Care home operator Balhousie Holdings Ltd (BCL) has escaped an £800,000 VAT bill over a care home it built in Scotland in 2012.
Under VAT regulations, some building supplies are zero-rated for VAT when used for residential buildings or buildings used for charity purposes, as long as the recipient of the tax break doesn’t dispose of its interest in the building.
To finance the construction, in 2013 BCL negotiated a sale-and-leaseback agreement with a real estate investment trust.
That led HMRC to seek to claim back £800,000 of VAT from BCL, saying the sale and leaseback meant it had, during the 10-year window, relinquished its interest in the property.
Balhousie disagreed and appealed. And the case made its way up the chain of tribunals to the Supreme Court, which today ruled it wasn’t liable for the bill.
Lord Briggs said in today’s judgment: “This litigation raises what is, when all is said and done, a very short point of construction about the non-technical wording of an apparently simple provision in a taxing statute.”
The “taxing statute” he was referring to is group 5 of schedule 8 to the Value Added Tax Act 1994, which provides for the zero rating of four classes of supplies made in connection with the construction or conversion of buildings intended to be used for relevant residential or charitable purposes.
“Perhaps because of the large amount at stake (in excess of £800,000), this short question has become over-complicated by a large number of interesting but ultimately inconclusive arguments,” he said.
Such arguments included whether there was an instant of time between the sale and the leaseback, whether they were to be regarded for this VAT purpose as a single composite transaction or as two transactions, whether the VAT principle of fiscal neutrality applied, and whether the jurisprudence of the CJEU applied to the task of construction.
Ultimately, however, there is a simple answer. The sale and leaseback didn’t at any point destroy BCL’s interest in the property, it simply moved its interest from an ownership interest to a leasehold interest.
“It follows in my judgment that BCL did not, by its sale and leaseback of the home, dispose of its entire interest therein, so this appeal should be allowed,” Lord Briggs said.
Balhousie Holdings Ltd (Appellant) v Commissioners for Her Majesty’s Revenue and Customs (Respondent) (Scotland)
Supreme Court (Lord Hodge, Lord Briggs, Lady Arden, Lord Sales, Lord Carloway) 31 March 2021
