Developer — Interest in land Exempt supply — Agreement for renovation of barns as flats — Net proceeds of sale split between landowner and developer — Whether consideration given to developer relating to exempt supply — Appeal dismissed
The respondent property developer entered into an agreement with a freeholder of land for the construction and sale of flats. The agreement provided that the respondent was to use its best endeavours to obtain a minimum price for each flat and that the proceeds of sale were to be divided between the respondent and the landowner. When all the flats had been sold, the appellants assessed the respondent to VAT in respect of the consideration it received. The tribunal allowed the respondent’s appeal against that assessment on the ground that the agreement gave the respondent an equitable interest in land and that the amount it had received from the purchasers of the flats amounted to consideration for that interest. The consideration therefore related to exempt supplies within item 1 of Group 1 of Schedule 9 to the Value Added Tax Act 1994.
The appellants appealed to the High Court contending, inter alia, that: (i) the main purpose of the agreement was the supply of construction works to the landowner; (ii) the tribunal had attached undue importance to the fact that the source of the consideration was the moneys paid by the purchasers; (iii) the true consideration was the amount the landowner was prepared to forego to the respondent to obtain the construction services; and (iv) the fact that the moneys were paid by the purchasers was of no significance.
The respondent argued that, inter alia, on a true understanding of the agreement, this being supported by the form of sales contract of the units to the purchasers, it had agreed to carry out works on the property on its own behalf and for its own benefit, in that the value of what it did was reflected in the value of its interest in the property that had been acquired under the agreement.
Held: The appeal was dismissed.
The tribunal had reached the right decision. The respondent had made supplies in order to enhance its share of the ultimate profits from the project. The share of the overall sale proceeds received represented the agreed value for its share in the project.
This case involved essentially a tripartite arrangement whereby land developed by the construction of five flats was supplied in exchange of a monetary consideration to individual purchasers. Those arrangements, which should be read as a whole, set out the terms of a joint project for the development of the property to which the landowner and the respondent each contributed for their own separate benefit. Each took a share of the sale proceeds in accordance with their agreement as to how their respective contributions should be measured.
The form of sale contract of the completed flats reflected the making of these separate contributions. The landowner was a party only to convey the legal estate in the land to be sold and it took no responsibility for the dwelling erected or any works carried out on it. Although providing for the payment of a composite price for the flats, it provided for the sale price paid on completion to be split so as to reflect the separate contributions to the overall supply.
Kenneth Parker QC and Raymond Hill (instructed by the solicitor to Customs & Excise) appeared for the appellants; David Goy QC (instructed by Deloitte & Touche) appeared for the respondent.
Eileen O’Grady, barrister
