For VAT purposes, sales and lettings of garages and parking spaces are treated as standard rated supplies. By contrast, sales or grants by developers of long leases of new dwellings, which include garages or parking spaces, are treated as zero-rated supplies.
The issue in Civilscent Ltd v Commissioners for HM Revenue & Customs [2009] UKFTT 102 (TC); [2009] PLSCS 333 was whether leases of parking spaces granted to some of the owners of apartments in a development were standard rated or zero-rated supplies. The developer treated both types of lease as being zero-rated, even though the leases had not been granted simultaneously and, if the developer had allocated the incorrect tax treatment to the parking spaces, it would have to account for VAT that had not been charged to the buyers.
The tax tribunal decided that the proper test to apply was to consider whether the grants of the parking space leases were sufficiently closely connected with the grants of the apartment leases that they constituted a single economic transaction.
The factors that linked the grants of the leases were: (i) the apartments and the parking spaces formed part of the same development; (ii) the planning permission for development included a condition that the parking spaces must be used by occupiers of the apartments; (iii) it had always been intended that leases of the parking spaces would be granted to the apartment tenants; (iv) the apartment tenants were aware of this; (v) the parking space leases had been granted to tenants of the apartments; (vi) the parking space leases were for terms that were coextensive with the apartment leases; and (vii) the parking space leases prohibited assignments except to other tenants on the development.
The contra-indications were: (i) the apartment leases and the parking space leases were separate legal transactions; (ii) the apartment tenants had enjoyed nothing more than the hope that they would eventually be offered a parking space; (iii) the developer had never been certain that anyone would enter into a parking space lease, if offered; (iv) the parking space leases were freely assignable to any tenant on the development (and did not have to be assigned to the same assignee as the apartment lease); (v) the price for the parking spaces was set independently of the price for the apartment leases; (vi) there was a material delay between the grant of the apartment leases and the parking space leases.
Some factors carried more weight than others. The tribunal did not consider the fact that the leases had been separately granted or that a separate price had been paid for the parking spaces to be determinative, nor the fact that a significant delay had occurred between the grant of the apartment leases and the parking space leases.
None the less, the tribunal determined that the links between the transactions were insufficient because the parties had not entered into any arrangement or understanding concerning the grant of leases of the parking spaces. Consequently, the leases were economically separate transactions and the developer was liable to account for VAT totalling £18,000.
Allyson Colby is a property law consultant
