Value added tax – Supply – Exemption – Leasing or letting of immovable property – Appellant hotel owner offering room licensed for civil wedding ceremonies – Respondent commissioners assessing hire of room as standard-rated supply for VAT – Whether appellant actively exploiting room and adding significant value – Whether hire of room being exempt supply of leasing or letting of immovable property – Appeal dismissed
The appellant company owned and operated a large hotel in Newquay, Cornwall. The hotel had a room (the Tamarisk Room) which was approved under the Marriages and Civil Partnerships (Approved Premises) Regulations 2005 as premises in which civil marriage ceremonies might take place. Other parts of the hotel were available for wedding receptions. In all cases where it was used, the appellant treated the hire of the Tamarisk Room for civil wedding ceremonies as a supply of land which was exempt from VAT under group 1 of Schedule 9 to the Value Added Tax Act 1994. The respondent commissioners considered that where a customer held both a ceremony and a reception in the hotel (a wedding package), the supply was not exempt and that the appellant should have charged and accounted for VAT at the standard rate on the hire of the Tamarisk Room. They raised an assessment accordingly.
The First-tier Tribunal dismissed the appellant’s appeal holding, among other things, that the hire of the room was a separate supply for VAT purposes, even where it was sold as part of a wedding package. However, the separate supply of the Tamarisk Room was not an exempt supply of the “grant of any interest in or right over land or of any licence to occupy land” within item 1 of Group 1 of Schedule 9 to the 1994 Act or the “leasing or letting of immovable property” within article 135 of Council Directive 2006/112/EC (the principal VAT Directive) but was a standard-rated supply. The provision of approved premises in which a civil wedding could legally be carried out was beyond the “passive letting of land” and outside the scope of the exemption for leasing or letting of property.
The appellant appealed against the FTT’s decision that the supply of the Tamarisk room was standard-rated. The issue on appeal was whether the hire of the room was an exempt supply of the leasing or letting of immovable property.
Held: The appeal was dismissed.
(1) In order to be a supply of the leasing or letting of immovable property, a transaction between an owner of an interest in a property (the landlord) and another person (the tenant) had to: confer on the tenant the right to occupy the property as if the tenant were the owner; allow the tenant to exclude from enjoyment of such a right persons who were not permitted by law or by the contract to exercise a right over the property; be for an agreed period which could be restricted but could not be occasional and temporary; and be in return for payment. How the transaction was classified by the parties was not determinative and regard had to be had to the objective character of the transaction. It was necessary to take account of all the characteristics of the transaction and the circumstances in which it took place. Where the landlord, as part of the same transaction, actively exploited the property to generate significant added value, the transaction was excluded from the scope of the exemption; Belgium v Temco Europa SA (Case C-284/03) [2005] STC 1451, Macdonald Resorts Ltd v Revenue and Customs Commissioners (Case C-270/09) [2011] STC 412; [2011] PLSCS 11, Regie communale autonome du stade Luc Varenne v Belgium (Case C-55/14) [2015] STC 922 and Stichting “Goed Wonen” v Staatssecretaris van Financien (Case 326/99) [2003] STC 1137 applied.
(2) The requirement under the 2005 Regulations that members of the public had to be allowed access during the ceremony was a legal requirement which gave members of the public a right of access. The rights of the appellant as owner were subject to that legal requirement and it followed that the right of the customer to occupy the Tamarisk Room was also subject to that requirement. But the mere fact that the customer could not assert exclusivity with respect to members of the public exercising their rights of access did not prevent the occupation having the necessary quality of exclusivity to amount to a letting of immovable property within article 135(1)(l). As any owner would be subject to the rights of access provided as a matter of law, such rights of access were not inconsistent with a right to occupy as an owner. The finding of the FTT to the contrary did not accord with the decision in Belgium v Temco Europa SA and was an error of law.
(3) However, a supply could not be characterised as a leasing or letting of immovable property within the scope of the exemption if the landlord did more than simply make property available to the tenant for a period, but actively exploited the property to add significant value to the supply. In the present case, the appellant had added significant value to the simple provision of space when it hired out the Tamarisk Room to customers. It had actively exploited the room by obtaining approval for its use for the solemnisation of marriage and the formation of civil partnerships and performing all the required activities to maintain such approval. Those activities went further than simply ensuring that use by the customers of the room was not disturbed by third parties. The appellant’s role was more active than that which would arise from a mere letting of immovable property. By its active exploitation of the Tamarisk Room, the appellant had added significant value to the supply of the room. Therefore, the supply of the room was outside the scope of the exemption for the leasing and letting of immovable property: Goed Wonen and Temco and Luc Varenne applied.
Timothy Brown (instructed by Dave Brown VAT Consultancy) appeared for the appellant; Sarabjit Singh (instructed by the General Counsel and Solicitor to HM Revenue and Customs) appeared for the respondents.
Eileen O’Grady, barrister
Read a transcript of Blue Chip Hotels Ltd v Commissioners of HM Revenue and Customs here
