The Commissioners for HM Revenue and Customs v Balhousie Holdings Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Lady Wolffe |
| Neutral Citation | [2017] UKUT 0410 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Subject Matter | Tax,20 October 2017 |
| Date | 20 October 2017 |
| Published date | 20 October 2017 |
© CROWN COPYRIGHT 2017
[2017] UKUT 0410 (TCC)
Appeal No: UT/2016/0162
VAT - interpretation of Paragraph 36(2) of Schedule 10 to the Value Added Tax Act 1994
UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE & CUSTOMS
Appellant and Respondent
- and -
BALHOUSIE HOLDINGS LIMITED Respondent and Appellant
TRIBUNAL: THE HONOURABLE LADY WOLFFE
(Sitting as a Judge of the Upper Tribunal)
Sitting in public in Edinburgh on 24 April 2017
Elisabeth Roxburgh, instructed by Office of the Advocate General, for the Appellant
Philip Simpson QC, instructed by Grant Thornton, for the Respondent
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DETERMINATION AND REASONS
Introduction
The Tribunal Decision Appealed Against
1. This is an appeal by the Commissioners for Her Majesty’s Revenue and Customs (“HMRC”)
against a decision of the First-tier Tribunal, sitting in Edinburgh, released on 31 May 2016,
[2016] UKFTT 377 TC (the “Tribunal Decision”), in which Judge Gemmell and
Judge Shearer allowed an appeal by the Appellant Balhousie Holdings Limited (“Balhousie”)
in respect of:
(i) a decision of HMRC, by letter dated 24 June 2014, that Balhousie was liable to a
VAT self-supply charge arising from the disposition of the Huntly residential care
home (“the Huntly care home”) to Target Healthcare REIT (“Target”) in March
2013 (the “Review Decision”); and
(ii) a decision of HMRC, by letter dated 9 February 2015, to issue a notice of penalty
assessment to Balhousie in respect of the Review Decision (the “Penalty Decision”).
Balhousie is the respondent to this appeal; it was the appellant before the First-tier Tribunal.
HMRC is the appellant in these proceedings before the Upper Tribunal. It was the
respondent in Balhousie’s appeal to the First-tier Tribunal. For ease of reference, I shall
refer to them by name, “Balhousie” and “HMRC”.
Procedural History
2. While the First-tier Tribunal refused to grant HMRC permission to appeal to the Upper
Tribunal (“the UT”), by a decision released on 26 September 2016, the UT allowed HMRC’s
application for permission to appeal, made under rule 21 of the Tribunal Procedure (Upper
Tribunal) Rules 2008.
The Issue
3. Balhousie operates 25 care homes. It also operates a VAT group with Balhousie Care (“BC”)
and three other subsidiaries. The issue in this appeal is whether Balhousie was liable to
account for VAT on a self-supply that arose as a consequence of BC’s sale of the Huntly care
home, which had been zero-rated when supplied to BC, to a third party (Target) in March
2013, and the immediate lease back of the Huntly care home from Target to BC. The answer
to this issue turns on the interpretation of Paragraph 36(2) of Schedule 10 to the Value Added
Tax Act 1994 (“the Act”) and the determination of whether or not, by virtue of those
arrangements, BC had “disposed of its entire interest” in the Huntly residential care home,
within the meaning of that provision.
Summary of Parties’ Positions
4. Balhousie argues that BC did not dispose of its “entire interest” in the Huntly care home
because the arrangements with the third party were a sale and lease back, and that one had to
look at the substance of those arrangements as a whole, and which had been governed by
missives between the parties. HMRC argues that the proper focus is on the individual
transactions, particularly the disposal. On that approach, BC disposed of its entire interest in
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the property on sale, notwithstanding the existence of an agreement immediately thereafter to
lease the Huntly care home back to BC.
Summary of the Tribunal Decision and Grant of Permission to Appeal to the UT
5. The First-tier Tribunal considered that the sale and lease back transaction was a composite
transaction forming a commercial unity. The First-tier Tribunal held that, although BC had
disposed of its entire interest in the care home for a scintilla temporis, the sale and lease back
was not a disposal of BC’s entire interest in the Huntly care home for the purpose of
paragraph 36(2) of Schedule 10 to the Act. Accordingly, the First-tier Tribunal allowed
Balhousie’s appeal. The UT granted HMRC’s application for permission to appeal on the
basis that “the question of whether a sale and leaseback should be regarded as involving a
disposal of the seller/lessee’s entire interest in the property for the purposes of Paragraph
36(2) of Schedule 10” was arguable.
The Relevant Statutory Provisions
6. It may assist to summarise the relevant statutory provisions before setting out their terms. Item
1 of Group 5 of Schedule 8 of the Act applies zero-rating (which may be beneficial to the tax
payer) to the first grant by a person constructing a building “intended for use solely for a
relevant residential ….purpose” of a “major interest” in the building. It is common ground
between the parties that the supply by Faskally Care Home Limited (“FC”) of the Huntly care
home to BC was correctly zero-rated. However, provision is also made in paragraphs 36 and
37 of Schedule 10 to the Act for the removal of zero-rating, in certain circumstances. These
circumstances include inter alia where the recipient of the supply of the building, which had
attracted zero-rating on the basis that it was intended to be used solely for a relevant purpose,
“has…disposed of [its] entire interest” in the building within a period specified by the
legislation. The recipient of the supply (here, BC) is treated as having sold the building to
itself immediately prior to that disposal. The practical effect is that the favourable zero-rating
is withdrawn from the date of that subsequent disposal.
7. I set out the relevant provisions, as follows.
8. Section 30(2) of the Act provides:
“(2) A supply of goods or services is zero-rated by virtue of this subsection if the
goods or services are of a description for the time being specified in Schedule 8 or the
supply is of a description for the time being so specified.”
9. Paragraph 1 of Group 5 in Schedule 8 to the Act provides:
“The first grant by a person—
(a) constructing a building—
(i) designed as a dwelling or number of dwellings; or
(ii) intended for use solely for a relevant residential or a relevant charitable
purpose; or
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