Value added tax – Exemption – Letting or leasing of immovable property – Respondent operating self-storage business involving use of storage units by customers for a fee – Whether appellants correctly characterising respondent’s supplies as supplies of services chargeable to VAT at standard rate – Whether respondent making exempt supplies of lettings or leasings of immovable property – Appeal allowed
The respondent operated a business that involved charging a fee to customers to store goods in secure and numbered storage units. The appellants determined that the business involved the supply of services that were chargeable of VAT at the standard rate. Allowing the respondent’s appeal against that decision, the first-tier tribunal (FTT) held that the respondent was making exempt supplies comprising the letting or leasing of immovable property.
The FTT found that the respondent’s premises comprised a concrete-surfaced compound, surrounded by a secure perimeter fence and monitored by 24-hour security, and containing approximately 300 individual, self-contained, steel-clad storage units, positioned in rows. Each unit weighed 600kg and was designed to hold up to six tonnes of goods when sitting on a flat surface. It took a trained team of three self-employed fitters one day to construct each unit on-site, after which the unit was lifted into place by “tele-handler” machinery.
Although the units were not attached to the ground, they were not designed to be lifted or moved with goods inside them. The respondent had no intention of removing any of the units, although, if it chose to do so, each unit would take two man-days to dismantle.
The respondent used a standard form of licence agreement, under which customers took a unit for an indefinite period, terminable by either party on one week’s notice, with the fee depending on the duration of storage. The agreement expressly stated that it did not confer any right to exclusive possession.
The FTT found that the storage units qualified as immovable property, being fixed to the ground “for all practical purposes”, and that the principal or predominant element of the respondent’s supply, under the agreement between it and each customer, was a licence conferring the exclusive right to occupy a specific storage unit or area of land, notwithstanding the statement to the contrary in the agreement. The appellants appealed.
Decision: The appeal was allowed.
(1) For a building or structure to qualify as immovable property, for the purposes of the exemption, it had to be fixed to or in the ground in such a way that it could not easily be either dismantled or moved, although the fact that it was not fixed inseverably, or that it might be removed at some point in the future, did not prevent it from being immovable property: Maierhofer v Finanzamt Augsburg-Land Case C-315/00 [2003] STC 564 applied. Whether a building or structure met that test depended on its objective characteristics. Whether it would, or could, be re-used on another site was not relevant in determining its status as movable or immovable property. The respondent’s storage units were not immovable property since they were not fixed to the ground but rested on their own weight.
The FTT could not validly conclude that they were fixed to the ground “for all practical purposes” on the basis that they could only be enjoyed in situ and were not designed to be moved. Whether the units were fixed to or in the ground depended on their objective characteristics.
Moreover, the respondent’s units could easily be dismantled and removed. The fact that it might take two man-days to do so did not invalidate that conclusion. Although it was not possible to specify the number of persons, or period of time, required before a building or structure ceased to be easily dismantled, a period of two man-days, in relation to the storage units, did not establish any material degree of difficulty in dismantling. As to movement, the units had easily been moved into place initially by the tele-handler and there was nothing to suggest that they could not be moved subsequently just as easily. The fact that the units were not actually moved was irrelevant to their status as movable or immovable property.
Per curiam: Had the units been immovable property, then the agreement between the respondent and its customers would have involved a leasing or letting comprising the grant of a licence to occupy. Although the licence agreement stated that it conferred no right of exclusive possession, it did not in fact prevent the customer from enjoying exclusive possession of the unit against third parties; the decisive factor was the objective character of the transaction, not how it was classified by the parties.
Nonetheless, even assuming a letting of immovable property, the supplies made by the respondent fell outside the VAT exemption since they were properly characterised as a single, composite supply of storage services.
Further, the decision in the instant case might be of largely historic interest since, with effect from 1 October 2012, the grant of facilities for the self-storage of goods was excluded from the exemption for supplies of land by para (ka) of Group 1 of Schedule 9 to the Value Added Tax Act 1994.
Michael Jones (instructed by the legal department of HMRC) appeared for the appellants; Michael Conlon QC (instructed by Freshfields Bruckhaus Deringer LLP) appeared for the respondent.
Sally Dobson, barrister
