VAT on construction services — Refurbishment of building — VAT on building alterations raised from zero rate to standard rate — Scheme to avoid standard rate — Contract sum paid to deposit account of builder — Sums to be drawn when bank received architect’s certificates — Whether payments made after June 1 1984 — Whether money on deposit owned or controlled by builder
In 1984 Dormers had the intention of refurbishing Hilton House, Craven Hill Gardens, London W2. The Finance Act 1984 brought in amendments to the Value Added Tax Act 1983; from June 1 1984 all building alteration work became standard rated. Prior to that date certain building alterations were zero rated. For VAT purposes a supply of services is treated to have been made when payment is received. A scheme was devised whereby a company formed for the purpose, called Wharf Ltd, would employ Dormers to refurbish Hilton House. Agreements under seal were entered into by various parties the effect of which was that Dormers contracted to do the building work and the contract sum of £600,000 was paid into a deposit account of Dormers with Williams & Glyn’s Bank on May 31 1984. No money could be withdrawn from the deposit account without the permission of Williams & Glyn’s, and that permission was to be given only for tranches supported by architect’s certificates.
The Customs and Excise contended that despite the payment having been made before June 1 1984 to an account in the name of Dormers, “payment” of money under section 5 of the Value Added Tax Act 1983 can occur only when control of the money passes to the payee, and Dormers did not have control of the various tranches until the issue of architect’s certificates after that date. It was Dormers’ case that payment means the passing of ownership, and not just control, and that therefore they were paid when the whole sum was paid into the Williams & Glyn’s deposit account. As this occurred before June 1 1984, the supply of building services was zero rated.
Held In allowing the taxpayers’ appeal from the decision of the London VAT Tribunal, payment was made when the sum was put into the deposit account; the building services were zero rated. Payment must be given its ordinary legal meaning; ownership of a sum of money rather than an ability to control it is what counts. Once the sum had been placed into the account, it was in the ownership of Dormers, who no longer needed to sue to recover it.
Commissioners of Customs and Excise v West Yorkshire Independent Hospital (Contract Services) Ltd
(unreported March 10 1988 (QB), Henry J) adopted.
Roderick Cordara (instructed by HH Mainprice) appeared for the appellant taxpayer; and Guy Sankey (instructed by the Treasury Solicitor) appeared for the respondent Commissioners.
