supplies for the purposes of VATA 1994.
The Tribunal described the background against which the College decided to rebuild and refurbish its library:
"4. The first College library building, part of the subject of this appeal, was built in 1897 and stored the College books. The library is well stocked and has several rare and unique books. There is a rare book collection. The library building is called the Yates Thompson Building, after one of the College's chief benefactors. An extension to the Yates Thompson Building which was added in 1962 (the Horner Library) suffered considerable decay and the building had to be replaced. A project was developed to replace the 1962 extension while retaining the Yates Thompson, a building of some historic significance. To accommodate the renovation project, some surrounding buildings had to be demolished. The proposed new building was to provide new and important facilities for students. It would be more spacious, have more books and shelving and accommodate both the College students and outside researchers at the College.
5. The funding for the new library facilities came from College alumnae, donations, legacies and an endowment, built up since 1870, to provide the income needed to run the College."
The College was concerned that, given its exempt status, the value added tax on the cost of the works to be carried out would not be recovered. It sought professional advice. Pursuant to that advice the College took the steps described by...
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