Sibcas Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 15 July 2016 |
| Neutral Citation | [2016] UKFTT 502 (TC) |
| Date | 15 July 2016 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge Anne Scott
Philip Simpson QC, instructed by Maria McConnell, French Duncan LLP, appeared for the appellant
Elizabeth Roxburgh, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Whether prefabricated temporary classrooms were immovable property – Was it the units or the building which were, or were not, fixed to the ground or easily dismantled and moved? – The units – Were they fixed to the ground? – No – Were they easily dismantled and moved? – Yes – Value Added Tax Act 1994 (“VATA 1994”), Sch. 9, Grp. 1, item 1 – Directive 2006/112 (the Principal VAT Directive), art. 135(1)(l) – Company's appeal allowed.
The First-tier Tribunal (FTT) allowed the appeal against HMRC's decision that the supply of temporary classroom accommodation was exempt from VAT.
The appellant 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 located 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 appellant 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 appellant.
The appellant did not opt to tax any leasing and letting of immovable property.
Both parties agreed that the following matters:
1) the length of the lease;
2) the fact that the units had previously been used on a different site and were subsequently used elsewhere; and
3) the units were not “inseverably fixed to or in the ground”
were not relevant to the dispute. The FTT had to consider the objective characteristics of the structure. Both parties agreed that the key issue related to the words “firmly fixed to or in the ground”.
The FTT considered whether the appellant's supply of the temporary accommodation was exempt “land” within Value Added Tax Act 1994 (“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” (para. 66 of the decision). HMRC focussed on the building as a whole, but the appellant focussed on the individual units.
The FTT held that the units were clipped together to give added stability (para. 72 of the decision).
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 (para. 73 and 74 of the decision).
There were three possible substantive connections to the ground:
1) foundation trenches, levelling beams and clamps,
2) the mains services, and
3) external staircases.
However, the FTT did not find that the building or the units were fixed to or in the ground (para. 87 of the decision).
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 appellant regularly moved such units all over the country with no particular difficulty (para. 90 of the decision).
Thus, the FTT allowed the company's appeal, so standard-rating applied to the supply (para. 92 of the decision).
This decision is fact specific. Under the VAT Directive, the letting of movable property to liable to VAT, unlike the letting of immovable property, which generally is exempt (subject possibly to the option to tax).
[1] The disputed decision of the respondents (“HMRC”) is a decision dated 13 February 2015 in which it was determined that the supply by the appellant of temporary classroom accommodation was exempt from VAT.
[2] The issue in the appeal is whether the appellant's supply of modular temporary accommodation is “land” within the meaning of Group 1 of Schedule 9 Value Added Tax Act 1994 (“VATA”). If it is not characterised as a supply of land then it is chargeable to VAT at the standard rate.
[3] Section 31 VATA provides as follows:–
(1) A supply of goods or services is an exempt supply if it is of a description for the time being specified in Schedule 9 …
[4] Schedule 9, Part II, Group 1, item l of VATA provides as follows:–
(1) The grant of any interest in or right over land or of any licence to occupy land …
[5] It is a well-known principle that VATA must be construed, so far as possible, consistently with the Principal VAT Directive (2006/112/EC) (“the Directive”) and therefore in this instance with article 135(1)(l) which reads:–
(1) Member States shall exempt the following transactions:
…
(l) the leasing or letting of immovable property.
[6] Of course, as with every other exemption the provisions must be interpreted strictly. When considering the meaning “of any licence to occupy land …”, Lord Scott put it very clearly at para. 58 in C & E Commrs v Sinclair Collis Ltd1 when he stated “… the words should not be construed so as to include the grant of rights that would not, for the purposes of the … Directive constitute “the leasing or letting of immovable property””.
[7] The expression “letting of immovable property” is not defined and in Maierhofer v Finanzamt Augsburg-Land (“Maierhofer”)2 that expression was considered in detail. In that case single storey and two storey buildings were assembled from pre-fabricated components. The buildings then stood on a concrete base erected on concrete foundations sunk into the ground. The walls, which were made of panels, were secured to the foundations by bolts. The roofs were fully tiled. The construction system was such that the buildings could be dismantled at any time by eight persons in ten days and subsequently re-used.
[8] That was compared with the property at issue in EC Commission v France3 which comprised caravans, tents, mobile homes and light framed leisure dwellings, the primary characteristics of which were that they were either mobile or could be easily moved.
[9] The first question for the Court in Maierhofer was whether “letting of immovable property” covered the provision for consideration of a building constructed from prefabricated components and the decision of the Court was that:
[35] The answer to the first question must therefore be that the letting of a building constructed from pre-fabricated components fixed to or in the ground in such a way that they cannot be either easily dismantled or easily moved constitutes a letting of immovable property for the purposes of … of the Directive, even if the building is to be removed at the end of the lease and re-used on another site …
[10] In reaching that decision, the Court had the benefit of the Opinion of Advocate General Jacobs which recorded at paragraphs 32 and 33:
[32] The only property that is inherently immovable is land itself: even conventional buildings intended to be permanent fixtures may in many cases be removed and re-erected if sufficient care is taken. On the other hand there are clearly different degrees of “movability” of property other than land: a true building with walls and foundations will, in view of the costs, only very exceptionally be moved whereas a circus tent's core function is precisely to be movable.
[33] The question whether buildings or other literally movable objects are in legal terms immovable property may in principle be answered either by objective criteria relating to the quality of the attachment of the object under consideration to the land on which it stands, such as for example the strength of the attachment (firmly attached) or its inseverability (“inseverably attached”), or by subjective criteria such as the intended duration of the attachment.
He went on to say at paragraph 38 that the criterion should be objective and be “firmly fixed to or in the ground” , which, of course, was the decision of the Court.
[11] The Upper Tribunal in R & C Commrs v UK Storage Co (SW) Ltd4 (“UK Storage”) looked in detail at the guidance set out in Maierhofer and stated at paragraph 21 as follows:–
[21] In our view applying Maierhofer, it is necessary in this case to ask...
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Revenue and Customs Commissioners v Sibcas Ltd
...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 ......