Supply of constructed commercial building — Lease and licence back of development land and buildings — Development of farmland and buildings by college for school playing fields — Lease granted to company formed for their commercial exploitation — College use of playing fields under non-exclusive licence — VAT Tribunal holding college entitled to claim input tax on contractors’ invoices — Court of Session allowing Customs’ appeal — House of Lords allowing college’s appeal
The college was an independent fee-paying school exempt from VAT. It decided to develop certain freehold land belonging to it and to exploit the new facilities commercially. The development included new playing fields, changing accommodation and a house for a groundsman. Buildings on the site were renovated as a tractor shed and machinery store. Work was completed on October 31 1991 at the college’s cost. The playing fields were to be managed by a company wholly owned by the college, which granted a 12-year lease to the company for a premium of £187,500 and a reviewable annual rent of £30,000. In return a licence agreement between them conferred on the college a non-exclusive right to use the facilities for an annual licence fee, initially for £187,500.
The college used the facilities from the end of December 1991. Both parties applied for voluntary registration for VAT on November 1 1991 and elected to waive the exemption in terms of the Value Added Tax Act 1983, Schedule 6A, para 2. The college and the company submitted their first returns for the period ended December 31 1991. The college claimed input tax in respect of the invoices from the development contractors. A VAT tribunal decided that: the grant of the lease by the college to the company was a taxable supply made in the course of college business; and the use of the land and facilities by the college did not trigger the self-supply charge on the building and civil engineering works under Schedule 6, paras 5 and 6. The Court of Session allowed an appeal against that decision holding that the college made a self-supply. The college appealed to the House of Lords.
Held The college’s appeal was allowed.
1. The purpose of the self-supply charge was to prevent the charge upon non-domestic construction from distorting the market in land and buildings. If the construction and sale of new buildings was brought into tax without also taxing the sale of building land, it would be cheaper to buy the land (free of tax) and construct the building oneself, rather than to buy the land with the building and pay tax upon the value of the whole.
2. Article 5(7)(a) and 6.3 of the European Court Sixth VAT Directive permitted self-supply of goods or services to be treated as a taxable transaction in a case in which, had the goods or services been acquired from a third person, the VAT on them would not have been wholly deductible.
3. The use which the college made of the new sports ground was pursuant to services (ie the licence) supplied by a third party. It followed that there could be no room for a self-supply charge within sixth directive.
4. For purposes of European VAT legislation it was not permissible to take a global view of a series of transactions in the chain of supply. In considering whether the college used the land as a service supplied by a third party, it was irrelevant that it had developed the land at an earlier stage.
David Milne QC and Colin Tyre (instructed by Cylde & Co) appeared for the college; DRA Emslie QC and James Campbell (instructed by the solicitor of Customs and Excise) appeared for the Crown.