Trustee managing maintenance fund for upkeep of property – Trustee remunerated out of fund – Whether trustee supplying service or merely arranging for service to be carried out – Whether consideration received by trustee whole amount of maintenance contribution or only trustee’s remuneration – Whether holding maintenance contributions on trust affecting liability to VAT – Court of Appeal holding trustees not liable to pay VAT – Appeal allowed
The taxpayers were three partners in a firm of solicitors and were the trustees of the Nell Gwynn House Maintenance Fund. By an agreement of appointment made between the superior lessor of a block of 435 flats known as Nell Gwynn House, London, the freeholder and H, H, as one of the trustees, undertook to apply the sums received as part of the fund, inter alia,”to ensure that there is at all times with the Building a competent office and porterage staff . . . to properly supervise all outside contractors who may work at the building in particular cleaning contractors”. Leases between the freeholder, the maintenance trustee and the tenants were substantially in the same form, providing that “The maintenance contributions shall mean a sum equal to one four hundred and thirty fifth of the aggregate annual maintenance provisions for the whole of the Building for each maintenance year”. By clause 5A, “The maintenance trustee shall retain out of the sums received . . . its remuneration . . .”. Prior to the handing over of the fund, previous trustees voluntarily disclosed to the commissioners that there had been an underpayment of VAT in respect of salaries and wages of staff employed for the period June 10 1990 to March 31 1993 in the sum of £134,064.47. The commissioners ruled that the disclosure had been made correctly. The trustees appealed. The judge upheld the decision of the VAT Tribunal that the tax was payable. The Court of Appeal held that the trustees were not liable to pay that VAT. The commissioners appealed.
Held The appeal was allowed.
1. The trustees could have fulfilled their obligations under the lease by contracting with third parties for the provision of services and, therefore, only the arranging for services would have constituted a taxable supply. However, they had entered into contracts of employment or service with individual members of staff who were employed directly, and therefore it was provision of services constituting supply.
2. When the trustees took the moneys that were in the fund to pay the staff to carry out their obligations under the lease they were receiving the moneys beneficially in consideration of the services provided. When the trustees applied the moneys in the trust fund for those purposes, they ceased to be trust moneys and, accordingly, that was the time of supply within section 5 of the Value Added Tax Act 1983.
3. Once it was established that the staff being paid were employed by the trustees by means of moneys that became their moneys beneficially for the purpose of paying the trustees’ employees, they were not the “repayment for expenses paid out in the name and for the account of” the purchasers or customers. The trustees could not rely on either Article 11(A)(3)(c) of the Sixth Directive as excluding the amounts beyond the specified remuneration from the taxable amount, nor on group 1, item 1 of Schedule 6 to the 1983 Act as excluding the supplies of maintenance, upkeep and cleaning of the building.
Roderick Cordara QC and Perdita Cargill-Thompson (instructed by Mainprice & Co) appeared for the trustees; Nigel Pleming QC and Michael Kent QC (instructed by the solicitor to Customs & Excise) appeared for the Crown.
Thomas Elliott, barrister