Summary
In a multi-party VAT arrangement, the court must distinguish two stages. First, it must identify the parties’ true contractual rights and obligations by construing the agreement and considering whether it was a sham or was not operated. Secondly, it must classify those rights and obligations for VAT purposes, including identifying who supplied what to whom. Contractual terms are the starting point and will often also be decisive, but they do not invariably determine the statutory VAT classification. A customer’s perception is not relevant to contractual construction, although evidence may show that the apparent contract was not the real bargain. A tribunal must not elide construction and classification. Failure to apply that structured approach justified allowing the appeal and remitting the matter for reconsideration.
Factual background
A1 Lofts Ltd appealed on a point of law from a VAT Tribunal decision, reported as [2008] UKVAT V20888. The Tribunal had held that A1 Lofts supplied homeowners with complete loft conversions and was accountable for VAT on the whole building service, rather than only for project management.
The dispute concerned written terms under which A1 Lofts described itself as the homeowner’s agent and the contractors as independent contractors to the client. The central questions were whether the contractors supplied their services to the homeowner or to A1 Lofts, what services A1 Lofts supplied, and whether the contractual arrangements represented the parties’ true relationship.
Held
- Appeal allowed and remitted. The Tribunal’s decision was set aside for reconsideration in the light of the judgment.
- The correct analysis has distinct stages. The Tribunal should first construe the contractual arrangements and identify the parties’ true rights and obligations. Where the arrangements are wholly written, this is ordinarily a question of construction. Where they are partly oral, what the parties said and did may illuminate the contractual obligations.
- The apparent contract may be displaced if it is a sham, if the parties failed to operate it, or if the evidence is wholly inconsistent with it. Subjective understandings and a customer’s perception do not determine the construction of the contract.
- After identifying the true rights and obligations, the Tribunal must classify them for VAT purposes. That classification may require consideration of statutory deeming provisions, the statutory description of a supply, whether there is one contract or more than one, and whether there is one supply or several. The relevant questions included to whom the contractors supplied their services and what A1 Lofts supplied to the client.
- The approaches in Kieran Mullin Ltd v Customs and Excise Commissioners and Customs and Excise Commissioners v Reed Personnel Services Ltd were not inconsistent. The former emphasised identifying contractual rights and obligations; the latter concerned their subsequent classification for VAT. The Tribunal erred by treating them as conflicting and by eliding those stages.
- The Tribunal had not properly construed the agreement or squarely determined whether it represented the real bargain. Its reasoning about customer perception, agency, the entire-agreement clause and the right to withdraw contractors was incomplete or internally inconsistent. The matter therefore required remittal rather than a final determination of the VAT liability.
The court’s approach to earlier authorities
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Appellate history
- High Court (Chancery Division): appeal from the VAT Tribunal allowed. The Tribunal’s decision, reported as [2008] UKVAT V20888, was remitted for reconsideration.
Key cases cited
14 authorities cited.
- TRM Copy Centres (UK) Limited and others (Respondents) v Lanwall Services Limited (Appellants) [2009] UKHL 35
- Commissioners of Customs and Excise v. Plantiflor [2002] UKHL 33
- Agnew v Comr of Inland Revenue [2001] UKPC 28
- Eastbourne Town Radio Cars Association v. Commissioners of Customs & Excise [2001] UKHL 19
- Carmichael v National Power Plc [1999] 1 WLR 2042
- Street v Mountford [1985] AC 809
- Tesco Plc v Commissioners for Customs and Excise Rev 1 [2003] EWCA Civ 1367
- Spearmint Rhino Ventures (UK) Limited v Revenue and Customs Commissioners [2007] STC 1252
- Debenhams Retail plc v Customs and Excise Commissioners [2005] STC 1155
- Ringside Refreshments Ltd v Customs and Excise Commissioners [2004] STC 426
- Kieran Mullin Ltd v Customs and Excise Commissioners [2003] STC 274
- Customs and Excise Comrs v Reed Personnel Services Ltd [1995] STC 588
- Customs and Excise Commissioners v MacHenrys (Hairdressing) Ltd [1993] STC 170
- Customs and Excise Commissioners v Music and Video Exchange Ltd [1992] STC 220
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Cases citing this case
4 later cases · 3 positive · 1 neutral
Most senior citing decisions:
- The Commissioners for Her Majesty's Revenue and Customs v Secret Hotels2 Limited [2014] UKSC 16 approved
- Secret Hotels2 Ltd v HM Revenue and Customs [2012] EWCA Civ 1571 considered
- Edwards & Anor v Business Environment Ltd & Ors [2014] EWHC 3540 (Ch) approved
- The Commissioners for HMRC v Perenco UK Limited [2023] UKUT 169 (TCC)
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