Summary
The VAT land exemption applies to a relatively passive supply of premises. An upfront fractional interest can confer a sufficient right to occupy despite a reservation system. However, where the essential object of the composite supply is pre-paid accommodation in a hotel-like setting with hotel-type services over several years, those services are not ancillary or plainly accessory and the exemption does not apply.
Alternatively, the hotel-sector exclusion may apply. The duration of the underlying right is not determinative. A tribunal may consider the length and characteristics of individual stays, the premises and attendant services. An appellate tribunal should not disturb that multi-factorial assessment absent an error of principle.
Factual background
Fortyseven Park Street Limited sold long-term fractional interests in furnished residences at 47 Park Street, Mayfair. Members paid lump sums for annual occupancy rights, subject to reservation, together with associated benefits and hotel-type services. The First-tier Tribunal found that the supplies fell within the land exemption but were excluded by Item 1(d), so VAT was payable at the standard rate.
The Upper Tribunal held that the supplies were land-exempt and that Item 1(d) did not apply, allowing the company’s appeal in [2018] UKUT 41 (TCC). HMRC appealed on whether the supplies conferred a sufficient right to occupy, involved significant added value, or were excluded as hotel-sector accommodation.
Held
Lord Justice Newey gave the leading judgment. Lord Justice Henderson and Lord Justice Longmore agreed. The appeal was allowed.
- The reservation system did not prevent the land exemption from applying. A Member obtained a sufficient right to occupy from the outset. The reservation process was facilitative, and the possibility that occupancy might not be available was highly theoretical.
- The contractual position was the most useful starting point when identifying the supplier. The Manager had no contract with Members, whereas FPSL undertook contractual responsibility to procure the Manager’s services. There was no artificial arrangement displacing that analysis. The Manager’s services were therefore supplied via FPSL, although the Manager’s collection of the annual fee did not itself determine the analysis.
- The lump-sum supply had to be assessed separately from the ongoing delivery of hotel-type services. Its essential object was pre-paid accommodation in a hotel-like setting, with hotel-type services over a number of years. The services were not ancillary or plainly accessory. The supply was therefore more than the passive making available of premises and fell outside the land exemption under article 135(1)(l) of the Principal VAT Directive and the Value Added Tax Act 1994.
- Alternatively, Item 1(d) applied. The premises were a similar establishment to a hotel and the Fractional Interests carried rights to sleeping accommodation. The First-tier Tribunal was entitled to consider the short and flexible nature of individual stays, together with the facilities and services provided. The long-term character of the underlying right was not determinative. The Upper Tribunal erred in principle by focusing on that feature and was not entitled to disturb the First-tier Tribunal’s multi-factorial assessment.
The appeal was accordingly allowed on Issue 2 and, alternatively, on Issue 3.
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Appellate history
- Court of Appeal (Civil Division) — HMRC’s appeal allowed. The Upper Tribunal’s decision was reversed on the land exemption and, alternatively, Item 1(d) was held applicable.
- Upper Tribunal (Tax and Chancery Chamber) — In [2018] UKUT 41 (TCC), the company’s appeal from the First-tier Tribunal was allowed. The supplies were held land-exempt and outside the hotel-sector exclusion.
- First-tier Tribunal — Found that the supplies were within the land exemption but subject to Item 1(d), so VAT was payable at the standard rate. Citation not stated in the judgment.
Appeal route
- Appealed from[2018] UKUT 41 (TCC)This appealappeal allowed
- This judgment [2019] EWCA Civ 849 Court of Appeal (Civil Division)
Key cases cited
15 authorities cited.
- Airtours Holidays Transport Limited v Commissioners for Her Majesty’s Revenue and Customs [2016] UKSC 21
- Her Majesty’s Revenue and Customs v Aimia Coalition Loyalty UK Limited (formerly known as Loyalty Management UK Limited) [2013] UKSC 15
- Commissioners of Customs and Excise v. Sinclair Collis Limited [2001] UKHL 30
- Minister Finansów v Wojskowa Agencja Mieszkaniowa w Warszawie Case C-42/14
- Régie communale autonome du stade Luc Varenne v Kingdom of Belgium (Régie communale autonome du stade Luc Varenne v État belge) Case C-55/14
- Revenue and Customs Comrs v Newey (trading as Ocean Finance) Case C-653/11
- Revenue and Customs Comrs v Loyalty Management UK Ltd and Baxi Group Ltd [2010] STC 265
- Belgium v Temco Europe SA [2004] ECR I-11237
- Sinclair Collis Ltd v Customs and Excise Commissioners Case C-275/01
- Swedish State v Stockholm Lindöpark AB Case C-150/99
- Card Protection Plan Ltd v Customs and Excise Comrs Case C-349/96
- Blasi v Finanzamt München 1 [1998] STC 336
- Faaborg-Gelting Linie A/S v Finanzamt Flensburg [1996] ECR I-2395
- Tolsma v Inspecteur der Omzetbelasting Leeuwarden [1994] STC 509
- Apple and Pear Development Council v Customs and Excise Comrs [1988] STC 221
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Cases citing this case
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