R (oao The Durham Company Ltd (t/a Max Recycle)) v Revenue and Customs Comrs and another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 19 September 2016 |
| Neutral Citation | [2016] UKUT 417 (TCC) |
| Date | 19 September 2016 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Mr Justice Warren Interested Party
Alan Bates (instructed by Tilly, Bailey and Irvine LLP) for the Claimant
George Peretz QC (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Defendants
The Interested Party not appearing but having made written submissions
Value added tax – Supplies of commercial waste collection services by local authorities – Environmental Protection Act 2009 (“EPA 2009”), s. 45(1)(b) and Value Added Tax Act 1994 (“VATA 1994”), s. 41A – Whether supplies within the scope of VAT – Judicial review of HMRC failure to collect VAT on supplies – Preliminary issue.
The Upper Tribunal (UT) considered an application for judicial review concerning the lawfulness of the VAT treatment being afforded to local authorities carrying out certain trade waste collection and disposal services. In the opinion of TDC, local authorities were in competition with private sector operators and should be bound by the same VAT rules. The UT held that where a local authority makes supplies of trade waste collection services to business customers in the performance of its duties as a public authority, it does not do so as a taxable person. Accordingly, its services are not liable to VAT.
In a case transferred from the High Court of Justice Queen's Bench Division, the UT was directed to consider an application for judicial review concerning local authorities that are Waste Collection Authorities for the purposes of the Environmental Protection Act 1990 (“EPA 1990”) and are making supplies of trade waste collection services to business customers in their area. The preliminary issue for the UT was whether the services of the local authority are “activities in which it was engaged as a public authority” within the meaning of VATA 1994, s. 41A(1) and/or EC Directive 2006/112 (the 2006 VAT Directive), art. 13(1).
The applicant, TDC, carried on a business which included the collection and disposal of trade waste. When the company made supplies of trade waste collection services, it was required to charge its customers VAT at the standard rate. Its case was that among its competitors in the supply of trade waste collection was a growing number of local authorities. TDC contended that the local authorities engaging in the activity of trade waste collection services were not doing so as “public authorities” within the meaning of art. 13(1). In accordance with the case law of the European Court of Justice (ECJ), that phrase had been interpreted to mean that the authority must be acting under a “special legal regime”. TDC contended that a local authority which had chosen to go into the business of providing trade waste collection services, and thereby compete with private sector operators, was not acting in its capacity as a local authority, but was engaging in an activity which was equally open to a private sector operator under the same or similar legal conditions. It should, therefore, be subject to the same VAT rules.
In evidence, TDC submitted that local authorities were operating as business providers of trade waste disposal in order to generate a commercial return. They actively promoted their services in the same way as commercial operators, including by means of print and online advertising campaigns, often highlighting their ability to make “VAT free supplies”. The local authorities operated in a commercial manner, employing business development personnel and making collections both within and outside their own local authority areas. Further, they were free to set their own prices, doing so with a view to being competitive and/or making a profit. TDC submitted that, as a matter of law, local authorities were not acting under a special legal regime.
The position of HMRC, HM Treasury and the Local Government Association (interested party) was that the services provided by local authorities were authorised by, and effected under, EPA 1990, s. 45(1)(b). In contrast, TDC's position was that s. 45(1)(b) did not provide a special regime for the collection of commercial waste. If the former were wrong in their contention that s. 45(1)(b) authorised the activities carried out by the local authorities, then some other power had to be identified, unless it was the case that they were acting beyond their powers.
Having considered the evidence, the UT formed the view that local authorities had no power to provide commercial waste collection services on a commercial basis other than through a company. If the authorities were acting within their powers in providing services directly, and not through a company, then the only available power was to be found in s. 45(1)(b). Commercial waste collection services by a local authority were validly carried out in exercise of the powers conferred by that provision. The UT approached this matter on the basis that the charges actually made by local authorities were reasonable charges for the purposes of EPA 1990, s. 45(4). In the opinion of the UT, s. 45(1)(b) was capable of constituting a special legal regime and, therefore, any activities carried out by a local authority pursuant to that special legal regime fell within the VAT derogation, subject always to the competition proviso.
The UT acknowledged that not every activity carried on by a local authority was subject to a special legal regime and that there were authorities which operated beyond their powers and were unable to rely on s. 45(1)(b), but this was not a matter to be dealt with in the preliminary issue being considered. In the view of the UT, local authorities were acting pursuant to their powers and duties under s. 45(1)(b) and were making charges which were reasonable charges within s. 45(4). Accordingly, the preliminary issue was to be answered in the sense that where a local authority makes supplies of trade waste collection services to business customers in its area, and does so in the performance of its duties under s. 45(1)(b) of the EPA 1990, the supplies are activities or transactions in which it was engaged as a public authority within the meaning of VATA 1994, s. 41A(a) and 2006 VAT Directive, art. 13(1).
The UT decided, in effect, that the status of local authorities providing commercial waste collection services should be determined on the facts of each case, but that such services are normally activities in which the provider was engaged as a public authority with a legal duty to arrange collections and, therefore, are not taxable services for the purposes of VAT. Although this was a preliminary ruling it will be welcomed by affected local authorities, who fear a combined annual loss in revenue of as much as £77m if it was decided that their collection services are subject to VAT.
[1] This is an application for judicial review, commenced in the Administrative Court and subsequently transferred to the Upper Tribunal, concerning the lawfulness of the VAT treatment being afforded to local authorities carrying out certain trade waste collection and disposal services. The applicant, The Durham Company (“TDC”), carries on business including the collection and disposal of trade waste. I shall refer to the first and second defendants as “HMRC” and “HMT” respectively and to the Interested Party as “the LGA”.
[2] A direction was made on 17 February 2016 by the Chamber President for the trial of the following preliminary issue:
Where a local authority (“LA”) that is a Waste Collection Authority [“WCA”] for the purposes of the Environmental Protection Act 1990 [“EPA 1990”] is making supplies of trade waste collection services to business customers (i.e. entities occupying non-residential property) in its area, are those supplies by the LA “activities in which it is engaged as a public authority” within the meaning of section 41A(1) of the Value Added Tax Act 1994 [“VATA 1994”] and/or article 13(1) of the Principal VAT Directive [“article 13(1)” and “PVD”]?
[3] There is a statement of agreed facts which I set out in the Annex to this decision:
a) Paragraphs 1 to 3 explain what a WCA is and what its functions are.
b) Paragraphs 4 to 7 describe the parties. TDC carries on business as a provider of commercial waste collection services. When it supplies trade waste collection services, it is required to charge VAT on those supplies. The LGA is the representative body for LAs and represents its 415 member authorities in relation to matters affecting the interests of LAs in England and Wales.
c) Paragraphs 8 to 13 describe the LAs' provision of trade waste collection services. All LAs which are WCAs collect household waste either “in-house” or by contracting-out. In some cases, WCAs have provided trade waste collection services to properties located outside their area. Paragraph 13 sets out factual situations which apply in at least some cases where WCAs supply trade waste collection services to properties within their areas.
[4] The statement of agreed facts is supplemented by the following witness statements which I will refer to as necessary:
a) Two witness statements on behalf of TDC made by Scott Hawthorne, Managing Director of TDC.
b) Four witness statements on behalf of HMRC made by David Ogilvie, a Technical Advisor for HMRC responsible for VAT and refund schemes for LAs and central government.
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c) Four witness statements made on behalf of the LGA by:
• Hilary Tanner, an adviser to the LGA;
• John Coates, Head of Waste Services at North Lincolnshire Council;
• Jarno Stet, Waste Services Manager for Westminster City Council; and
• John-Paul Lovie, head of Waste Management in the Community and Environmental Services Department at Blackpool Council.
[5] There has been no cross-examination of the witnesses and none was sought. I have no reason to doubt the unchallenged evidence.
[6]...
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