Principal and Fellows of Newnham College in the University of Cambridge v Revenue and Customs

The House considered the meaning of "in occupation of the land" in paragraph 3A(7) of Schedule 10 to the Value Added Tax Act 1994, as amended, and whether Newnham College remained in occupation of its new library after granting an 11-year lease to a wholly owned company. The court applied the established distinction between mere use and occupation drawn from Court of Justice authorities (notably Sinclair Collis and Lindöpark) and concluded that occupation requires a degree of possession or control over the use of the premises sufficient to be akin to the right to occupy and to exclude others.

On the facts, taking the lease and the back-to-back service, hire and secondment arrangements at face value, the college did not retain such a right of occupation: the company had exclusive possession in law and exercised day-to-day control through the librarian and staff seconded to the company. Paragraphs 2(3AA) and 3A(7)–(13) of Schedule 10 were therefore not engaged and the grant was a taxable supply.

Background and parties. Newnham College built a new library and sought to recover input value added tax by granting the library to a wholly owned shelf company and electing under Schedule 10 to the Value Added Tax Act 1994 for the grant to be a taxable supply. Her Majesty's Revenue and Customs challenged the arrangement on the basis that the college remained "in occupation" of the library under paragraph 3A(7) (as inserted by section 37 of the Finance Act 1997) so that the grant was not a taxable supply by virtue of paragraph 2(3AA).

Procedural history. The VAT Tribunal held in the Commissioners' favour, treating the arrangements as amounting to occupation by the college. The Court of Appeal ([2006] EWCA Civ 285) reversed, holding that occupation by the college had not been established. The Commissioners appealed to the House of Lords.

Nature of claim and issues. The central issue was statutory construction and fact: what "occupation" means in para 3A(7) of Schedule 10 and whether, on the specific documentary and factual matrix (lease to the company; sale of books and chattels to the company; hire/service agreement; secondment of library staff; administration agreement), the college was in occupation of the library either alone or together with the company.

Reasoning. The majority treated the expression consistently with the jurisprudence of the Court of Justice (Sinclair Collis, Lindöpark, Temco), distinguishing mere use or access from occupation which involves possession or a degree of control over the use of the premises and the ability to exclude others. The agreements were examined: the company had exclusive legal possession under the lease; library staff were seconded to act for the company; the librarian and staff controlled access and discipline; the college's rights were contractual rights to services and use of books rather than rights of occupation. The Tribunal’s emotive emphasis on the tax-avoidance intention did not change the legal character of the arrangements because the Commissioners did not ask the court to apply the EC doctrine of abuse of rights (Halifax). On these grounds the majority dismissed the Commissioners’ appeal and affirmed the Court of Appeal. Two members of the House dissented, taking a more fact-sensitive view and concluding the college retained sufficient possession and control to amount to occupation.

Wider context. The majority limited their decision to the proper construction and application of the anti-avoidance provisions in Schedule 10 on the facts, and did not decide whether the broader EC abuse doctrine would have produced a different result.

Appeal dismissed. The House held that for the purposes of paragraph 3A(7) of Schedule 10 to the Value Added Tax Act 1994 "occupation" requires more than the college's members merely using the library; it requires a degree of possession or control over the premises. On the facts, taken at face value, the lease and the back-to-back contractual arrangements left exclusive legal occupation and day-to-day control with the company (including control exercised by the librarian under secondment), so the college was not "in occupation" and the grant remained a taxable supply. The court did not apply the EC doctrine of abuse of rights (Halifax) because the Commissioners disclaimed reliance on it.

First instance: VAT Tribunal (found in favour of the Commissioners that the college was in occupation). Court of Appeal: [2006] EWCA Civ 285 (Chadwick LJ) reversed the Tribunal and held occupation by the college was not established. House of Lords (this judgment): [2008] UKHL 23 — appeal by HM Revenue & Customs dismissed, upholding the Court of Appeal.