Silver Sea Properties (Leamington Spa) Sarl
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 September 2021 |
| Neutral Citation | [2021] UKFTT 350 (TC) |
| Court | First Tier Tribunal (Tax Chamber) |
[2021] UKFTT 350 (TC)
Judge Aleksander, Julian Sims
Philip Simpson QC, counsel, instructed by KPMG Law, appeared for the appellant
Andrew Macnab, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Lease of care home – Whether turnkey basis – Treatment of fixtures, fittings and equipment – Whether incorporated – Whether building materials – Whether input tax recovery blocked – Yes – With some minor exceptions – Whether single composite supply – No – Whether zero rating applied – No – Value Added Tax (Input Tax) Order 1992, art. 6.
The First-tier Tribunal (FTT) largely agreed with HMRC that disputed fixtures, fittings and equipment (FFE) were either incorporated in a care home building but blocked from input tax deduction or supplied separately from the zero rated first grant of a major interest in the care home.
The appellant (PropCo) granted a 25year lease of a new care home to OpCo. There was no dispute this was the grant of a major interest and zero rated for VAT purposes.
Propco submitted the care home was supplied on a “turnkey” basis, inclusive of all the FFE for it to be immediately operational, under a single contract for a single price and there was therefore a single composite supply.
The dispute arose in relation to various items of FFE which HMRC contended were either,
- incorporated in the building but subject to an input tax block under Value Added Tax (Input Tax) order 1992, art. 6; or
- loose (chairs, tables, crockery etc) and not part of a single composite supply of a zero-rated major interest in the property as suggested by Propco. Output tax was therefore due in relation to their transfer.
Following the guidance laid down by the Upper Tribunal in Taylor Wimpey plc v R & C Commrs [2017] BVC 505 and Taylor Wimpey plc v R & C Commrs [2018] BVC 50, the FTT decided, with minor exceptions detailed in Annex 2 of the decision, all wall mounted items or items fixed to the walls to prevent accidents were incorporated in the nursing home even although they could be uninstalled without incurring damage to the building. They then considered which of these were either not building materials (not ordinarily incorporated in care homes) or were specifically excluded from the definition of “building materials” and therefore subject to an input tax block under art. 6.
While it was not disputed PropCo had acquired the relevant FFE and supplied it to OPCo, the FTT was not persuaded the appellant had intended to supply the care home on a turnkey basis. The fit-out was supplied after the date of practical completion and after OpCo had already taken occupation of the building strongly suggesting it had not been part of the Works agreed between PropCo and OpCo.
The FTT concluded the FFE items were not rented under the terms of the lease except if it was a landlord's fitting. None of the FFE items were indivisible from the building since even those found to have been incorporated could be uninstalled without damaging the building. The right to dispose of the FFE was transferred to OpCo but it did not form part of a composite supply and was best characterised as a kind of “welcome pack”. Appeal dismissed, except in relation to the minor revisions set out in Annex 2 of the decision.
The appellant's case was fatally damaged by the lack of evidence to substantiate the claim that the supply of the care home was always intended as a turnkey development.
| Introduction | ……………………… | 2 | |
| Background Facts | ……………………… | 3 | |
| Group Structure | ……………………… | 3 | |
| Turnkey Development | ……………………… | 5 | |
| Construction of Priors House | ……………………… | 7 | |
| Fitting out of Priors House | ……………………… | 9 | |
| The Evidence | ……………………… | 15 | |
| Issues in this Appeal | ……………………… | 18 | |
| The Legislation | ……………………… | 20 | |
| Output tax liability | ……………………… | 20 | |
| Input tax credit | ……………………… | 21 | |
| Operation of the Builder's Block | ……………………… | 23 | |
| Were items of FF&E incorporated into Priors House? | ……………………… | 23 | |
| Were items of FF&E “building materials”? | ……………………… | 31 | |
| Was the FF&E an element of a single supply by PropCo to OpCo? | ……………………… | 37 | |
| PropCo's Submissions | ……………………… | 41 | |
| HMRC's submissions | ……………………… | 44 | |
| Discussion | ……………………… | 47 | |
| Conclusions | ……………………… | 52 | |
| Right to apply for permission to appeal | ……………………… | 52 | |
| Annex One – Key Contractual Provisions | ……………………… | 54 | |
| Framework Agreement dated 10 September 2010 | ……………………… | 54 | |
| Technical Services Agreement dated 10 September 2010 | ……………………… | 57 | |
| Agreement for Lease and Development of Care Home Development Site at Old Milverton Lane, Leamington Spa, Warwickshire dated 21 March 2013 | ……………………… | 57 | |
| Occupational Lease of Care Home at Old Milverton Lane, Leamington Spa, Warwickshire dated 11 August 2014 | ……………………… | 63 | |
| Agreement for the provision of consultancy services in relation to a development at Quarry Farm, Old Milverton Lane, Leamington Spa dated 5 April 2013 | ……………………… | 67 | |
| Annex Two –FF&E items whose “incorporated” status is in dispute | ……………………… | 72 | |
| Annex Three – Extract from Renray Specification | ……………………… | 89 |
[1] The Appellant (“PropCo”) appeals against HMRC's statutory review decision notified by letter dated 27 January 2017 upholding a VAT assessment for the 05/14 period dated 12 May 2016. The 12 May 2016 assessment was later replaced by a revised Notice of Assessment dated 21 May 2017. The VAT in dispute in this appeal is £96,291. This appeal is being treated as a lead case for another appeal by one of PropCo's sister companies.
[2] The appeal concerns the correct VAT treatment of certain items of furniture, fixtures, and equipment (“FF&E”) supplied with a new care home known as Priors House, Old Milverton Lane, Blackdown, Leamington Spa, Warwickshire, CV32 6RW (“Priors House”). Priors House was leased by PropCo to Care UK Community Partnerships Ltd (“OpCo”). The issues before the Tribunal are
- The extent to which the FF&E are incorporated into Priors House for the purposes of the builder's block;
- Whether incorporated FF&E were building materials (or whether such items were excluded from being building materials). Credit for input tax on incorporated FF&E is blocked unless those items of FF&E are building materials; and
- Whether the FF&E formed an element of a single (composite) zero-rated supply of Priors House to OpCo.
[3] At the video hearing of this appeal, PropCo was represented by Philip Simpson QC and HMRC were represented by Andrew Macnab.
[4] Witness statements were produced from Matthew Rosenberg and Craig Prior for PropCo, and Keith Metcalfe for HMRC, and each of these witnesses gave oral evidence and was subject to cross-examination.
[5] Matthew Rosenberg is currently the chief financial officer of Care UK Limited (“CUK”), the parent company of OpCo. He is also a director of PropCo and Silver Sea Property Holdings Sàrl (“SSPH” – the parent company of PropCo) and of OpCo. His employment with CUK commenced on 6 May 2014, and he became a director of OpCo, SSPH, and PropCo shortly thereafter. Mr Rosenberg was one of only two individuals that were directors of companies within both the SSPH and CUK groups (but currently he is the only one). Prior to joining CUK, he was the CFO of a European hotels business. He is a chartered accountant.
[6] Craig Prior has been the Operational Projects Director of OpCo since August 2013. He is qualified to operate a residential care home in a regulatory compliant manner. His responsibilities include overseeing the development, construction and fit-out of all new care homes that are leased to OpCo and ensuring that the homes and their managers are compliant with all relevant regulatory requirements. Although his job title describes him as a “director”, he is not a director for the purposes of the Companies Act. In addition to his employment by OpCo, Mr Prior also works for CUK. However, he does not work for SSPH, Silver Sea Developments Sàrl (“SSD”) or PropCo.
[7] Prior to his employment with OpCo, Mr Prior had been employed as an operations director and as a regional operations manager for other care home groups. In these roles he was responsible for the operational management and control of between 12 and 21 care homes. He also has previous experience as the manager of a 138-bed facility caring for individuals with dementia and other dependencies.
[8] Keith Metcalfe is the HMRC officer responsible for the VAT assessments in this case.
[9] In addition to witness evidence, an electronic bundle of documentary evidence comprising 1953 pages was produced in evidence.
[10] For the most part, the background facts are not in dispute, and we find them to be as follows.
[11] In 2010, funds managed by Bridgepoint (a private equity fund manager) incorporated Care UK Health and Social Care Holdings Limited (“Holdings”). Holdings (through subsidiaries) acquired the share capital of CUK (then called Care UK plc). Following the acquisition, the Bridgepoint funds and CUK's management team set up a care home development business outside the Holdings group. The parent company of the group of companies forming the development business is SSPH, a Luxembourg company. Within the SSPH corporate group, various subsidiary companies (“SPVs”) are incorporated to buy and develop suitable sites into new residential care homes. Once completed, the new care homes are leased to OpCo, a subsidiary of CUK, which is the care home operating entity within the Holdings group. Another subsidiary of SSPH, SSD, a Luxembourg company, was incorporated to act as the...
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