Principal & Fellows of Lady Margaret Hall
| Jurisdiction | UK Non-devolved |
| Judgment Date | 12 December 2014 |
| Date | 12 December 2014 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge Swami Raghavan, Ruth Watts-Davies
Timothy Brown, counsel, appeared for the Appellant
Christiaan Zwart, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Value added tax – Exemption – Education – Land – Whether term-time supplies of student accommodation exempt or standard-rated – Whether supplies made by college or its wholly-owned subsidiary, with whom the students concluded accommodation agreements – Economic reality was that college was the supplier – Supply of accommodation exempt as “closely related” to education (Value Added Tax Act 1994 (“VATA 1994”), Sch. 9, Grp. 6) – In any case, supply of accommodation by subsidiary would not have fallen within exception provided by VATA 1994, Sch. 9, Grp. 1, item 1(d) to land exemption – College in term-time was not a “similar” establishment to a hotel – Appeal dismissed.
The First-tier Tribunal (FTT) dismissed the appeal against HMRC's decision that exemption applied to supplies of term-time accommodation to students of the College. The accommodation was “closely related” to the supply of education.
The Principals and Fellows of Lady Margaret Hall (the appellant “College”) argued that standard-rating, rather than exemption, applied to supplies of term-time accommodation to students of the College. The appellant entered into an agreement with a subsidiary, LMH Hospitality Services Ltd (“LMHHS”), which contemplated that LMHHS was to supply accommodation to college students on predefined terms.
The FTT considered the following issues:
1) who supplied the accommodation to the students, i.e. either LMHHS (as the appellant argued) or the College (as HMRC argued);
2) if LMHHS made the supply, whether it was exempt under Sch. 9, Grp. 1, item 1 as a “licence to occupy land”. Wrapped up in this issue was whether exclusive possession is necessary to fall within item 1 (the appellant argued it is not necessary). If exclusive possession is necessary, HMRC argued that LMHHS could not grant this to the student, because LMHHS had not itself been granted the requisite land interest under the agreement between the College and LMHHS. The appellant argued that it does not matter what LMHHS was granted by the College, because the agreement between the College and the student is capable of falling within the land exemption. In any case, the appellant argued that, if it is not within Sch. 9, Grp. 1, then the supply is not exempt as education (under Sch. 9, Grp. 6), because LMHHS is not an “eligible body”);
3) if the supply is within Sch. 9, Grp. 1, item 1, whether it is standard-rated (as the appellant argued) because of the exception in Sch. 9, Grp. 1, item 1(d) for accommodation that is provided in a “similar establishment” to a hotel; and
4) if the answer to issue (1) is that the College makes the supply, whether the supply is exempt because it is a supply by an eligible body of something which is “closely related” to the supply of education. HMRC argued that the supply of accommodation is “closely related”.
The FTT disagreed with the appellant's argument that it should look only to the wider circumstances beyond the contractual terms if there is artificiality. Once the contractual terms have been established, the FTT must look at the wider circumstances put forward by the parties as against the contractual terms (para. 104 of the decision).
It was not argued that the agreements made by LMHHS with the College and the students were a sham. There was no evidence that these agreements were varied by post-contract conduct (para. 106 of the decision).
However, in relation to the agreement between the College and LMHHS, although no evidence suggested this had been formally varied, there were gaps regarding the conduct of the parties in implementing the agreement, which led the FTT to question whether the written agreement properly reflected the contract between the parties (para. 107 of the decision). The FTT held that LMHHS acted as the College's agent when it entered into contracts with the students (para. 117 and 125 of the decision).
The FTT held that economic reality points to the College, not LMHHS, as being the supplier (para. 138 of the decision).
The FTT held that the supply of student accommodation by the College in term-time is “closely-related” to the provision of education by the College and therefore the supply is exempt under Sch. 9, Grp. 6 (para. 147 of the decision).
Thus, the College's argument that the supplies were standard-rated failed and its appeal was dismissed (para. 148 of the decision). The remainder of the decision dealt with the FTT's findings in the event that it had wrongly decided that the College had supplied the accommodation.
The FTT held that the College incorrectly argued that exclusive possession of the land (in the sense of being able to exclude another from occupying as owner) is not necessary for the purposes of Sch. 9, Grp. 1. What is fundamental is the ability to exclude others from occupying as owner (para. 164 of the decision).
The FTT held that LMHHS could, in principle, have contracted with students to provide accommodation, even if under its agreement with the College it did not have the right to offer accommodation (para. 177 of the decision). The nature of what LMHHS received did not stop the nature of what was granted by LMHHS to the student from being exempt under item 1 (para. 180 of the decision).
The FTT held that the accommodation was not “similar to” hotel accommodation for various reasons, such as:
1) the three stints of nine weeks over a year are not the duration of stay and frequency of stay which typically represent a stay in a hotel (para. 212 of the decision);
2) the recipients of the supply must comply with the College's regulations, i.e. conducting themselves “in a manner befitting an academic institution”, which is not similar to the obligations expected of a hotel guest (para. 213 of the decision); and
3) college life combines residence and teaching. This does not indicate the provision of sleeping accommodation to visitors and travellers. The accommodation is provided with the aim of students participating in college life. The purpose is imbued with something different from a hotel-like purpose (para. 220 of the decision).
Presumably, the College wanted to avoid exemption because there was considerable input tax at stake on, say, building work.
[1] The appellant, the Principals and Fellows of Lady Margaret Hall (“the College”) is a college of Oxford University. This appeal relates to the VAT treatment of supplies of term-time accommodation made to students of the College and whether those supplies are standard-rated, as the appellant argues, or exempt as HMRC argues. The appellant entered into an agreement with one of its subsidiaries, LMH Hospitality Services Limited (“LMHHS”) which contemplated that LMHHS was to supply accommodation to college students on predefined terms. The appellant appeals against HMRC's decision of 6 August 2012 that the supply of student accommodation did not qualify as standard-rated.
[2] The appeal raises the following issues:
1) Who makes the supply of accommodation to the students? Is it LMHHS as the appellant argues or the College as HMRC argues?
2) If LMHHS makes the supply, does it fall within the exemption in Schedule 9 Group 1 as a licence to occupy land? Wrapped up in the above issue is the question of whether exclusive possession is necessary to fall within Group 1 Schedule 9 (the appellant argues it is not). If exclusive possession is necessary HMRC say LMHHS is not able to grant this to the student because LMHHS has not itself been granted the requisite land interest under the agreement between the College and LMHHS. The appellant argues it does not matter what LMHHS has been granted by the College; the agreement between the College and the student is nevertheless an agreement which is capable of falling within the land exemption (Group 1 Schedule 9 VATA 1994). (In any case the appellant says that if it is not within Group 1 Schedule 9 then the supply is not exempt under the education exemption (Group 6 Schedule 9 VATA 1994) because LMHHS is in essence not an eligible body).
3) If the supply is within Group 1 Schedule 9 is it nevertheless standard rated as the appellant argues because it falls out by virtue of the exception in item 1(d) of the Schedule for provision of accommodation which is provided in a similar establishment to a hotel?
4) If the answer to issue 1) is that the College makes the supply, is the supply exempt because it is a supply by an eligible body of something which is “closely related” to the supply of education? HMRC argue the supply of accommodation is “closely-related”; the appellant disagrees.
[3] We heard oral evidence from Mr Richard Sommers. He is the Treasurer and also a fellow of the College and has held this post since January 2008. He is responsible for the financial affairs of the College and its administration. Mr Sommers is also a director of LMHHS. His evidence was subject to cross-examination by HMRC and he also answered the Tribunal's questions. He was a credible witness of fact. To the extent some aspects of his evidence covered legal matters such as the legal characterisation of the relationship between the College and LMHHS we have discounted these. We also had before us various documents which included correspondence between the parties, bank statements of the College and of LMHHS, examples of sample agreements with students, agreements between the College and LMHHS, a statement of account, extracts from the College regulations, copies of pages from the College's website, and sample accommodation booking forms.
[4] The appellant is a college of Oxford University set up by Royal Charter. It is also a registered...
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City YMCA London
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Zombory-Moldovan (t/a Craft Carnival)
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