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You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Geoffrey Ross Holding and June Monica Holding v Revenue & Customs [2006] UKVAT V19573 (19 May 2006) URL: https://www.bailii.org/uk/cases/UKVAT/2006/V19573.html Cite as: [2006] UKVAT V19573 |
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19573
Item 1(d) Group 1 Schedule 9 VATA 1994 - Article 13B(b)(1) of the Sixth Directive - whether accommodation was provided in a hotel inn or boarding house in the hotel sector or in a similar establishment or a sector with a similar function - appeal against cancellation of VAT registration on grounds that accommodation provided to lodgers did not fall within Item 1(d)
LONDON TRIBUNAL CENTRE
GEOFFREY ROSS HOLDING AND JUNE MONICA HOLDING Appellant
- and –
THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents
Tribunal: CHARLES HELLIER (Chairman)
CYRIL SHAW FCA
Sitting in public in London on 20 February 2006
Mr and Mrs Holding in person
E Mitrophanous of Counsel, instructed by the Acting Solicitor for HMRC, for the Respondents
Background
"(d) 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."
The Application to Adjourn
The Evidence
Findings of Fact
(i) Birchwood House is set within 3 acres of grounds in Sussex. In the grounds, approximately 60 yards from the house, is the bungalow, Birchwood Lodge;
(ii) Birchwood House has five bedrooms, a living room, a dining room, a kitchen, a walk in larder, a utility room and a bathroom. Three bedrooms are available within Birchwood House for use by guests; a double bedroom, a child's room, and a nursery with a cot. Birchwood Lodge has two bedrooms, a living room, a sunroom, a kitchen, a utility area and a shower/w.c. In the Lodge there are two double bedrooms which are available for guests who are also permitted the use of the other rooms in the Lodge;
(iii) Bed and bathroom linen and towels were provided once a week, fresh kitchen cloths twice a week;
(iv) the accommodation was cleaned twice a week. Mrs Holding employed a cleaning lady who came twice a week and did the rest of the cleaning herself. A second set of cleaning equipment was kept at the Lodge which the guests were free to use if they wished;
(v) there is a broadband internet connection available at the House for use by guests;
(vi) there were telephones at the House and the Lodge. Guests could use them. The phone bills were paid by Mr and Mrs Holding without recharge to the guests unless the phone was used by the guests for particularly expensive calls;
(vii) water, electricity, fuel and other heating bills were paid for by Mr and Mrs Holding. Repairs were carried out by the Appellants at their own expense
(viii) guests were permitted to use the gardens and grounds. These included an area of children's equipment, a walled off trampoline, a pool with a table and chairs and a swimming pool. There was parking for 7 or 8 cars but guests at the bungalow were asked to limit the parking at the bungalow to 2 cars at any one time;
(ix) there was a small fitness gym which guests were permitted to use. This had four pieces of equipment: a treadmill, an elliptical trainer, a cycling machine and an "abs machine";
(x) guests were charged at the rate of about £15 per day or about £400 per month. A reduced rate applied after the first month's stay. A deposit of £500 was required. The deposit was not required to be paid in one lump sum but could be paid over a period. Formal invoices were not generally issued. With permission from the Appellants, guests were permitted to have friends to stay overnight generally without additional charge.
(xi) Longer term guests' stay was subject to one month's notice to be given by either the guest or Mr and Mrs Holding;
(xii) Mrs Holding was clear and careful in her dealings with guests to ensure that they did not acquire the rights of lessees or tenants of the accommodation they occupied. She had, and made it clear to guests (particularly in the case of guests at the lodge) that she had, unrestricted rights of access;
(xiii) Mrs Holding treated the guests like her own family (other than financially). Mr and Mrs Holding would socialise, and on occasions eat, with the guests. Guests have mowed lawns, house and pet-sat, helped in the garden and cleaned cars for the Appellants;
(xiv) the Lodge had its own kitchen, a communal area and shower, and was complete with TV, washing machine, tumble drier, fridge and freezer, but guests staying in the Lodge could also make use of the facilities at the House (which include a bath);
(xv) the guests in the Lodge used the kitchen to make snacks and hot drinks. If they wished eat something more elaborate they used the kitchen in the House. There is an American style fridge in the House and the guests can keep items in that fridge;
(xvi) the properties were situated at the end of a fairly long drive away from the road. There was no sign at the road indicating that accommodation might be available. There was no tariff board displayed in the premises;
(xvii) Mr and Mrs Holding have keys to the Lodge and enter it at will. Guests sleeping in the Lodge have access to the House and make use of its facilities;
(xviii) when the Appellants have guests staying in the Lodge, but other guests also come to stay who would be easier to accommodate, or better accommodated in the Lodge they may require the guests normally resident in the Lodge to move into the main house. Mrs Holding has treated the two properties as one 7 bedroom house to manage and organise as she saw fit;
(xix) At the planning inquiry held on 5 and 6 January 2005, the inspector found that on the balance of probabilities the Lodge had been used as primary self-contained residential accommodation ancillary to the use of the House and not as a separate dwelling house. She found that its use constituted an integral part of the use of the main planning unit as a dwelling house (taking Lodge and House together) in single household occupation.
(xx) The gardens were maintained at the expense of Mr and Mrs Holding;
(xxi) Neither the House nor the Lodge were subject to business rates; instead council tax applied;
(xxii) Mr and Mrs Holding have 35 years of experience of supplying short term residential accommodation. Mrs Holding regards herself as a good landlady;
(xxiii) The Appellants have advertised the accommodation in the West Sussex County Times indicating that accommodation was available to let in a country property or rural bungalow.
Findings related to the number of guests
(i) Zoe Ireland was a guest from 22 October 2004 until October 2005, a period of about 12 months. She had come to Sussex where she had taken a job to be nearer her sister. She needed accommodation to start her job. At the end of her time as a guest she had moved to Findon. (Mrs Holding described it as a "more permanent arrangement" in Findon).
(ii) Jo Walker was a guest from 1 January 2004 until October 2005, a period of about 22 months. Jo had become a guest after she had been made redundant from a job which carried with it tied accommodation. She had moved to a commune at the end of her period as a guest.
(iii) Andreas Kruse was a guest for a short time in September 2004. He had also stayed for a short spell on another occasion. On one of those occasions he had brought some German students with him, on the other he had come with his children.
(iv) The parents of a German student had stayed for a weekend since November 2004.
Evidence relating to the food provided for guests
The Legislation and the Case Law
"Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasions…
(b) the leasing or letting of immoveable property excluding:
- 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.
- the letting of premises… for parking vehicles.
- lettings of permanently installed equipment and machinery.
- hire of safes.
Member States may apply further exclusions to the scope of this exemption."
Paragraphs 2 - 4 clearly have no relevance, but we discuss the final sentence below.
(i) the exemption for leasing property is to be construed narrowly and therefore the exclusion is not to be narrowly construed;
(ii) the "hotel sector" is specified as are sectors with a similar "function". We note the emphasis on "function";
(iii) the hotel sector is linked with holiday camps and camping sites. There is by association some hint that accommodation of a shorter term nature is the main target of the exclusion; and
(iv) Member States may apply further exclusions. Thus although Member States must standard rate anything within items 1 - 4 they may extend that standard rating to supplies either not within those categories or which are extensions of those categories.
(i) that the phrase "the provision of accommodation… in the hotel sector or sectors with a similar function" must not be interpreted strictly;
(ii) "sectors with a similar function" should be given a broad construction since the purpose of those words was to ensure that the provision of temporary accommodation similar to, and in potential competition with, the hotel sector was subject to tax;
(iii) member states are permitted a margin of discretion in the definition they adopt under Article 13B(b)(1) but that discretion was circumscribed by the purpose of the exclusion namely distinguishing hotel sector type accommodation from the leasing of property. We note that the effect of that discretion might be to broaden or to narrow the category of taxable transactions; and
(iv) the "essential function performed by a hotel [is] the provisions of temporary accommodation on a short term basis."
"In any event short term lets are more likely to involve additional services such as the provision of linen and cleaning…; moreover they involve more active exploitation of the property than long term lets insofar as greater supervision and management is required."
"(d) 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;
(e) the grant of any interest in, right over, or licence to occupy holiday accommodation;".
"Similar establishment includes premises in which there is provided furnished sleeping accommodation, whether with or without the provision of board or facilities for the preparation of food, which are used by or held out as being suitable for use by visitors or travellers."
(i) in our view the words of Note (9) extend rather than define the meaning of "similar establishment". "Includes" is used rather than "means". If it defined rather than extended the meaning then, because of its limitation to sleeping accommodation, accommodation provided for the purpose of catering would be taxable only if provided at a hotel inn or boarding home, and not if provided at a similar establishment. That would be absurd and would not comply with the Directive;
(ii) this extension relates particularly and expressly to visitors or travellers. If accommodation is not held out for their use or used by them then it does not fall within Note (9). However there is no such restriction to visitors or travellers expressly imported into other meanings which "similar establishment" could have. Thus accommodation not so used or held out could potentially full within Item 1(d);
(iii) the Note does not appear to be part of the enactment of Article 13B(b)(1) but rather a further exclusion to the scope of the exemption as permitted by the final sentence of Article 13B. That in particular because it extends the meaning of "similar establishment" whereas the latitude permitted in definition by the Directive relates to the definition of accommodation.
'Similar Establishment' - the Case Law
"The essential difference between such letting and exempt lettings of residential property is the temporary nature of the accommodation." (paragraph 19).
(i) Temporary: in the hotel sector accommodation is generally provided for shorter stay customers, usually for persons who are for varying periods away from their home or who, for the time being, have no home. It is accommodation for a transient or floating class of resident, accommodation taken with a view to moving on in due course. It is the general profile of the types of stay rather than individual cases which is relevant.
(ii) On a Commercial Basis: the tribunals have noted that the hotel sector is concerned with the business of providing accommodation. Generally this will be with a view to profit, but a commercial approach is a salient feature.
The tribunals (and the Advocate General) have noted that bed linen and cleaning are generally provided in the hotel sector, whereas they would not be for example in a bed-sit. Generally a supply of catering will be made or available - whether simply bed and breakfast or larger meals. Laundry facilities of some nature may be provided. The standard of the facilities provided tends to be higher in the hotel sector.
A greater degree of management is exercised in the hotel sector - checking in and our procedures, provision of accounts, etc.
3. Other aspects of the function of the establishment
The tribunals have noted that a characteristic of the hotel sector is that its main function is the commercial exploitation of the property through supplying accommodation. An establishment whose function is to imprison or to educate or to improve international relations will not have the same main function. (Tribunals have often used the word "purpose" rather than "function" in their discussions but it seems to us that there would have been no practical difference in the tribunal decisions had they used "function" instead).
In pursuant of this purpose an establishment in the hotel sector will generally offer overnight accommodation to any acceptable customer who turns up and who can pay; a selective approach by the supplier - offering accommodation only to the mentally ill for example - points to a main function other than the commercial exploitation of the property by supplying accommodation.
The provision of supervision and care to residents is indicative of an activity with a different purpose or function. The promotion of a family concept to build up mental health and strength may indicate a main purpose, or function, of providing care and support rather than the commercial exploitation of property.
The way an establishment is advertised or promoted can be evidence of a function of the hotel sector or alternatively of a sector not in competition with it or of the longer term dwelling accommodation sector.
The appearance and extent of the accommodation provided can be evidence of the function of the establishment in which it is provided. A bar and communal rooms are generally provided in the hotel sector and such provision suggests a similar function.
The imposition of rules of conduct upon those using the accommodation may be relevant. More restrictive rules will generally be evidence of an establishment in the hotel sector where the function of the sector is to afford temporary use of the accommodation to paying customers.
When to ask the question?
Applying the legislation to the Facts
- Was the accommodation provided in a hotel, inn or boarding house?
- Was the accommodation provided in a "similar establishment" in the sense of the extension of the meaning of that phrase in Note (9)?
- Was the accommodation provided in a "similar establishment" in the sense of those words outside the meaning in Note (9)?
1. Was the accommodation provided in a hotel, inn or boarding house?
2. Was the accommodation provided in a similar establishment in the sense of the extension of that meaning in Note (9)?
3. Was the accommodation provided in a "similar establishment" in the sense of those words outside the meaning in Note (9)?
- The provision of temporary accommodation on a commercial basis
- The more active exploitation of the immoveable property
(i) the provision and laundering of bed linen, towels, dusters and dishcloths;
(ii) the weekly change of bed linen;
(iii) the cleaning of the bedrooms and the common areas;
(iv) the availability of televisions with satellite programmes;
(i) the availability of the maintained gardens;
(ii) the availability of the swimming pool;
(iii) parking places;
(iv) the availability of internet access at Birchwood House;
(v) the availability of the fitness suite at Birchwood House.
- The function or purpose of the establishment
(i) the infrequency of very short term guests and passing trade at Birchwood contrasts with the function actually served by an establishment in the hotel sector which will be open to, and which does in practice accommodate, customers who turn up and pay;
(ii) the promotion of Birchwood by word of mouth and by the advertising of rooms to let is different from an establishment with a "B & B" notice, or a clearly signed or it is well advertised hotel whose promotion in each case advertises the function it is generally expected to fulfil - the accommodation of short term guests;
(iii) on the other hand the longer term letting of dwelling accommodation generally confers no right on the landlord to move the occupant or to prevent guests residing overnight or to decorate the walls with pictures. The function fulfilled in this respect by Birchwood was more akin to that fulfilled by the hotel sector.
Balancing
Decision
Legitimate Expectation
Costs
CHARLES HELLIER
CHAIRMAN
RELEASED: 19 May 2006
LON/05/0341
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International Student House (VTD 1420) ("ISH")
Soka Gakkai International UK (VTD 14175)
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