University of Essex
| Jurisdiction | UK Non-devolved |
| Judgment Date | 13 April 2010 |
| Date | 13 April 2010 |
| Court | First Tier Tribunal (Tax Chamber) |
[2010] TC 00467.
[2010] UKFTT 162 (TC).
Judge Roger Berner (Chairman); Elizabeth Bridge (Member).
Michael Conlon QC and Rebecca Murray, instructed by the MBA VAT Consultancy, for the Appellant
Rupert Baldry, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
The following cases were referred to in the judgment:
C & E Commrs v Corbitt (Numismatists) LtdVAT (1980) 1 BVC 330
C & E Commrs v John Dee LtdVAT [1995] BVC 361
C & E Commrs v Kingfisher plcVAT [1994] BVC 3
C & E Commrs v Save & Prosper Group LtdVAT (1978) 1 BVC 179
C & E Commrs v Thorn Materials Supply LtdVAT [1998] BVC 270
East End Dwellings Co Ltd v Finsbury Borough Council ELR [1952] AC 109
IR Commrs v Metrolands (Property Finance) LtdTAX [1982] BTC 8,032
Kretztechnik AG v Finanzamt Linz ECASVAT (Case C-465/03) [2006] BVC 66
Oxfam v R & C CommrsVAT [2010] BVC 108
Group registration - University - Construction of student accommodation by connected company - Company later joined appellant's VAT group - Interaction with capital goods scheme - Application to remove company from VAT group retrospectively - Whether commissioners' decision to refuse was reasonable - Jurisdiction - Value Added Tax Regulations 1995 (SI 1995/2518), Pt. XV; Value Added Tax Act 1994 section 43Value Added Tax Act 1994, s. 43.
The primary issues were a decision of the commissioners to require adjustment of input tax in respect of the construction of student accommodation and a further decision to refuse the retrospective removal of an associated company from the appellant's VAT group.
The appellant was a university registered as part of a VAT group and partially exempt for VAT purposes. In 2001, the appellant decided to acquire new student accommodation and it contracted with a property development company, Universal Accommodation Group Ltd (UAG), to construct the accommodation on land owned by UAG. The work was carried out in 2002 and 2003 and UAG incurred input tax of £3,751,618 on the development. The appellant informed UAG that it intended the building to be used for a relevant residential purpose to the extent of 98.73 per cent and issued a zero-rating certificate to UAG to this effect. In September 2003, UAG entered into an agreement to lease the property to the appellant for a term of 25 years in consideration for rent of £1.55m per annum. In June 2004, the appellant acquired the entire share capital of UAG and brought the company into its VAT group with effect from 1 August 2004.
UAG remained a member of the appellant's VAT group until 2005, when the appellant applied to remove the company from the group with retrospective effect from the date that it joined. The commissioners refused retrospection and authorised the removal of UAG from the appellant's group from 4 May 2005. Following discussions, the commissioners informed the appellant that the inclusion of UAG in its VAT group had triggered a capital goods scheme adjustment under the Value Added Tax Regulations 1995 (SI 1995/2518), reg. 115(2) and an amount of £248,001 was due. This was duly paid. Three appeals were lodged by the appellant: the first against the commissioners' refusal to agree that a capital goods scheme adjustment was not required; the second against the commissioners' refusal to repay the adjusted amount to UAG; and the third against the commissioners' refusal to remove UAG from the appellant's VAT group retrospectively.
The first issue for the tribunal was whether, while UAG was a member of its VAT group, the appellant was using the development to make exempt supplies, such that a capital goods scheme adjustment was required. The appellant contended that the group registration changed nothing. The lease between UAG and the appellant remained in place and the development continued to be used by the appellant for a relevant residential purpose. UAG remained a person constructing a building used for that residential purpose who had received a zero-rated first rental. In the appellant's view, notwithstanding grouping, the status of the persons and transactions remained the same and no adjustment under reg. 115(2) was required. The commissioners argued that when UAG joined the group it ceased to trade for VAT purposes. The development was subsequently used by the appellant under the grouping provisions to make exempt supplies of student accommodation, thereby triggering a capital goods scheme adjustment. The tribunal agreed with the appellant that a zero-rated supply was made by UAG to the appellant university, to which all input tax was attributed. No adjustment to input tax was, therefore, required under reg. 115(2).
The second issue for the tribunal concerned the refusal by the commissioners to allow UAG to cease to be a member of the appellant's VAT group with retrospective effect. The appellant submitted that the refusal was based on an error of law and should be set aside. The commissioners countered that the tribunal had no jurisdiction in respect of the appeal on this issue and drew the tribunal's attention to the Value Added Tax Act 1994 section 43B subsec-or-para 5Value Added Tax Act 1994, s. 43B(5) which contained a distinct provision for refusal of an application. The commissioners submitted that if they did not exercise their discretion to allow de-grouping from an earlier date, then it would take effect from the date the appellant's application was received by them. The tribunal disagreed, finding that the commissioners' refusal fell within Value Added Tax Act 1994 section 83 subsec-or-para 1s. 83(1)(k) of the Act and that it had jurisdiction to decide the matter. The tribunal went on to find that an error of law had been made by the commissioners in relying on Value Added Tax Act 1994 section 43Cs. 43C when making their original decision not to permit retrospective de-grouping. However, the error was rectified in their later decision, which placed no reliance on s. 43 but referred, correctly, to the exercise of the commissioners' discretion under Value Added Tax Act 1994 section 43B subsec-or-para 4s. 43B(4). The tribunal did not consider that the commissioners' decision to refuse retrospective de-grouping was one that no reasonable body of commissioners could have made.
Held, substantially allowing the University's appeals:
1. The first appeal, against the commissioners' refusal to agree that a capital goods scheme adjustment was not required, was allowed.
2. The second appeal, against the refusal by the commissioners to repay the capital goods scheme adjustment, was allowed.
3. The third appeal, against the commissioners' refusal to remove UAG from the appellant's VAT group retrospectively, was dismissed.
1. These are appeals by the University of Essex ("the University") against decisions of HMRC requiring an adjustment of £248,001.93 in respect of input tax deducted on the construction of new student accommodation ("the Development") and refusing to repay that sum to the University, and against the refusal of HMRC to backdate the removal of an associated company, Universal Accommodation Group Limited ("UAG") from the University's VAT group.
2. The case essentially revolves around input tax incurred on the construction of the student accommodation that was deducted by UAG on the making of a zero-rated supply to the University. UAG subsequently became a member of the University's VAT group, and HMRC claim that its entry into the group, and the exempt supplies made by the University in respect of the student accommodation, have the result that there must be adjustments of the input tax recovery under the capital goods scheme, and consequent payment of VAT to HMRC. That is what we describe below as the first issue. The second issue arises out of an attempt by the University to rectify the situation by applying to remove UAG from its VAT group with effect from the date on which UAG had joined the group. That backdating was refused by HMRC.
3. The University was represented by Michael Conlon QC and Rebecca Murray. Rupert Baldry appeared for HMRC.
4. The essential facts were not in dispute. We had the benefit of a statement of agreed facts, which we set out in full below. We also had a witness statement of Mr Charles Rumbles, a director of CKR VAT Consultancy Limited, the content of which was not challenged by HMRC. A bundle of documents was produced.
5. The statement of agreed facts is as follows (reference numbers are to the documents bundle):
Introduction
(2) University of Essex ("the University") and Universal Accommodation Group Limited ("UAG") are in dispute with the Commissioners of Her Majesty's Revenue and Customs ("the Commissioners") about adjustments to the attribution of input tax incurred on the construction of student accommodation at Hythe Quays ("the Development").
(3) In Appeal Reference LON/08/1441 ("the First Appeal") the University appeals against the Commissioners' decisions requiring an input tax adjustment of £248,001.93 and refusing to backdate, to 1 August 2004, the removal of UAG from the University's VAT group.
(4) In Appeal Reference LON/08/1446 ("the Second Appeal") UAG appeals against the Commissioners' refusal to pay a claim under section 80 of the Value Added Tax Act 1994 ("VATA") for £248,001.93 paid to the Commissioners by UAG by way of VAT which was not VAT due to them.
(5) In Appeal Reference LON/08/1839 ("the Third Appeal") UAG appeals against the Commissioners refusal to backdate, to 1 August 2004, the removal of UAG from the University's VAT group.
(6) The Parties
(7) The University is a higher education establishment which carries on its activities at Wivenhoe Park, Colchester, Essex, CO4 3SQ. The University is registered for VAT as part of a VAT group registration under VAT No. 594 7948 65. Returns are submitted quarterly for prescribed accounting periods ending on the last days of January, April, July and...
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