Revenue and Customs Commissioners v British Disabled Flying Association
| Jurisdiction | UK Non-devolved |
| Judgment Date | 26 March 2013 |
| Neutral Citation | [2013] UKUT 162 (TCC) |
| Date | 26 March 2013 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2013] UKUT 162 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Judge Greg Sinfield, Judge Richard Barlow.
Nicola Shaw QC, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Appellants.
Kieron Beal QC, instructed by Hausfeld & Co LLP, appeared for the Respondents.
VAT - Zero-rating - Aircraft for use by disabled persons - Whether aircraft modified for use by disabled persons after manufacture are "designed" for such use - Held yes but one aircraft not so designed at time of supply - Whether BDFA is a "relevant establishment" for the purposes of VATA 1994, Value Added Tax Act 1994 schedule 8 group 15Sch. 8, Grp. 15 - Held no - Whether tribunal has jurisdiction to decide whether appellant had legitimate expectation - Held no - Appeal allowed in relation to one aircraft and dismissed in relation to the other.
The Upper Tribunal (UT) upheld the appeal by HMRC as regards one aircraft used by disabled persons against the decision by the First-tier Tribunal (FTT) [2011] TC 01580 that zero-rating applied, but dismissed the appeal as regards the other aircraft.
The British Disabled Flying Association (BDFA) is a charity that provides opportunities for disabled persons to experience and participate in aviation. BDFA purchased two light aircraft which had been adapted post-manufacture to allow them to be piloted by a disabled person.
Zero-rating could apply to the purchase under:
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(2) Value Added Tax Act 1994 schedule 8 group 12item 2(g) of Grp. 12 of Sch. 8 to VATA 1994 as a supply to a charity of equipment designed solely for use by a handicapped person, for making available to handicapped persons for their personal use; or
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(3) Value Added Tax Act 1994 schedule 8 group 15item 5 of Grp. 15 of Sch. 8 to VATA 1994 as a supply of relevant goods to a charitable institution providing care for handicapped persons in a relevant establishment.
HMRC accepted that aircraft are equipment as the term is used in item 2(g), but contended that the FTT did not interpret designed correctly.
The UT decided that (1) "designed in item 2(g)" refers to the physical characteristics of the equipment that make it suitable for use by a handicapped person; and (2) the question of whether an item has the physical characteristics to qualify is decided by reference to the physical characteristics at the time of supply (para. 28 of the decision).
The first aircraft had been adapted for use by disabled persons before its sale to the BDFA, so zero-rating applied under item 2(g). However, the modification of the second aircraft happened after the aircraft had been supplied to the BDFA, so zero-rating did not apply under item 2(g).
Zero-rating under item 5 did not apply to either aircraft, as the UT decided that the reference to care being provided in an establishment means a building or premises. The care was provided in an aircraft (para. 47 and 48 of the decision).
This decision illustrates the need to consider the detailed conditions that must be satisfied for zero-rating to apply to goods for disabled persons.
[1]The Appellants ("HMRC") appeal against the decision of the First-tier Tribunal ("FTT") released on 15 November 2011, British Disabled Flying AssociationTAX[2011] TC 01580, ("the Decision").
[2]The Respondent ("the BDFA") is a charity that provides opportunities for disabled persons to experience and participate in aviation. The BDFA appealed against a decision of HMRC that supplies to the BDFA of two light aircraft modified for use by disabled persons, together with associated repair and maintenance, were chargeable to VAT at the standard rate. The FTT allowed the BDFA's appeal.
[3]HMRC appealed to this Tribunal and contended that the FTT had misconstrued the relevant statutory provisions. For the reasons given below, we have concluded that the supply of one of the aircraft was subject to VAT at the zero rate, as found by the FTT, but the other aircraft was standard rated.
[4]There was no real dispute about the facts and HMRC did not seek to challenge any findings of fact by the FTT before us. The material facts are as follows.
[5]The BDFA is a registered charity, regulated by the Charity Commission. Its principal object is "to promote and provide education, recreation and leisure time activities for disabled persons by providing opportunities in aviation with the object of improving conditions of life". The BDFA achieves its objective by providing free and subsidised flying lessons to chronically sick and terminally ill and disabled persons under the name "Aerobility".
[6]In 2008, the BDFA bought two light aircraft. No aircraft manufacturer produces aircraft specifically manufactured for disabled persons nor could any such modification be requested from the manufacturer. Any such modification must be carried out after manufacture. The modification is a hand control which fits over the foot pedals and allows the aircraft to be controlled by hand. The hand control can be removed to allow the aircraft to be flown by an able bodied pilot but that does not happen except when the aircraft is being flown by an engineer when being serviced or being tested after the service. The modifications do not enable a wheelchair to enter the cockpit.
[7]The first aircraft (registration G-BRFM) was purchased from GT Ventures Limited on 19 February 2008 for £26,500 plus VAT of £4,637.50. There was no dispute that the supply of Aircraft G-BFRM to the BDFA took place on 19 February 2008. At the time of the sale, the aircraft had not been modified for use by disabled persons. The parties intended that Aircraft G-BFRM would be modified immediately after the purchase was completed. The modification was carried out by a third party on the day after the aircraft was purchased by the BDFA.
[8]The second aircraft (registration G-BSYY) was purchased from Aviation Rentals on 23 June 2008 for £37,500 plus VAT of £6,562.50. Prior to purchase, the BDFA had leased Aircraft G-BSYY from Aviation Rentals. The aircraft had been modified for use by disabled persons during the lease period and continued to be so modified at the time of the sale.
[9]The FTT concluded that the supplies of both aircraft to the BDFA were zero rated on both of two grounds, namely that they fell within:
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(2) item 2(g) of Value Added Tax Act 1994 schedule 8 group 12Group 12 of Schedule 8 to the VAT Act 1994 ("VATA94") as a supply to a charity of equipment designed solely for use by a handicapped person, for making available to handicapped persons for their personal use; and also
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(3) item 5 of Value Added Tax Act 1994 schedule 8 group 15Group 15 of Schedule 8 to the VATA94 as a supply of relevant goods to a charitable institution providing care for handicapped persons in a relevant establishment.
[10]Value Added Tax Act 1994 section 30 subsec-or-para 2Section 30(2) of the VATA94 provides that a supply of goods or services is zero-rated if the goods or services are of a description for the time being specified in Value Added Tax Act 1994 schedule 8Schedule 8 to VATA94 or if the supply is of a description so specified.
[11]Value Added Tax Act 1994 schedule 8 group 12Group 12 of Schedule 8 to the VATA94 provides for zero-rating of certain drugs, medicines and aids for the handicapped etc. Item 2 of Value Added Tax Act 1994 schedule 8 group 12Group 12 includes the following:
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2.The supply … to a charity for making available to handicapped persons by sale or otherwise, for domestic or their personal use, of-
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…
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(f) motor vehicles designed or substantially and permanently adapted for the carriage of a person in a wheelchair or on a stretcher and of no more than 11 other persons;
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(g) equipment and appliances not included in paragraphs (a) to (f) above designed solely for use by a handicapped person;
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(h) parts and accessories designed solely for use in or with goods described in paragraphs (a) to (g) above;
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(i) boats designed or substantially and permanently adapted for use by handicapped persons.
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[12]Item 4 of Value Added Tax Act 1994 schedule 8 group 12Group 12 zero rates the supply to a charity of services of adapting goods to suit the condition of a handicapped person to whom the goods are to be made available, by sale or otherwise, by the charity. Items 5 and 6 provide for the zero rating of certain supplies of repair or maintenance, together with goods in connection with such services, of any goods specified and supplied as described in item 2.
[13]Value Added Tax Act 1994 schedule 8 group 12Group 15 to Schedule 8 to the VATA94 covers Charities etc. Item 5 of Value Added Tax Act 1994 schedule 8 group 15Group 15 is as follows:
The supply of any relevant goods to an eligible body which pays for them with funds provided by a charity or from voluntary contributions or to an eligible body which is a charitable institution providing care or medical or surgical treatment for handicapped persons.
[14]Items 6 and 7 of Value Added Tax Act 1994 schedule 8 group 15Group 15 zero rate the repair and maintenance of relevant goods owned by an eligible body together with the supply of any goods in connection with such services.
[15]Note (3)(d) to the Group defines "relevant goods" as including "goods of a kind described in item 2 of Value Added Tax Act 1994 schedule 8 group 12Group 12 of Schedule 8".
[16]Note (4)(f) to Value Added Tax Act 1994 schedule 8 group 15Group 15 defines "eligible body" as including "a charitable institution providing care or medical or surgical treatment for handicapped persons."
[17]Notes (4A) and (4B) to Value Added Tax Act 1994 schedule 8 group 15Group 15 relevantly provide that:
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(4A)…, a charitable institution shall not be regarded as providing care or medical or surgical treatment for handicapped persons unless
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