Nell Gwynn House Maintenance Fund v. Commissioners of Customs and Excise

The House of Lords held that the Maintenance Trustee supplied taxable services for value added tax purposes because it employed staff directly under contracts of service and provided their services to tenants and the lessor, rather than merely arranging for third parties to provide services. The taxable amount included the moneys from the Maintenance Fund applied to pay staff because, when so applied, those moneys became beneficially received by the Trustee as consideration. The court rejected reliance on Article 11A(3)(c) of the Sixth VAT Directive (repayments of expenses) and held that the exemption for the grant of interests in land (Article 13B(b) / Group 1, item 1 of Schedule 6) did not extend to treat the separate supply by the Trustee as exempt. The court also rejected the respondents' reliance on Schedule 6A paragraph 7 of the 1983 Act.

This dispute concerned whether value added tax was payable on salaries and wages of staff employed and paid from a maintenance fund for a block of flats called Nell Gwynn House. The Trustees (a firm of solicitors, Graham Harvey) acted under an appointment agreement and leases which required maintenance contributions to a Maintenance Fund and empowered the Maintenance Trustee to employ staff and apply the fund for purposes set out in the Fourth Schedule. The Maintenance Trustee employed a general manager and other staff directly, ran a letting office for certain flats and supervised cleaning, porterage and other services.

The Commissioners assessed VAT in respect of staff wages for relevant periods and the Trustees appealed. The case proceeded from the VAT Tribunal (which found VAT payable), to Popplewell J (who upheld the Tribunal), to the Court of Appeal (which reversed and held no VAT liability), and thence to the House of Lords.

The House of Lords was invited to resolve five linked issues, principally (i) whether the Trustee was supplying services itself or merely arranging for services, (ii) what constituted the consideration / taxable amount, and (iii) whether trust status of the receipts, Article 11A(3)(c) (repayments of expenses), the exemption for grants of interests in land (Schedule 6 / Article 13B(b)), or Schedule 6A paragraph 7 prevented VAT being charged. The court concluded (i) the Trustee itself supplied the services because it employed staff under contracts of service and exercised employer control, (ii) the taxable amount included the Maintenance Fund moneys applied to pay staff wages because those moneys became beneficially received by the Trustee when applied, (iii) Article 11A(3)(c) did not apply, (iv) the exemption for the grant of interests in land did not extend to fuse the separate supply made by a different supplier into an exempt supply, and (v) Schedule 6A paragraph 7 was irrelevant to the factual matrix. The Commissioners limited their claim to staff wages and did not pursue other costs.

Appeal allowed. The House of Lords held that the Maintenance Trustee itself supplied the services because it engaged staff under contracts of service and therefore the moneys applied from the Maintenance Fund to pay staff formed part of the taxable amount. Article 11A(3)(c) did not exclude those sums, the land‑letting exemption did not apply to the separate supply by the Trustee, and Schedule 6A paragraph 7 was not applicable.

VAT Tribunal (upheld Commissioners' assessment) -> High Court (Popplewell J) [1994] S.T.C. 995 (upheld Tribunal) -> Court of Appeal [1996] S.T.C. 310 (reversed) -> House of Lords [1998] UKHL 50 (appeal by Commissioners allowed).