UK Storage Company (SW) Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 12 August 2011 |
| Neutral Citation | [2011] UKFTT 549 (TC) |
| Date | 12 August 2011 |
| Court | First-tier Tribunal (Tax Chamber) |
[2011] UKFTT 549(TC)
Michael S Connell (Tribunal Judge) (Chairman); Miss S C O'Neill (Member)
Michael Conlon QC, instructed by Freshfields Bruckhaus Deringer LLP, for the Appellant,
Michael Jones, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
VAT - Item 1 of Value Added Tax Act 1994 schedule 9 group 1Group 1, Sch 9 Value Added Tax Act 1994 - whether licence to occupy land an exempt supply or standard rated supply of storage facilities - whether storage units "immovable property" - predominant purpose of supply
The issue was whether the grant of licences to customers to use self-storage facilities constituted taxable supplies for VAT purposes, as the commissioners contended, or exempt licences to occupy land.
The appellant was the freehold owner of storage facilities in Somerset at Bridgwater and Norton Fitzwarren. There was no issue that self-storage provided at the former site was exempt from VAT, but the commissioners ruled that the facilities at Norton Fitzwarren were standard-rated. The storage units were of varying sizes and prices and customers were required to enter into a licence agreement for an initial period of four weeks. This could be terminated by either party on one weeks' notice or extended as required. The premises consisted of a concrete surfaced compound surrounded by a secure perimeter fence. Within the compound were approximately 300 individual single-storey storage units, each self-contained and fully enclosed with a base, sides and a roof. The units were made from steel sheeting and weighed 600kg. They were assembled on site and positioned side-by-side in gap-free rows. The units rested on the ground under their own weight and were not fixed to the land. The licence agreement allowed the customer to occupy the designated unit for the purpose of storing goods.
The appellant argued that supplies of storage space at Bridgwater were correctly regarded as exempt and that the same analysis applied to its supplies of space at Norton Fitzwarren. It contended that the disputed supplies were made pursuant to a licence agreement which imposed legal rights and obligations that were in all material respects identical to those applicable at Bridgwater. The appellant submitted that the storage units were effectively buildings forming part of the land on which they were installed. Accordingly, they fell within the meaning of "land" within Value Added Tax Act 1994, Value Added Tax Act 1994 schedule 9Sch. 9, Grp. 1, item 1 and were "immovable property" within the meaning of eu-directive 2006/112 subsec-or-para 1 article 135art. 135(1)(l) of EC Directive 2006/112, the 2006 VAT directive. The customer was granted a licence to store his goods in a specifically identified and numbered storage unit and enjoyed exclusive occupation of the unit to which only he had access. Therefore, in the appellant's view, the agreement conferred "an interest in or a right over land" within the meaning of item 1 of Grp. 1 and/or the grant of a 'lease or letting' within the meaning of art. 135(1)(l). Further, the appellant submitted that the storage unit was a "building" within the meaning of art. 135(1)(j) read in conjunction with eu-directive 2006/112 subsec-or-para 2 article 12art. 12(2) and, finally, it argued that, having regard to the similarity of the supplies at the two sites, it was consistent with the principle of fiscal neutrality that both should be exempt from VAT.
The commissioners acknowledged that the storage facility at Bridgwater, where the rooms were a fixed part of the warehouse, was exempt, but maintained that the supply of self-storage units at Norton Fitzwarren was taxable. They submitted that the units in dispute were not immovable property because they were not fixed to the land, but rather sat on the land and could easily be moved. The agreement fell short of a licence to occupy land for the purpose of Sch. 9 because it did not guarantee the customer exclusivity of possession. In the commissioners' opinion, art. 135(1)(j) did not assist the appellant and was of no relevance. If the appellant was engaged in the letting of immovable property then that letting formed only part of a composite supply comprising use of a storage unit and use of land, but it was the former that was the predominant supply. It followed, in the commissioners' view, that the supplies were not exempt pursuant to item 1.
Held, allowing the company's appeal:
1.In deciding whether the overall nature of the transaction could be described as a leasing or letting of land, a relevant constituent element to be determined was whether a structure was movable or immovable, and this was a matter of degree.
2.It was necessary to decide from an objective standpoint whether the core function of the unit was for it to be movable. Although not bolted to the ground, the units in question were for all practical purposes fixed to the ground. They were not designed to be easily moved and were not movable containers. By any objective standard the units were designed to put to practical purpose the use and enjoyment of the parcel of land or space which they occupied. Therefore, the units were "immovable property" within the meaning of art. 135(1)(l).
3.Although the licence agreement specifically provided that it "shall not confer any right to exclusive possession", this did not affect its legal status as a licence which conferred rights of occupation. The clause was included in order to ensure that customers did not have a continuing right of occupation or security of tenure beyond the termination date and was not intended to stop customers enjoying "exclusive possession" of the unit. The agreement was therefore a licence to occupy land.
4.The supply was not a package of services. The units were designed for and enabled the use and enjoyment of the land which they occupied and this was a necessary feature of the storage facilities offered. It was simply the letting of space in which a customer stored his goods and of which he was entitled to exclusive possession. The essential feature of the transaction was that there was one element, being the grant of a licence to occupy an identified unit of property and parcel of land. Any other services were entirely ancillary to that.
5.With regard to the principles of fiscal neutrality and equal treatment, notwithstanding that the appellant's two sites may have had physically different characteristics, the appellant provided the same facility at each site and there was no reason why the two should be treated differently.
6.The appellant's supplies were exempt from VAT and not standard-rated for the reason that the licences to occupy the units were lettings of land within item 1 of Grp. 1.
1.The Appellant ("UK Storage") appeals a decision of 21 October 2009 of the Commissioners that the Appellant's supplies are not exempt from VAT under item 1 Value Added Tax Act 1994 schedule 9 group 1Group 1 Schedule 9 to the Value Added Tax Act 1994 ("the Act") but are standard rated.
2.UK Storage operates self-storage facilities at unit 3 East Quay, Bridgwater, Somerset ("Bridgwater") and at Courtlands Industrial Estate, Norton Fitzwarren, Taunton, Somerset ("Norton Fitzwarren").
3.The main issue for determination by the Tribunal is whether licences granted by UK Storage to customers to use the self-storage units are a taxable supply for VAT purposes as the Commissioners contend, or licences to occupy land and therefore VAT exempt.
4.Before the hearing of the substantive appeal the Commissioners applied to stay the appeal behind an appeal in the case of Finnamore (t/a Hanbridge Storage Services) TAX[2011] TC 01081, which the Commissioners say concerns substantially similar factual circumstances to those featured in this appeal. The First-Tier Tribunal (FTT) allowed the taxpayers appeal. The Commissioners intend to appeal to the Upper Tribunal against the FTT's decision, and, given the substantial similarities between the Finnamore case and the present appeal, the Commissioners submit that the most appropriate course in the circumstances would be to stay the present appeal pending the outcome of the appeal in Finnamore thereby avoiding potentially unnecessary time and costs and the risk of conflicting FTT decisions on essentially the same issue. The Commissioners originally attempted to stay this appeal behind Finnamore on the 29 July 2010. The application was refused by Judge Radford by direction issued on 5 August 2010. The Commissioners submit that the express breadth of the FTT's conclusion in Finnamore (to the effect that, (at paragraph 14) "…in most storage facility arrangements, at the very least, there will be a licence to occupy a defined area of land…", makes it appropriate to make a further application for a stay.
5.UK Storage objects to the Commissioners application for a number of reasons:
(a) The Commissioners had 56 days in which to apply for permission to appeal the Finnamore decision which is dated 2 February 2011. The time limit therefore expired on 30 March 2011.
(b) The Commissioners need the permission of the Upper Tribunal before they can appeal. Obtaining permission to appeal and prosecuting an appeal will take time and it will be contrary to the interests of justice and the overriding objective to further delay this appeal.
(c) This appeal turns on different facts and to some extent different issues of law from those in the Finnamore decision.
6.Having heard further submissions by Mr. Conlon for UK Storage and Mr. Jones for the Commissioners we refused the application to stay this appeal.
7.UK Storage is not VAT registered.
8.UK Storage is the freehold owner of both Bridgwater and Norton Fitzwarren. It is common ground that UK Storage is engaged in VAT exempt letting of land at...
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