VAT – Zero-rating – Lettings of car-parking spaces – Development of apartments let on long leases – Leases of on-site car-parking spaces subsequently granted to some tenants on payment of premium – Lettings of parking spaces assessed to VAT as standard-rated supplies – Whether properly regarded as zero-rated supply forming single economic transaction with apartment lettings – Whether two lettings sufficiently closely linked – Appeal dismissed
The appellant constructed three blocks of apartments, containing a total of 97 apartments, which it let on long leases to tenants between 2005 and 2006. The planning permission for the development contained a condition requiring the provision of on-site parking for occupants’ vehicles. However, it was only possible to provide 22 parking spaces. Of these, 11 were let to tenants at the same time as the lease of an apartment, under the same sale-and-purchase agreement. The remaining 11 spaces were let in 2007 to tenants who had expressed an interest, but a premium of £11,000 was charged. All parking spaces were let on identical leases for a term co-extensive with that of the relevant apartment lease.
The respondents decided that the appellant had made taxable supplies of the parking spaces and, in 2008, issued VAT assessments totalling £18,019. It was accepted that the 11 lettings that were contemporaneous with lettings of an apartment were zero-rated for VAT purposes. However, the respondents considered that the other 11 lettings of car-parking spaces were standard-rated supplies.
On appeal against that decision, the appellant contended that the lettings were zero-rated supplies within Group 5 of Schedule 8 to the Value Added Tax Act 1994 since they were sufficiently closely linked to the zero-rated apartment lettings as to be regarded as a single economic transaction. The respondents argued that, in order to qualify for zero-rating, the leases of car-parking spaces would have had to have been ranted at the same time as the relevant apartment lettings.
Held: The appeal was dismissed.
A letting of parking spaces would be zero-rated where it was so closely linked to a zero-rated letting of immoveable property that the two lettings constituted a single economic transaction: Skatteministeriet v Henriksen C-173/88 [1990] STC 768 applied. There was no requirement for the two lettings to take place at the same time, nor was it necessary for them to constitute a single supply: Card Protection Plan Ltd v Customs and Excise Commissioners [1999] STC 270 distinguished. However, a close link would not necessarily be automatic where the parking space and the apartment that were let formed part of the same complex, or were let to the same tenant by the same landlord. Instead, the factors that linked the two grants of leases had to be weighed against the factors that separated them.
In the instant case, the grants of the apartment leases and the parking space leases were not sufficiently closely linked as to form a single economic transaction. The fact that the two grants were separately documented legal transactions, and that a separate price was paid for the parking space leases, was not determinative in that respect, nor was the significant delay between the grant of the apartment leases and the parking space leases. However, in order to establish links that were close enough for a single economic transaction, there needed to be an arrangement or understanding, albeit short of a legal obligation, on the part of both parties that the elements of a single overall economic package would be completed. A mere possibility, at the time of grant of the apartment leases, that there might subsequently be a grant of a parking space lease to the tenant of the apartment did not represent a sufficient link between the two. In the instant case, there had been no arrangement or understanding that the grant of a parking space would follow the grant of an apartment lease. Although the parking spaces had to be let to an occupier of an apartment, it did not necessarily follow that such grant would be made in a particular case. The parking space lease was a separate economic transaction involving a separate offer, acceptance and agreement on price.
Alison Sampson, of Mazars LLP, appeared for the appellant; Richard Smith (instructed by the legal department of HM Revenue & Customs) appeared for the respondents.
Sally Dobson, barrister
