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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Nathaniel David Roden and Rebecca Catherine Roden v Revenue & Customs [2012] UKFTT 586 (TC) (13 September 2012) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02263.html Cite as: [2012] STI 2938, [2012] UKFTT 586 (TC), [2013] SFTD 44 |
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[2012] UKFTT 586 (TC)
TC02263
Appeal number: TC/2011/6689
VAT - let of hotel accommodation by undisclosed agent – deemed supply by and to agent under s47(3) VATA – whether deemed supply to agent necessarily has same VAT status as deemed supply by agent – no – whether Item 1(d) of Group 1 to Schedule 9 VATA only exempts supplies to physical user of accommodation – no – appeal allowed in principle
FIRST-TIER TRIBUNAL
TAX CHAMBER
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NATHANIEL DAVID RODEN AND REBECCA CATHERINE RODEN |
Appellants |
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THE COMMISSIONERS FOR HER MAJESTY’S |
Respondents |
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REVENUE & CUSTOMS |
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TRIBUNAL: |
JUDGE BARBARA MOSEDALE |
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Sitting in public at Bedford Square , London on 16 August 2012
Mr T Brown, Counsel, instructed by Francis Clark LLP, for the Appellant
Mrs R Paveley, officer of HMRC, for the Respondents
© CROWN COPYRIGHT 2012
DECISION
1. The appellants appealed against a review decision of HMRC dated 26 July 2011 which denied input tax recovery of £70,000.
2. The facts were not in dispute. The appellants adopted HMRC’s version of events as recorded in its Statement of Case and in the witness statement of Mr Waterfield’s who was an HMRC officer). From these I find as follows:
5. On 6 April 2010 SMDL granted a 999 year lease (“the Lease”) of Apartment 104 of the Hotel to the appellants in this case, Mr & Mrs Roden, in return for which they paid £400,000 plus VAT of £70,000. They were duly issued with a VAT invoice by SMDL dated 31 March 2010.
6. The terms of the Lease included terms that the Rodens would not underlet the property other than “through the landlord’s letting agency”. SMDL also covenanted to undertake services such as marketing the hotel, receiving the hotel guests, servicing the accommodation (such as changing the beds), and making the leisure facilities available. SMDL was entitled to deduct commission from the letting charges it collected. Even though GVL was not a party to the Lease, there was a provision that it would provide the same services to the Rodens that SMDL covenanted to provide, such as making up the rooms and receiving the guests.
7. On 8 July 2010, Mr & Mrs Roden applied for VAT registration and submitted a VAT return covering the period at issue, reclaiming the £70,000 paid on the purchase of Apartment 104. On 20 August 2010 their advisers asked HMRC for a ruling on whether the supply by the appellants was standard rated. The Rodens were registered for VAT by HMRC on 31 March 2011.
8. HMRC by letter of 22 February 2011 ruled that the Rodens’ supply of Apartment 104 was exempt and therefore the VAT on its purchase could not be recovered, and by another letter of the same date, adjusted their input tax claim on their return to nil.
9. The appellants requested a review of that decision which was duly carried out. By letter dated 26 July 2011, HMRC upheld their initial decision to disallow the input tax, and the appellants appealed to this Tribunal.
10. At some point after the dispute with HMRC arose the appellants applied to make an option to tax over Apartment 104. It was therefore agreed between the parties that if my decision was in favour of the appellants then that would dispose of the dispute with HMRC entirely; but if I agreed with HMRC that the tax at stake was attributable to an exempt supply by the appellants, then I should only give a decision in principle on this point. This was because the parties would then seek to reach an agreement over whether the application to opt to tax made by the appellants ought to be allowed and to what extent this would permit recovery of the input tax by them.
“The Managing Agent [GVL] has agreed to provide services to each Owner separately with respect to each room in the Building.”
However, no such agreement was produced at the hearing and I was told that there was no such agreement in existence. As I have already mentioned in paragraph 6, GVL was given obligations in the Lease agreement but was not a party to it, so those obligations can only be interpreted as an obligation on SMDL to ensure that GVL carried out those obligations.
“47 Agents
…
(3) Where services are supplied through an agent who acts in his own name the Commissioners may, if they think fit, treat the supply both as a supply to the agent and as a supply by the agent.”
18. On its face, s 47(3) VATA gives an option to HMRC to treat any particular supply through an agent acting in his own name as a supply both to and by the agent. But Mr Brown’s position was that his clients accepted that their supply should be treated as one to an undisclosed agent under s 47(3) and they did not rely on the apparent optional nature of s 47(3).
“Where a taxable person acting in his own name but on behalf of another person takes part in a supply of services, he shall be deemed to have received and supplied those services himself.”
20. S 47(3) VATA is therefore not entirely in accordance with this provision of the PVD. Nevertheless, s 47(3) must be interpreted to be as consistent with the provision it is intended to implement as possible and for that reason it seems to me to be right I should give a very wide interpretation of the discretion given to HMRC by s 47(3) so as to make the agent-as-principal treatment virtually mandatory. Therefore, I find HMRC’s after-the-event treatment in letters of the appellant’s supply as caught by s 47(3) an effective exercise of HMRC’s discretion under s 47(3). Therefore, I agree that the appellant was right to take no point on the apparent optional nature of s 47(3) and was correct to accept that their supply was deemed to be to GVL.
“the provision in an hotel, inn, 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.”
22. HMRC’s case was Art 28 deemed the appellants instead to make a supply of the same accommodation to their undisclosed agent GVL. And because GVL was not the occupier of the room, ran HMRC’s case, the supply could not be within Item 1(d), as to be within Item 1(d) the accommodation had to be supplied to the person who would use the room as sleeping accommodation.
23. HMRC’s position is that, although Art 28 does not affect the value or nature of the supply, nevertheless it can affect the VAT status of the supply. It might, say, convert a zero rated supply into a standard rated supply. The example given in HMRC’s public notice is of a taxable sale of goods to a customer based outside the UK. If the vendor sold direct, the VAT status of the supply would be zero rated (or in PVD-speak, exempt with recovery of input tax which amounts to the same thing). However, if the vendor sold the goods via an undisclosed agent based in the UK, the effect of Art 28, says HMRC, is that two supplies would be deemed to take place. The first deemed supply would be by the vendor to the agent, and the second deemed supply would be by the agent to the customer. Only the supply by the agent to the customer would be zero rated because only the customer is located outside the UK. The deemed supply to the agent by the principal would be subject to VAT as an ordinary supply of taxable goods.
24. HMRC consider that the same applies to supplies of services under 47(3). Where the identity of the customer affects the VAT status of the supply, the effect of s 47(3), says HMRC, is that the VAT status of the supply by the principal is altered.
25. If HMRC are right, this is a very nasty VAT trap for an unwary taxpayer. An unwary taxpayer in the position of the appellants who failed to waive the option to tax would find that their supply was exempt, so any attributable input tax was irrecoverable, while nevertheless the charge for the hotel room was still subject to VAT as the deemed supply by their agent would remain taxable. Such an unwary taxpayer, if HMRC were right, would in effect be charging VAT to their guests (because their receipts would be minus the VAT accounted for by their agent to HMRC) but unable to recover VAT on supplies made to them.
26. The appellant disagrees with HMRC’s case. Its primary case is that, even if HMRC are right about the interpretation of Item 1(d), nevertheless s 47(3) and Art 28 cannot as a matter of law affect the taxable nature of the supply: they merely affect the recipient of the supply. In other words, the appellants’ case is that the supply to the agent by the principal must have the same VAT liability as the supply by the agent to the customer. The appellants’ position is that the supply by the principal to the agent should be a mirror of the supply that would have taken place principal to customer had were it not for the deeming effect of Art 28.
27. For this proposition, the appellant relies on the CJEU case of Henfling C-464/10.
“[36] Since Article 6(4) of the Sixth Directive comes under Title V of that directive, headed ‘Taxable transactions’, and is couched in general terms, without containing restrictions as to its scope or its extent, the fiction created by that provision also concerns the application of VAT exemptions under the Sixth Directive. It follows that, if the supply of services in which the commission agent takes part is exempt from VAT, that exemption applies likewise to the legal relationship between the principal and the commission agent.”
35. And it is on this paragraph that the appellant relies to make its case that, whether or not HMRC are right on the limitation of Item 1(d) to supplies to the physical users of hotel rooms, deemed supplies under Article 6(4) (now Article 28) by principal to agent will have the same VAT status as supplies by agent to customer.
“[37] That conclusion applies also to the exemption under Article 13(B)(f) of the Sixth Directive, relating to the business of taking bets. Indeed, that exemption does not present – as compared with other exemptions – specific features which would justify limiting the scope of Article 6(4) of that directive and excluding bets from it. Furthermore, in the context of the application of Article 6(4), it is irrelevant that Article 13(B)(f) does not provide for exempting supplies by intermediaries or negotiation, whereas such an exemption is expressly provided for in Article 13(B)(a) and (d) of the Sixth Directive.”
40. Therefore, I reject the appellant’s case that the VAT status of the supply principal to agent must necessarily in all cases be the same as the status agent to customer. On the contrary, it seems to me likely that the example relating to cross border sales given in HMRC’s notice is correct.
41. But in my opinion, following Henfling, it is the case that the normal rule is that the two deemed supplies under Art 28 will have the same VAT status, unless there are “specific features” relating to the supply which mean that the normal rule should not apply. HMRC’s opinion is that a supply can only be within Item 1(d) if made to the physical user of the service supplied: so that only the deemed supply agent to customer could fall within Item 1(d) as it is only the customer who physically uses the room. Whereas it is the appellant’s secondary case that HMRC are wrong to treat the exclusion from exemption in Item 1(d) as limited to supplies direct to the physical user of the room and I go on to consider this.
42. HMRC’s case is that Item 1(d) excludes from exemption the “provision in a hotel of sleeping accommodation” and they say it follows from this that the supply is only within 1(d) if the recipient actually uses the room as sleeping accommodation. They say Art 135(2)(a) of the PVD (which is the authority for Item 1(d)) should have exactly the same interpretation.
43. I agree with the appellants’ case on this for a number of reasons.
44. Firstly, there is nothing on the face of Item 1(d) that requires the supply to be to the person who actually uses the accommodation. If HMRC were right, it would mean that where an employer pays for hotel accommodation for its employees to stay in, say for the duration of a conference, that supply would not be taxable under Item 1(d), as the recipient of the supply (the employer) was not the physical user of the sleeping accommodation. It would mean that wherever a company or other non-natural legal person bought hotel accommodation, the supply would not be taxable under Item 1(d) as the customer could never physically use the room. It would also make wedding receptions exempt as the person buying the services would not be the person physically using most of the services (the services are mostly physically used by the guests). There is no logic in such a distinction and, therefore, I should not interpret the Principle VAT Directive or the VAT Act as requiring such an illogical distinction to be made without express words to that effect. And there are none. I conclude that the application of Item 1(d) does not depend on the customer being able to, and actually, physically using the services provided.
(a) the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites.”
51. This appeal therefore succeeds in principle subject to one matter raised below.
“The grant of an interest in, or in any part of –
(a) a building designed as a dwelling or number of dwellings; or
(b) ….
is not within item 1 if –
(i) the interest granted is such that the grantee is not entitled to reside in the building or part throughout the year; or
(ii) residence there throughout the year, or the use of the building or part as the grantee’s principle private residence, is prevented by the terms of a covenant, statutory planning consent or similar permission.”
56. HMRC, consistent with their case that the supply the appellants to the agent could not be of sleeping accommodation, did not suggest that the grant of the long lease by SMDL to the appellants was excluded from exemption as the grant of a lease over sleeping accommodation.
BARBARA MOSEDALE