Best Images Ltd v Revenue & Customs [2010] UKFTT 175 (TC)

FTT-Tax
Best Images Ltd v Revenue & Customs
[2010] UKFTT 175 (TC) · 2010-04-16
[1]The Appellant appeals against VAT assessments and an amendment to its 09/06 return made on the basis that its supplies of the facility of its premises at Vickram’s Occasions Palace were standard rated. The Appellant submits that they were exempt supplies of land.[2]The assessments relate to the periods 09/05 to 06/07. VAT returns had not been submitted in respect of the first and the last three of those periods. Section 84(2) VAT Act provides that an appeal shall not be entertained unless an appellant has made the required returns. In respect of those periods we have no jurisdiction.[3]Vickram’s is let out principally for Indian weddings. HMRC put their case two ways. First they say that the Appellant did not simply supply the use of the premises but supplied a complete wedding reception complete with catering. They say that food was supplied by caterers to the Appellant which used it in making a single supply of services to customers. The nature of that single service was not a supply of land. Alternatively they say that even if, as the Appellant maintains, the catering was supplied directly by the caterers to the customers, the Appellant made a single supply to its customers of a package of other services (including the use of the premises) which was not a simple supply of land.[4]The Appellant says that the catering was supplied directly to the customers by the caterers and that its supply was substantially the passive supply of the use of rooms at Vickram’s Occasions Palace. The relevant statutory provision[5]Article 13B(b) of the Sixth Directive provides for the exemption of:
“(b) the leasing or letting of immoveable property excluding: 1. the provision of accommodation, as defined by the laws of the Member States, in the hotel sector or in sectors with a similar function; 2. the letting of premises and sites for the parking of vehicles; 3. lettings of permanently installed equipment and machinery; 4. hire of safes. “Member States may apply further exclusions to the scope of this exemption.”
[6]In Blasi v Finnzamt München I [1998] STC 336 the Advocate General described the common feature of the exclusions as being that “they entail more active exploitation of the immoveable property”. He went on (at [19]) to note that short term letting justified treatment as being outwith the exemption since it was more likely to involve additional services such as cleaning and more active exploitation of the property, because supervision and management was required, than long term lettings.[7]The exemption for the supply of land is found in domestic legislation in Item 1 Group 1 Schedule 9 VATA 1994. This provides, so far as relevant, for the exemption of:
“The grant of any interest in or right over land or of any licence to occupy land, … other than … (d) the provision in an hotel, inn, or boarding house or similar establishment of sleeping accommodation or of accommodation in rooms which are provided in conjunction with sleeping accommodation or for the purpose of a supply of catering.”
A “similar establishment” is defined by Note 9 to include premises in which sleeping accommodation is provided.[8]Although paragraph (d) and Note 9 were referred to in the Commissioners’ skeleton argument no oral argument was addressed to their provisions. We believe that was right. Paragraph (d) is coloured by the existence of sleeping accommodation in the premises in which the supply is made. There was no suggestion that Vickram’s contained sleeping accommodation. We do not believe paragraph (d) could be extended to cover supplies of its premises. The only question for us will be whether the supplies made were truly “the grant of any interest in or right over land or any licence …”. The Evidence[9]We heard oral evidence from Parminder Singh Bains, a director and part owner of the Appellant who was engaged at the relevant times in the conduct of its business, from Lawrence Bankesfay who had been a customer of the Appellant and had held a party at Vickram’s in the autumn of 2007, and from Balbir Jhawar who had also been a customer of the Appellant and had arranged the celebration at Vickram’s for the wedding of his niece in October 2007. Each provided a short witness statement.[10]We found each of the witnesses straightforward and honest. We were grateful for their help.[11]We also had a bundle which included copies of booking confirmations, purchase day books, Vickram’s website and correspondence between the parties. Background Facts[12]Vickram’s is a large building centrally located in Slough. It has two large rooms: the ground floor room can accommodate up to 200 people and the upper room up to 500. On the ground floor there is a reception area, and there are lavatories, an office and stairs leading to the upper floor. The large ground floor room has adjoining it a small kitchen, a storage room, and a bride’s waiting room.[13]The two halls are lavishly furnished. Mr Bains brought bronze and brass wall panels, paintings and furnishings from India to give them a very traditional Indian look. The furnishing of these rooms was, in Mr Bains’ view, their biggest selling point. The first reaction of a visitor was WOW! Although the Halls were used principally for Indian wedding celebrations they were also hired for parties (like Mr Bankesfay’s) and occasionally by commercial enterprises for conferences and meetings. Almost all users have some sort of a meal there. In this decision we address their use for celebrations and parties since that was overwhelmingly their greater use.[14]When Mr Bains commenced business in 2003 he intended to offer the provision of a full range of services: the provision of food, waitressing, bar and music. He set up a website which described the Appellant as offering package deals comprising all these features. He appointed two managers to assist. But he needed a catering licence from the Local Authority. His kitchens were not big enough to obtain the necessary licence: they could be used only to heat up food prepared elsewhere. He therefore changed tack, dismissed his managers, and made arrangements for external caterers to supply food. As a result by 2004 those working for the Appellant were Mr and Mrs Bains, a young lady who helped with the cleaning, casual staff to help with cleaning, and occasional security personnel (required whenever alcohol was consumed). Mr and Mrs Bains’ son also helped out from time to time.[15]However, no change was made to the website. It remained as it had been in 2003. That of course meant that, whereas it did not reflect what was actually offered, those whose first introduction to Vickram’s was via the website would at least initially have expected the provision of a package by the Appellant.[16]Generally a customer would make several visits before a booking was arranged. Normally the bride’s family representatives would come first to see the hall. There would be some discussion of cost at that stage. Then there would be a visit by the family of the groom, and then a visit to settle the booking. At the last stage the Appellant would normally provide a written confirmation setting out the details and a deposit of 50% would be paid. Caterers: did the customer receive a supply of food from the Appellant?[17]At the meetings with prospective customers Mr Bain would indicate that there were a number of catering firms he could recommend for the catering. He would ask what sort of a meal was required and give a figure for the likely overall cost per head. There would then be meetings between the customer and one or more caterers to discuss the menu (and to taste samples). Those meetings took place both at Vickram’s and at the caterers. When the menu had been fixed the caterer would let Mr Bains know the price. Mr Bains would then (if necessary) adjust his estimate of the total price accordingly and convey the result to the customer.[18]Against this background there were parts of the evidence before us which suggested that there was a direct contract between the customer and the caterer and other parts which suggested a contrary conclusion.[19]The following evidence suggested a direct contract between caterer and customer:-(1) the clear evidence of Mr Jhawar that he had negotiated a price directly with the caterer;(2) Mr Bankesfay’s evidence of his discussion with Mr Chopra of Evergreen Sweets about the menu for Indian food at his party coupled with his own provision of English food;(3) the fact that the first page of the booking confirmation forms before us indicated only the hire price of the hall, and the second page indicated that food “will be provided by Berkshire Services under a separate contract but with the assistance of Vickram’s”.(4) the evidence of Mr Jhawar that he paid the caterers directly and of Mr Bankesfay that he paid the deposit directly to Mr Chopra;(5) Mr Bains’ evidence that on occasions other customers paid the balance of the catering costs directly to the caterer (often in cash) at the end of the celebrations;(6) evidence from Mr Bains of the meetings between the customers and the caterers.[20]On the other hand the following evidence pointed away from such a conclusion:-(1) the part of the second page of the booking confirmation which set out the venue hire and “service charges” costs – the service charges were principally the catering costs - came to a total figure, and then specified 50% of that total as a deposit to be paid to the Appellant;(2) the fact that invoices for the catering supplied were rendered by Evergreen Sweets (and we believe by other caterers) to the Appellant, rather than the customer;(3) Mr Bains’ evidence that he retained the totality of the deposit, eventually paying the caterers from funds he held. On one occasion a wedding celebration had to be cancelled: he retained the full deposit crediting it against the costs incurred when the fixture was rearranged, and only at that time paying the caterer;(4) the evidence that during one quarter of 2006 only one caterer had been used – Evergreen Sweets. That suggested a close relationship between the Appellant and that caterer, rather than relationships between the customers and caterers of their choice.[21]Our conclusion was that it was normally the case that a separate contract was made between the caterer and the customer under which the caterer supplied the food and associated services to the customer. In reaching that conclusion we:-(1) found the terms of the booking confirmation pointed overall to such a separate contract;(2) considered that the invoicing by the caterer to the Appellant was not conclusive;(3) were satisfied that Mr Bains would steer his customers in the direction of particular suppliers and that very many of his customers would take his recommendation. It seemed perfectly possible that one caterer might have his star higher in Mr Bains’ estimation at some times than at others, and accordingly we accepted Mr Bains’ evidenced that he had a number of recommended caterers even though in the relevant quarter only one had been used;(4) were strongly influenced by the evidence of Mr Jhawar and Mr Bankesfay. We accept that they gave evidence of happenings in late 2007 which was after the period with which we were concerned, but were not convinced that there had been any change. What was provided to a customer by the Appellant?[22]The use of one or both of the halls was provided together with the use of the reception area and the lavatories. However a customer got more than that:-(1) in his meetings with prospective customers Mr Bains was at pains to indicate that this was a family business ran by himself, his wife and his son and that they would take as much care over the wedding celebration as if it had been their own daughter’s wedding;(2) in this light he or Mrs Bains guided customers to suppliers of food, flowers, live music, Indian dancers, and bridal outfitters. They held their hands;(3) Mr Bains was aware, and his customers knew (Mr Jhawar said as much) that a bad wedding would reflect on the Appellant’s business. They knew he would take steps to help things go well;(4) before each occasion, the Appellant liaised with the caterers and other deliverers, arranging to give them access so that they could set up the rooms for the celebrations;(5) Mr Bains or his wife or both of them were present at the weddings. Mrs Bains might speak to the guests. They were there to give a personal family touch to what they were providing. With their experience of community gatherings they would have been on hand to act to diffuse those difficult situations – illness and acrimony – which may bubble over at family gatherings;(6) on occasions when live music was not provided by the customer Mr Bains or his son would arrange for CDs to be played on the sound systems (or point the customer in the relevant direction);(7) chairs (and on occasion chair covers) were provided for use; from Mr Jhawar’s evidence of his discussion with Mr Bains about table layout, we also conclude that tables were provided;(8) although customers normally provided their own drinks, on occasion Mr Bains would throw in a barrel or so of beer (particularly at Sikh weddings) or sometimes provide soft drinks;(9) a person would be provided to serve behind the bar (if there was a bar);(10) someone would be there to clean up when needed (with up to 450 people sitting down to eat there must have been spillages and children who overate);(11) security staff were provided when alcohol was served; and(12) displays of fruit were sometimes provided.[23]On the other hand we find that the Appellant did not provide:-(1) waitresses and serving staff,(2) DJs or live music,(3) alcoholic drinks (save as in (8) above),(4) flowers, dancers, music, or(5) food.[24]Often there would be two events on successive days of a weekend. We were told that the caterer’s staff would clean up after the end of the first event, but given the care Mr Bains devoted to his business we did not believe that there was no cleaning and tidying to be done between events. The provision of a clean venue was in our view an essential feature of the Appellant’s supply.[25]Not only were these things done for the customer but it was clear to us that at the time a typical customer booked, he expected to receive these benefits along with the use of the Hall, and that the price he paid was in return for those things as well as the use of the premises. That was clear to us from:(1) the evidence of Mr Jhawar, who agreed that Mr Bains’ presence at the wedding he arranged could be summarised by saying that Mr Bains would be there to oil the wheels, and that his understanding was that Vickram’s was a place where “they really look after you”;(2) Mr Bains’ own evidence of the care and support offered to customers which must have given them an expectation that he or Mrs Bains could be relied upon to help ensure all went well; and(3) Mr Bankesfay’s evidence that it was clear to him that Mr and Mrs Bains took pride in what they were doing and their intimation that if anything was needed they would try to help. Discussion (a) One supply or many?[26]In a series of cases the ECJ has considered whether the supply of a number of elements should be considered for VAT purposes as a single supply or as a number of separate supplies. In one of the more recent, Levob Verzekeringen BV v Staatssecretaris van Financien [2006] STC 766 , the Court summarised the law thus:- “[19] .. where a transaction comprises a bundle of features and acts, regard must be had to all the circumstances in which the transaction takes place in order to determine, …, if there were two or more distinct supplies or one single supply … “[20] Taking into account … firstly that every transaction must normally be regarded as distinct and independent, and secondly that a transaction which comprises a single supply from an economic point of view should not be artificially split … the essential features of the transaction must in the first place be ascertained in order to determine whether the taxable person is making to the customer, being a typical consumer, several distinct principal supplies or a single supply …” “[21] … there is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal supply, whilst one or more other elements are to be regarded by contrast as ancillary supplies which share the tax treatment of the principal supply … “[22] The same is true where two or more elements or acts supplied by the taxable person to the consumer, being a typical consumer, are so closely linked that they form, objectively, a single, indivisible economic supply which it would be artificial to split.”[27]Mr Davies relied on RLRE Tellmer Property sro v Finančaí ředitelstri v Ústí nad Labem [2009] STC 2006 , a case in which Czech landlords charged rent to tenants of apartments but could invoice them separately for the cleaning of the common parts. The ECJ were asked for a preliminary ruling to determine whether these were independent mutually divisible supplies. The ECJ noted at [21] that the cleaning of common parts was not the kind of service which fell within the concept of letting in Art 13 of the Directive. It then continued:- “[22] It is moreover undisputed that the cleaning services … can be supplied in various ways such as for example a third party invoicing the cost of the service direct to the tenants or by the landlord employing his own staff for the purpose or using a cleaning company. “[23] It should be noted that in this case [ RLRE ] invoices the cleaning services to the tenants separately from the rent. “[24] Also, since the letting of apartments and the cleaning of common parts … can, in [those circumstances] be separated from each other, such letting and such cleaning cannot be regarded as constituting a single transaction …” The circumstances of this case included the possibility that the tenants could conclude an independent contract with a third party for the cleaning services.[28]It seems to us that in the Appellant’s case it would be artificial to split the additional services which it supplied to a typical customer from the provision of the premises. Whilst no doubt it may have been possible for a customer to contract only for the use of the premises (together perhaps with heat and light) that is not what a typical customer sought or obtained. A typical customer did not have the possibility of concluding a separate contract for the additional support provided by the Appellant; it would not have made economic sense for the Appellant to have charged separately for the hire of the hall and for the additional support .[29]In RLRE the ECJ waas considering the question of divisibility in relation to lettings in general terms which included cases where the lease did not oblige the landlord to carry out the cleaning or the tenant to pay for it. That context explains why the court felt able to conclude that the letting and the cleaning could be economically divisible. The Appellant’s circumstances were different: the premises and the additional goods and services were obtained by the same bargain and typically the additional services could not be obtained separately.[30]In our view the use of the premises and the additional support services were so closely linked that they constituted a single supply. They were closely linked because they were acquired together in a single bargain, because the benefit provided by the additional services was part of what the customer sought from the use of the premises (a smooth ceremony), because the additional support was linked to the use of the premises for the ceremony both temporarily and physically, and because, for the typical customer, the additional support was no use without the premises and the premises would not be so desirable without the support and care of Mr and Mrs Bains.[31]We therefore conclude that the Appellant made a single supply comprising the making available of the premises and the additional support. What was the nature of the supply?[32]Mr Davies says that the principal supply in this case was the letting of Vickram’s. The additional support was merely ancillary to the letting enabling the accommodation better to be enjoyed. The letting was the passive supply of land within Art 13 and Item 1 Group 1. What mattered to the customer was obtaining the exclusive right to use one or more traditionally furnished halls: that was the core of the supply.[33]Mr Manknell relied on Belgian State v Temco Europa SA [2005] STC 1451 . In paragraphs [19] to [21] the ECJ stated:-(i) ‘letting’ within Art 13 is the conferring of a right of occupation with the right to exclude others from such enjoyment [19];(ii) the passive letting of land for rent linked to the passage of time and not generating added value is to be contrasted with activities where nature is best understood as the provision of a service rather than simply making property available (the Court gives as an example the use of a golf course : in Sweden v Stockholm Lindöpark [2001] STC 103 , the ECJ noted at [26] that the activity of running a golf course generally entailed, not only the passive activity of making the course available but also a large number of other activities such as the supervision, management and maintenance of facilities). Mr Manknell says that in this case there was not even the granting of exclusive use of the halls: Mr Bains or his wife remained on site. We reject that particular argument. Effectively the customer was given exclusive use for the period of his hire. Mr and Mrs Bains presence did not substantially detract from the right to use the halls. It was clear that the terms of the letting (express or implied) would permit the customer (directly or through Mr Bains) to exclude others, and would not have permitted Mr or Mrs Bains freedom to do whatever they wished in the halls. Mr and Mrs Bains’ presence was in this connection similar to that of a landlord entering to inspect or repair (see Temco [24]), although it took the form of the provision of supervision, support and assistance.[34]Mr Davies says that the additional support was not ‘adding value’ but was principally for Mr Bains’ own peace of mind – he was there to ensure that his company’s property was not being ill-used and that its reputation was not besmirched.[35]The additional support, in our view, went beyond merely ensuring that the Appellant’s property was not ill used. It provided added value: help in organising the function, help in arranging the setting up of the halls, bar and security staff, some drink on occasions, impromptu cleaning, and help to oil the wheels on the day of the function. These services were not insubstantial, and in our view were not simply for the better enjoyment of the hall. They were not merely ancillary to the use of the land, but part of the provision of the occasion the customer required.[36]In Blasi and Temco there is some discussion of the relevance of the period of a letting to the question of whether or not the supply is passive or active. It seems to us that the reason the period may be relevant is because generally speaking the longer the period of the letting, the less there will be for the landlord to do. With short lets the landlord will not only be more regularly engaged in the business of finding a tenant (which may be regarded as part of a passive activity), but will more often also be engaged in the cleaning and maintenance of the property (activities left to tenants in longer lets) which contribute to the sense of the provision of services rather than simply of land. Consistently with that, the activities of the Appellant in connection with the short term letting of the halls in this case give a sense of the provision of a service.[37]In our view the Appellant was not conducting the passive activity of letting land. It provided to its customers the benefits of its management, supervision and maintenance of Vickram’s as a building (including the necessary cleaning and maintenance after one occasion in readiness for the next one), but it also provided help before and during events to those attending the events. For a typical customer, its activities went far beyond merely providing the key to a door..[38]We find that the supply made was not the passive letting of land within Art 13 of the Directive. It was not suggested to us that Item 1 of Group 1 should be treated as being of wider effect and we do not believe it to be so. We find that the supplies did not fall within Item 1 Group 1.[39]We dismiss the appeal. CHARLES HELLIER TRIBUNAL JUDGE RELEASE DATE: 16 April 2010

Cited in 1 later judgment