Newnham College In the University of Cambridge v HM Revenue & Customs

For the purposes of paragraph 3A(7) of Schedule 10 to the Value Added Tax Act 1994, occupation requires more than a right to use land. It requires some degree of control over what others may do there.

Students and fellows who merely use premises do not occupy them. Employees who remain employed by the grantor may act solely under the direction of the lessee, so their presence and control are not the grantor’s. A parent’s control of a subsidiary does not itself make the subsidiary’s occupation that of the parent. Separate legal personality prevails absent a sham or façade. Legislative purpose cannot extend the enacted words.

The College elected to waive exemption in respect of land on which it rebuilt and refurbished its library. It granted a lease to its wholly owned subsidiary, Newnham College Library Company Ltd, and entered into related arrangements for library assets, staff and services.

The Commissioners treated the election as ineffective under paragraph 2(3AA) of Schedule 10 to the Value Added Tax Act 1994, on the basis that the College remained in occupation and the land would therefore be exempt land. The VAT and Duties Tribunal upheld that decision in LON/03/0913. The central issue on the direct appeal was whether the College remained in occupation through library users, seconded employees or its control of the subsidiary.

1. Appeal allowed. The Tribunal’s decision and the Commissioners’ decision that the election was ineffective were set aside.
2. Paragraph 2(3AA) of Schedule 10 to the Value Added Tax Act 1994 restricts an election where the grantor is a developer and the land is intended or expected to become, or remain, exempt land. Under paragraph 3A(7), occupation requires more than use. Consistently with Sinclair Collis [2001] UKHL 30, it requires some degree of control over what persons not also in occupation may do on the land.
3. The use of the library by students and fellows did not amount to occupation by the College. They had no control over access to or use of the library by others. The reasoning in Brambletye School Trust was distinguishable: that case turned on the school’s own staff being present and controlling use while delivering educational services.
4. The library staff remained College employees, and the College retained disciplinary and dismissal powers. However, under the secondment arrangements they performed their unchanged duties under the direction of the subsidiary. Their presence and control therefore did not constitute presence and control by the College.
5. The subsidiary’s separate legal personality could not be disregarded merely because the College owned its shares and controlled its board. Complete control alone was insufficient. The arrangements were contrived but were not alleged to be a sham or façade. The principles in Salomon [1897] AC 22 and Tunstall [1962] 2 QB 593 applied.
6. The statutory purpose may guide construction, but the Court could not go outside the enacted legislation. The College’s tax-avoidance motive therefore could not expand the statutory meaning of occupation.

1. Court of Appeal (Civil Division): Appeal allowed. The Tribunal’s decision and the Commissioners’ decision letter of 23 August 2003 were set aside.
2. VAT and Duties Tribunal: In LON/03/0913, released on 14 February 2005, the Tribunal upheld the Commissioners’ conclusion that the election to waive exemption was ineffective.
3. Direct appeal procedure: The Tribunal certified a point of law under article 2(b) of the Value Added Tax Tribunals Order 1986; the Commissioners consented and leave was granted.