A VAT and property teaser


Church building with a modern twist
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‘ teaser ad’, noun, ‘an advertisement that aims to make people interested in a new product by giving only a little information about it, with more to be provided later’

(Cambridge Dictionaries online)

My book on VAT and property, published on Friday 13 February, was, like all legal commentaries, out-of-date before it even saw the light of day. Writing the book was like running after a bus that was always pulling away just as you arrived at the stop. A series of tax groundhog moments, if you like.

The cut-off date for the text was 31 August 2014 – chosen because not much normally happens tax-wise during August and because it gave me a realistic prospect of getting the thing off my desk before Christmas. This month I want to mention three cases which would have been included in the book had they made the deadline.

First is the decision of the First-tier Tribunal in Roden.  I am becoming a fan of Judge Barbara Mosedale – maybe it’s because I believe she used to be a solicitor – and she didn’t let the sisterhood down. The question was whether the exclusion from VAT exemption of supplies of certain types of accommodation in an hotel applied where the recipient was not the guest. The question arose because of the interaction of the EU VAT rules for supplies through an undisclosed agent (which, needless to say, had been incorrectly transposed into UK law) and the exclusion from exemption of supplies of hotel-type accommodation.

Mr and Mrs Roden owned a long lease of an apartment in an hotel managed by a third party. The manager acted as undisclosed agent in renting the flat to guests which, under EU law, had to be treated as a supply by the Rodens to the manager of the flat followed by a supply by the manager to the guest. The Rodens argued that the VAT paid by them on the purchase of the lease was recoverable as attributable to their deemed onward taxable supplies of hotel-type accommodation to the manager.

HMRC contended that the exclusion from exemption was limited to the supply to an end-user. Judge Mosedale pointed out that exclusions from exemption are not to be interpreted strictly – only the exemptions are. Construing the UK provision in accordance with its EU counter-part the deemed supplies from the Rodens to the manager were taxable.

The second ‘stop-press’ item is the decision of the Upper Tribunal in Astral Construction Limited. Astral had built a nursing home incorporating a redundant church which represented less than a sixth of the area of the new building. Astra’s analysis was that they had made zero-rated supplies of the construction of a building designed for use for a relevant residential purpose. HMRC considered that Astral had extended the existing church so that the works were standard rated.

In a twenty-three page judgement agreeing with the First-tier Tribunal (and applying CCE v Marchday Holdings), the Upper Tribunal helpfully observed that ‘the question of whether the construction of a new building or buildings connected to the church was an enlargement or extension to the church is a question of fact, degree and impression’. The Upper Tribunal concluded that the work constituted the construction of a building. If the works had not been the construction of a new building, the Upper Tribunal was of the view that (as HMRC had originally ruled) they would have constituted a special residential conversion, subject to a reduced rate of 5%, as after the conversion, the converted premises (the church) formed the entirety of the nursing home.

The decision of the First-tier Tribunal in Astral was noted in Chapter Six of the book.  At page 238 I gave my thoughts on the slightly surprising outcome in the Royal College of Paediatricians and Child Health case before the First-tier Tribunal. One of the issues was whether the sale of an opted property by a developer subject to a conditional agreement for lease constituted a transfer of a going concern. On this the silver tongued Michael Conlon QC failed to work his magic for a second time before the Upper Tribunal (in the form of Birss J who, according to Wikipedia, has a first class honours degree in metallurgy and materials sciences). Michael did however succeed for the taxpayer on the ground that HMRC’s assessment was time-barred. I wish I was writing that section of the book now as I don’t agree with Birss J’s reasoning on the TOGC point but I bet he knows more about graphene than I do.

Those of you who have no idea what I’m on about can buy the book.


Tax lawyer specialising in business tax, SDLT and VAT

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