Trustees of the Nell Gwynn House Maintenance Fund v Customs and Excise Comrs

A trustee which directly employs staff to perform services supplies those services for VAT purposes. It does not merely arrange for its employees to supply them.

Money initially held on trust forms part of the taxable consideration when the trustee applies it beneficially to discharge its own liability for employees’ wages. The exclusion for expenses paid in a customer's name and for the customer's account does not cover those payments.

Separate supplies made by different suppliers cannot be fused into a single exempt supply. Maintenance services supplied by a maintenance trustee therefore do not share the exemption applicable to a landlord’s grant of a lease merely because the service charge is closely linked to that grant.

The trustees of a maintenance fund directly employed staff who managed, cleaned and maintained a block of flats. Tenants and the lessor paid maintenance contributions into a trust fund from which the staff’s wages were paid. The Commissioners assessed VAT by reference to those wages.

A VAT tribunal held that the trustees supplied the staff services for consideration. Popplewell J upheld that decision in [1994] S.T.C. 995. The Court of Appeal reversed it in [1996] S.T.C. 310, holding that the trustees merely arranged for staff to provide services.

The Commissioners appealed. The central issues were the identity and nature of the supply, the taxable consideration, the effect of the trust, the exclusions and land exemption under the Sixth VAT Directive (E.C. Council Directive 77/388), and the effect of Schedule 6A paragraph 7 of the Value Added Tax Act 1983.

1. Appeal allowed unanimously. Lord Slynn of Hadley delivered the leading speech. Lord Browne-Wilkinson, Lord Nolan, Lord Clyde and Lord Hutton agreed with his reasons.

2. Per Lord Slynn, the trustees supplied the services performed by the staff rather than merely arranging for their provision. The staff were directly employed under contracts of service by the trustees. The trustees engaged, controlled and could dismiss them, and would have been responsible for their wages and relevant employer duties. It was artificial to treat the individual employees as the suppliers. The contractual trust arrangements and the limitation of liability for employees’ acts did not alter that conclusion.

3. The taxable consideration included the maintenance money applied to staff wages. Although initially impressed with a trust, the money ceased to be trust money when properly applied to discharge the trustees’ own liabilities to their employees. At that point the trustees received it beneficially in consideration for the services supplied. This was the time of supply under section 5 of the Value Added Tax Act 1983, unless an earlier tax invoice had been issued.

4. Article 11A(3)(c) of the Sixth VAT Directive (E.C. Council Directive 77/388) did not exclude the wage amounts as disbursements. Once the staff were identified as the trustees’ employees, the payments were not expenses paid in the name and for the account of the tenants or lessor.

5. The maintenance services were not exempt as part of the grant of interests in land. Although the service charge was connected with the leases, the services and the leasehold interests were supplied by different taxable persons. Per Lord Slynn, approving Millett LJ’s conclusion in Customs and Excise Commissioners v Wellington Hospital [1997] S.T.C. 445, supplies by different suppliers cannot be fused into one supply.

6. Schedule 6A paragraph 7 of the Value Added Tax Act 1983 did not deem the trustees to have granted the leases. It addressed a grant made by a legal owner where the benefit of the consideration accrued to another person with the beneficial interest. Here the landlord received the consideration for the interests in land, while the trustees received maintenance money for separate services.

1. House of Lords: Allowed the Commissioners’ appeal unanimously and restored the conclusion that VAT was payable.
2. Court of Appeal: In [1996] S.T.C. 310, reversed Popplewell J and held that the trustees arranged for staff to provide services rather than supplying the staff services themselves.
3. High Court: Popplewell J, in [1994] S.T.C. 995, upheld the tribunal’s decision.
4. VAT tribunal: Upheld the Commissioners’ ruling that the trustees supplied services to the tenants and lessor for consideration and that VAT was payable.