Value added tax – Exemption – Immoveable property – Licence to occupy land – respondent providing self-storage facilities in form of containers located on open land owned by him – Appellant Revenue and Customs commissioners claiming VAT on supplies – Respondent appealing on ground that supplies exempt from VAT – First-tier Tribunal (FTT) allowing respondent’s appeal because predominant element of supply permission to occupy defined parcel of land – Whether FTT correctly classifying taxpayer’s supplies — Appeal allowed
The respondent traded from a site in West Sussex, providing self-storage facilities in the form of large, metal containers which were located upon open land which he owned. The respondent’s customers entered into a standard form rental agreement described as a “licence agreement” containing standard form terms and conditions. Under the agreement, customers were granted, amongst other things, the right to use the identified unit for the storage of goods and to have access to the unit during specified hours. The appellant Revenue and Customs commissioners took the view that the supplies made by the respondent should be subject to VAT.
The First-tier Tribunal (Tax Chamber) (FTT) allowed the respondent’s appeal, holding that his storage business involved the making of supplies of a single service, the predominant element of which was the provision of a licence to occupy a defined parcel of land. Accordingly, the supplies were exempt from VAT pursuant to item 1 of group 1 of schedule 9 to the Value Added Tax Act 1994. The appellants appealed to the Upper Tribunal (Tax and Chancery Chamber) against that decision.
The central issue was the correct classification of that supply. The question was whether it was exempt either as the grant of a “licence to occupy land pursuant to item 1 of group 1 of schedule 9 to the 2004 Act, or as the “leasing or letting of immovable property” pursuant to article 135(l) of the Principal Directive (EC) 2006/112 (on the common system of value added tax).
Held: The appeal was allowed.
(1) The nature of a single composite supply was to be found by determining the economic reason or purpose of the whole transaction from the point of view of the typical customer. In order to establish whether it was an exempt supply, it was necessary to take proper account of all the circumstances and to assess the matter from the perspective of a typical user of the plot and the storage facilities. Where one or more elements constituted principal services and ancillary services, the overarching supply would take the tax treatment of the principal element. A service had to be regarded as ancillary if it did not constitute for the customer an aim in itself, but was a means of better enjoying the principal service supplied. in order to establish whether it was an exempt supply, it was necessary, in accordance with the established principles, to take proper account of all the circumstances and to assess the matter from the perspective of a typical user of the plot and the storage facilities. It was thus possible to arrive at a description which reflected the economic and social reality of the supply: Byrom and others (trading as Salon 24) v Commissioners of Revenue & Customs [2006] EWHC 111 (Ch); [2006] PLSCS 34, College of Estate Management v Commissioners of Customs & Excise [2005] UKHL 62; [2005] STC 1597, UK Storage Company (SW) Ltd v Commissioners of Revenue & Customs [2012] UKUT 359 (TCC); [2013] STC 361 considered.
(2) Applying those principles to the present case, it could not sensibly be contended that one element of the supply was predominant and the others were ancillary, although one element might be more important than another. In that context, the separate elements were: (i) in terms of the Value Added Tax 1994, the granting of a licence to occupy land (the plot) and in terms of the Principal Directive, the leasing or letting of immovable property (again the plot); (ii) the supply consisting of the right to use the container (in VAT terms a supply of services); and (iii) possibly the supply of security services. It could not be said that element (i) was predominant since element (ii) was clearly one aim of the transaction and could not be said to be a means of better enjoying the licence to occupy the plot. Conversely, element (ii) was not predominant in that sense, although that was less clear because a customer obtained a licence or leasing or letting of the plot only because it was to be used as the site for the container. On the evidence and the findings of fact, the economic and social reality of the transaction was not that the customer might use the plot for any other purposes or would be entitled to do so. In the circumstances, it could not be said that the supply of the container was ancillary to the supply of the plot. Instead, there was a single composite supply. In the light of all of the evidence, in particular the terms of the licence agreement, the proper classification of the single composite supply was not the grant of a licence to occupy land within item 1, even if it was correct that each transaction resulted in the grant of a licence to occupy the plot within that item; nor was the proper classification of the single composite transaction the leasing of letting of immovable property within article 135(1)(l). The correct classification was the provision of storage facilities.
Michael Jones (instructed by the General Counsel and Solicitor to the Revenue and Customs Commissioners) appeared for the appellants; The respondent appeared in person.
Eileen O’Grady, barrister
