The Lilias Graham Trust v The Commissioners for HMRC

For VAT purposes, where accommodation forms part of a single composite supply of welfare services, the reference to the supply of accommodation in Note 7 to Group 7 of Schedule 9 to the Value Added Tax Act 1994 does not permit that element to receive separate tax treatment. The statutory expression “ancillary” in Note 7 does not incorporate the European test used to identify an ancillary supply in Card Protection Plan v CCE (Case C-349/96). In this context, accommodation is ancillary where it is not essential to the provision of care, treatment or instruction. The statutory provision must be construed in its European legal context, including the mandatory welfare exemption and the requirement that non-essential supplies are excluded.

The appellant charity operated a residential assessment centre for families referred by local authorities. It provided accommodation, parenting-capacity assessment, advice, support and specialist input for a fixed weekly fee.

The First-tier Tribunal held that the supplies were exempt welfare services under Item 9 of Group 7 of Schedule 9 to the Value Added Tax Act 1994. It also held that the accommodation was ancillary to the care and therefore fell within the exception in Note 7. The appellant accepted the welfare-services conclusion but appealed the treatment of accommodation, arguing that it was separately identifiable and that “ancillary” had to be understood by reference to the European case law on composite supplies.

1. The appeal was dismissed. The First-tier Tribunal had made no error of law.
2. The appellant accepted that its activities constituted a single supply. The tribunal was therefore entitled to determine that question before considering Note 7. The European authorities require the characterisation of a transaction comprising several elements as a single or multiple supply before considering VAT rates or exemptions. The reasoning in Colaingrove Ltd v HMRC [2017] EWCA Civ 332 supported treating “supply” in Note 7 as a supply for VAT purposes, rather than as any separately identifiable component. The definition of “supply” in section 5(2)(a) did not require a different result.
3. The fact that legislation may impose different VAT treatment on concrete and specific aspects of a composite supply did not assist the appellant. Director General, Mauritius Revenue Authority v Central Water Authority [2013] UKPC 4, Talacre Beach Caravan Sales Ltd v CCE (Case C-251/05) and European Commission v France (Case C-94/09) concerned statutory derogations permitting differentiated treatment. The welfare exemption under Article 132(1)(h) of the Principal VAT Directive was mandatory. Applying separate tax treatment to accommodation within a single exempt welfare supply would undermine that harmonised exemption.
4. The European definition of an ancillary supply in Card Protection Plan v CCE (Case C-349/96) was directed to characterising composite supplies and was not incorporated into Note 7. The appellant’s proposed interpretation would produce the anomalous result that accommodation essential to care was less likely to be exempt. The better interpretation was that accommodation or catering was ancillary where it was not essential to the care, treatment or instruction. That interpretation was consistent with Article 134 of the Principal VAT Directive.
5. The tribunal did not determine further grounds concerning the land exemption or whether the accommodation was a similar establishment to a hotel, inn or boarding house, because those grounds depended on the appellant first succeeding on Note 7.

• First-tier Tribunal: The FTT issued a decision on 29 August 2019, amended on review and issued on 10 March 2020. It held that the appellant’s supplies were exempt welfare services and that the accommodation was ancillary under Note 7.
• Upper Tribunal (Tax and Chancery Chamber): The appeal against the treatment of accommodation was dismissed.