Revenue and Customs Commissioners v Sibcas Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 24 July 2017 |
| Neutral Citation | [2017] UKUT 298 (TCC) |
| Date | 24 July 2017 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2017] UKUT 0298 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
The Honourable Lord Doherty
Elisabeth Roxburgh, Advocate, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the appellants
Philip Simpson QC, instructed by Maria McConnell, French Duncan LLP, appeared for the respondent
Value added tax – Whether the letting of prefabricated temporary classrooms was an exempt supply under VATA 1994, Sch. 9, Grp. 1, item 1 – Whether a letting of immovable property within Directive 2006/112 (the Principal VAT Directive), art. 135(1)(l) – Whether building fixed to or in the ground – Whether easily dismantled and easily moved – HMRC's appeal allowed.
The Upper Tribunal (UT) allowed HMRC's appeal against the decision of the First-tier Tribunal (FTT) ([2016] TC 05253) that the supply of temporary classroom accommodation was standard-rated. The UT held that the temporary accommodation was a single integrated building both physically and functionally. The question was whether the temporary accommodation was fixed to, or in, the ground. The FTT decided that the supply was a letting of immovable property and it was exempt.
The Company supplied relocatable, modular, pre-fabricated accommodation units (the units) for temporary classroom accommodation. The length of hire of the units varied. Single units tended to be hired from one month up to 13 months and multiple units from four months up to 36 months. The units were manufactured in various sizes. Most were in the range 6.8 metres to 9.2 metres long by 3 metres wide, i.e. effectively they were rectangular boxes. The units were moved by standard road haulage.
The disputed units were on a tennis court at a school. The tennis court had a tarmac surface, but with a slope and was prone to surface water. The base or foundation had to be secure, so that there was no settlement. In order to achieve stability, the Company cut the tarmac and excavated foundation trenches removing the inferior quality stone and, some of the less-stiff clay, down to the level of the stiffer clay strata. The levelling beams were not fixed to the compacted stone. Other ground work concerned foul drainage, water, gas and mains electric. The units were delivered to the site and lowered from a crane on strops. Once in position at the levelling point, the RSJ in the bottom of the first unit was secured to the levelling beam using a clamp. The clamps stopped the bottom unit moving as the others were put in and they were also used at other points during the installation to stop movement while the units were manoeuvred into place. The clamps could be removed after the units had all been put together, but there was no reason to remove them and there was no downside to them staying in place. They had no subsequent function.
At the end of the rental period, the installation process was reversed. The site reinstatement was not the responsibility of the Company. The Company did not opt to tax any leasing and letting of immovable property.
Both parties agreed that the following matters were not relevant to the dispute:
- the length of the lease;
- the fact that the units had previously been used on a different site and were subsequently used elsewhere; and
- the units were not inseverably fixed to or in the ground.
Both parties agreed that the key issue related to the words “firmly fixed to or in the ground”.
The FTT considered whether the Company's supply of the temporary accommodation was exempt “land” within VATA 1994, Sch. 9, Grp. 1, item 1. If it was not treated as an exempt supply of land, then standard-rating applied. Directive 2006/112 (the Principal VAT Directive), art. 135(1)(l) exempts the leasing or letting of immovable property. The expression “letting of immovable property” is not defined.
The FTT held that “immovable” in this context means “fixed to or in the ground”. HMRC focussed on the building as a whole, but the Company focussed on the individual units.
The FTT held that the units were clipped together to give added stability. Also, the FTT held that the relevant question was whether the prefabricated components (and therefore the units) were fixed to or in the ground and whether they could be easily dismantled or easily moved. However, in case it was wrong, the FTT considered the position for both the individual units and the building.
There were three possible substantive connections to the ground:
- foundation trenches, levelling beams and clamps,
- the mains services, and
- external staircases.
However, the FTT did not find that the building or the units were fixed to or in the ground.
The FTT held that (1) it was straightforward to disconnect the individual units from the ground and (2) once the internal wiring and connections had been stripped out, the removal of the units was also straightforward. The Company regularly moved such units all over the country with no particular difficulty. Thus, the FTT allowed the Company's appeal.
HMRC appealed to the UT. The UT held that the FTT had misdirected itself as to the general law. Also, it failed to apply the law properly to the facts. Further, it made fundamental errors in its approach to the case, by asking the wrong questions, and by arriving at findings and a decision which no reasonable FTT could properly reach (para. 47 of the decision).
The UT noted that the question of movability/immovability is determined by looking objectively at the characteristics of the building and its relationship with its site. Relevant factors include the manner in which the building relates to, or is integrated with, the ground and how easily (or not) it may be moved or dismantled and moved. The issue is whether the building is fixed to, or in, the ground (para. 44 and 45 of the decision).
The FTT had wrongly construed Maierhofer v Finanzamt Augsburg-Land (Case C-315/00) [2003] BVC 325 as requiring it to address whether component parts, rather than the integrated building, were fixed to, or in, the ground; and whether such parts, as opposed to the building (or all the component parts comprising the building) could easily be moved, or dismantled and moved.
The UT held that the temporary school was a single integrated building both physically and functionally. The focus should have been on the building as a whole, not on the individual components which were assembled and amalgamated to form the building. The relevant question ought to have been “Is the temporary school building fixed to or in the ground having regard to the Community law meaning of those words ?” (para. 49 of the decision).
The FTT had taken an unduly restrictive view of what being fixed to, or in, the ground involved (para. 50 of the decision).
Also, the FTT had erred when it applied the law to the facts. It ought to have looked objectively at the building's relationship with the ground. That should have involved taking a holistic view, looking cumulatively at all of the links between the building and the ground, and whether the building could be easily moved or easily dismantled and moved. Instead the FTT looked separately at each “possible substantive connection” and asked itself if that connection fixed the building to, or in, the ground (para. 51 of the decision).
The FTT's rationale for ruling out “foundation trenches, levelling beams and friction clamps” as a “substantive connection” to the ground appeared to be (i) that the friction clamps could be ignored; (ii) that the levelling beams and foundation trenches were not part of the building, because the latter remained when the Company left the site; (iii) that they were not the equivalent of a concrete base on sunken foundation; (iv) that the levelling beams were very similar in function to the paving slabs and concrete blocks used to support and keep level some units, and that those units were not found to be fixed to or in the ground (para. 53 of the decision).
The FTT's error was compounded when it considered the dismantling and removal. Most of what it said was directed towards the dismantling and removal of a unit, rather than the dismantling and removal of the building. However, in so far as it did address the latter question, it had misdirected itself. The inescapable facts were that the building could not be either easily moved, or easily dismantled and moved, from its site; and that in order to move it all of the components had to be dismantled. That took considerable time. The time and effort involved place the building at the immovable end of the movable/immovable spectrum. The question was not, as the FTT seemed to have thought it was, “For a building of its size was it relatively easily dismantled and removed?” The FTT had failed to take account of the fact that the scale of a building is likely to be a very significant factor when it comes to an objective consideration of whether a building ought to be treated as immovable (para. 57 of the decision).
In allowing HMRC's appeal, the UT held that the building could not feasibly be moved without being dismantled, and it could not be easily dismantled and moved. The temporary school was fixed to, or in, the ground. The supply was a letting of immovable property and it was exempt (para. 58 and 59 of the decision).
This decision is fact specific. Under the VAT Directive, the letting of movable property is standard-rated, unlike the letting of immovable property, which generally is exempt (subject possibly to the option to tax).
[1] The issue in this appeal is whether the respondent's supply of goods and services to the Ian Ramsay Church of England School, Stockton-on-Tees (“IRS”) was an exempt supply. The appellants maintain that it was. The respondent says that the supply was not exempt, and that it was chargeable to VAT at the standard rate.
[2] On 13 February 2015 the appellants determined that the supply by...
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