Valued added tax — Time of supply — Change of rate — Supply of building services — Sums paid to builders in advance of architects’ certificates — Benefit of early supply to taxpayer — Whether services supplied at date of payment or when payment released by certificates — Appeal by HM Customs and Excise dismissed
As from June 1 1984 VAT became payable at the standard rate on building services for alterations to buildings. Section 4(3) of the Value Added Tax Act 1983 provides that a supply of services takes place at the time when the services are performed, and section 5(1) provides that “If, before the time applicable under … subsection (3) of section 4 above, the person making the supply issues a tax invoice in respect of it or if, before the time applicable under … subsection (3) of that section, he receives a payment in respect of it, the supply shall, to the extent covered by the invoice or payment, be treated as taking place at the time the invoice is issued or the payment is received”.
This was a consolidated appeal from the decision of Simon Brown J (November 6 1987), Henry J (March 18 1988), McNeill J (April 12 1988) and Henry J (December 6 1988). In each case the building owner contracting building services arranged to pay money, prior to June 1 1984, into a bank account of the respective respondent builder for building services to be supplied thereafter. The money was only released to the builder against certificates issued by the respective architects. The object was to make payments for building alterations that would not attract standard-rate VAT. The Commissioners contended that no payments were received by the builders in respect of the building services until the relevant certificates were issued; a payment in respect of a supply is not a payment received by the person making the supply within the meaning of section 5(1) of the 1983 Act to the extent that it is conditional upon the moneys not being available for use by or for the benefit of the person making the supply until the supply has been made. Accordingly VAT at the standard rate was due on these payments.
Held The appeals were dismissed.
The purpose of section 5(1) is to accelerate the date for the payment of tax and, in the absence of a change in the rates, is a benefit to HM Customs and Excise; it is also a benefit to the Customs where, after a payment, the rate of tax is reduced.
Although the payments were made under arrangements which fettered the recipient’s use of the money received, they discharged the liability of the customer under the building contract and left the recipient with no right to sue for payment. The contention of the appellants, that payments were not received until the sums were released following the issue of architects’ certificates, could not be accepted.
John Mummery and Guy Sankey (instructed by the Solicitor to HM Customs and Excise) appeared for the appellants; and Roderick Cordara (instructed by HH Mainprice) appeared for the respondents.
