[2011] UKFTT 216 (TC)
TC01081
Appeal number
TC/2009/13968
VAT – Item 1 of Group 1, Sch 9 Value Added Tax Act 1994 – licence
of land – storage facilities - predominant supply.
FIRST-TIER TRIBUNAL
TAX
David
Finnamore t/a Hanbridge Storage Services Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
Geraint Jones Q.C.
Andrew Perrin.
Sitting in public at 45 Bedford Square, London WC1 on 20 January 2011.
Mrs Hamilton, counsel, for the
Appellant
Mr Joliffe, counsel,
instructed by the General Counsel and Solicitor to HM Revenue and Customs, for
the Respondents
© CROWN COPYRIGHT
2011
- This is an
appeal where there are no facts in issue. The outcome of this appeal turns
upon an application of undisputed facts to the relevant law. Upon the
appellant's case it also involves considering whether implementing United Kingdom legislation has faithfully followed the European Directive to which it
gives, or is supposed to give, effect.
- The issue in
this appeal turns upon a mixed question of fact and law. In a nutshell,
the issue is whether a business that provides storage facilities for
property belonging to third parties, provides a supply of services that is
subject to value added tax or whether the supply falls within Item 1 of
Group 1, Schedule 9 to the Value Added Tax Act 1994, in which event the
supply will not be subject to value added tax. We were told that there are
differing views taken by Her Majesty’s Revenue and Customs (“HMRC”) in
different parts of the country. We say no more than that because the
outcome of this appeal does not turn purely upon a true and proper
interpretation of a legal provision or statute; it necessarily turns upon
an application of the facts to the applicable legal framework.
- Mr David
Finnamore trades as Hanbridge Storage Services from a site at Hanbridge
Marina, Littlehampton, West Sussex. He gave evidence in accordance with
his witness statement dated the 20 September 2010, which stood as his
evidence in chief. He struck us as a truthful, candid and careful witness.
We accept the evidence that he gave. Evidence was also given to us by Mrs
Watkins on behalf of HMRC in accordance with her witness statement dated
22 September 2010. In our judgement, she equally gave truthful and
accurate evidence. There is no conflict between the factual evidence given
by the appellant and that given by Mrs Watkins.
- The
appellant's evidence is that he provides self storage facilities by
providing containers which are located upon open land which he owns. The
containers are of a type with which most of us will be familiar, being
large metal containers which are regularly seen on lorries and being
transported on ships, in bulk. By their nature they are movable although,
we accept, specialist lifting gear is required to move them from place to
place or onto a lorry or ship. We have been provided with photographs
illustrating the containers. They are of metal construction and at one end
there are metal doors that can be opened but, when closed, can be secured
with a semi-concealed padlock. The appellant has approximately 184
containers located on his land as illustrated on the site plan which
appears at page 52 in the bundle of documents. They are arranged in such a
way as to allow vehicular access to each container so that goods may be
loaded into or taken from any container with comparative ease.
- The entire
site is surrounded by a fence. Access to the site is through a single pair
of matching security gates which are locked at night. People who hire or
rent a storage facility can have unrestricted access during normal working
hours but outside such hours, can secure access by arrangement with the
appellant's on site security team. We should add that the appellant or a
company in which he has a substantial interest owns adjacent land and the
security arrangements are common in respect of the subject land and the
other land owned by the appellant or a company substantially under his
control. The security arrangements are not discrete to the appellant’s
land used for the business that we are considering.
- The appellant
advertises the service and facilities offered at his site, as a self
storage facility. Many of us will be familiar with companies that offer
such facilities, often within buildings. The appellant's yard is open to
the elements and any stored goods are protected from the elements only by
the metal container within which they are secured. It was explained to us
that each container has venting to allow a flow of air. The appellant told
us that he advertises the storage facilities in the local press, telephone
directories and on a web site. He readily acknowledges that such
advertisements appear in the “storage” section of such advertising
material. Upon a simplistic view of this appeal it might be thought
instructive to enquire into what the ordinary man in the street would
think that he is obtaining when he enters into a storage facility
agreement with the appellant. There can be little doubt that the man in
the street would say that he has simply rented storage space. Indeed, that
is what he has done. However, the man in the street will not have
undertaken an analysis of the nature of the legal rights that he has
acquired by entering into the storage agreement. Indeed, the nature and
extent of those legal rights are likely to turn upon the true and proper
construction to be given to the written agreement that is entered into
with each customer in respect of each storage facility that is rented. The
evidence before us is that there is a minimum period of storage, being two
weeks, with many storage units being rented on a much longer term basis.
- A standard
form rental agreement appears at tab 9 in the documents bundle. It
describes itself, accurately in our view, as a “Licence Agreement.” The
name of the customer is inserted prior to a particular unit being
identified by its number and its size. The start date for the hire is
specified and the storage charge rate is also inserted. The agreement then
contains standard form “Terms and Conditions “, the most relevant of which
appear in clauses 2 and 11. Clause 2 provides that provided that the
appellant's fees are paid, the customer is licensed to use the identified
unit for the storage of goods in accordance with the agreement. It further
provides that the customer may have access to the unit at any time during
access hours (which are defined) only for the purpose of depositing,
removing, substituting or inspecting the goods. ”Unit” is defined in
clause 1 as “the storage unit specified overleaf or any alternative
storage unit we may specify under condition 11.”
- It is also
relevant to note the content of clause 11 of the Agreement which reads as
follows : “During the course of this agreement with us you will have use
of (a) the numbered storage container occupying the area of land coloured
in red on the attached plan and (b) the land coloured red on the attached
plan”. Thus, it is argued on the part of the appellant, this agreement
when seen in its factual context, comes within article 135 of the European
Community Directive 2006/112, which is reflected in domestic law as Item 1
of Group 1 of Schedule 9 to the Value Added Tax Act 1994 (as amended).
- Article 135 of
the Directive, so far as relevant, is in the following terms : “Member
States shall exempt the following transactions - the leasing or letting of
immovable property.”
- Item 1 of
Group 1 of Schedule 9 to the 1994 Act, so far as relevant, reads as
follows: “the grant of any interest in all right overland or any
licence to occupy land, or, in relation to land in Scotland, any personal
right call for or be granted any such interest alright, other than ……..”.
- Some of the
argument in the appeal before us was directed to the issue of whether or
not the appellant was involved in the leasing or letting of immovable
property. During that argument the issue was said to be whether the
storage units were, of themselves, to be regarded as immovable property.
We do not accept that that is a significant or relevant issue in this
appeal. Although an exact reading across is not permissible and would not
be entirely accurate, for present purposes it is sufficient to equate the
term “immovable property ” in the Directive with the domestic distinction
between real and personal property. Literally speaking the storage units
can be moved but usually rest upon the ground relying upon their own
weight to keep them firmly upon it.
- We are
satisfied that the true issue in this case is whether, as a matter of law,
the overall nature of the transaction entered into with a customer is that
of granting a licence to occupy land or simply providing storage
facilities or whether the overall transaction involves each element so
that the predominant element must be ascertained before the overall nature
of the transaction can be properly characterised, so as to allow it to be
determined whether the value added tax exemption does or does not apply.
- It was argued
before us that insofar as the Directive may be more widely drawn them the
domestic legislation, the former should prevail. In our judgement that
issue does not arise in this appeal because, on one view of it, the
domestic legislation might be said to be more widely drawn than the
Directive given that it specifically refers to ”any licence to occupy
land”.
- It suffices
for us to say, on the basis of the evidence given by Mrs Watkins, that the
view taken by HMRC was that the facilities provided at the appellant's
yard involved the supply of storage containers or facilities with the
goods being stored in containers that could not properly be described as
immovable property. There was then correspondence between HMRC and the
appellant in which the contentions of each side were set out. The
appellant has included documents in the bundle which demonstrate that
differing views have been taken by HMRC offices in different parts of the
country. The appellant's position seemed to be that he was not especially
concerned about whether his supply did or did not attract value added tax;
his concern was that there should be a level playing field for those
involved in the storage facility industry so that either all suppliers
levied value added tax or none levied value-added tax. It is apparent to
us that the facts of an individual case might justify departure from the
overall conclusion at which we have arrived but we would venture the view
that the applicable facts would need to be substantially different,
because it is probable that in most storage facility arrangements, at the
very least, there will be a licence to occupy a defined area of land. One
circumstance in which the outcome might be different is where the area of
land to be occupied for storage purposes is not defined or where the goods
may, at the election of the person providing the service, be stored at a
location A, location B or location C from time to time as in many bailment
situations.
- During his
submissions on behalf of HMRC, Mr Joliffe correctly submitted that we must
objectively view and consider the relevant facts rather than apply what
might be thought to be the subjective intention of either the appellant or
his customers (assuming them to have a common subjective intention). He
also submitted that we must construe the exemptions, referred to above,
strictly. He referred us to the decision of the Tribunal in The University of Kent v The Commissioners of Customs and Excise (2004) WL 3327960 in
support of the proposition that the supply made by the appellant could not
be an exempt supply because it did not involve immovable property. We need
not go into that decision because we are entirely satisfied that our
decision does not turn, nor should it turn, upon whether the storage units
are properly to be described as movable or immovable property. We are
satisfied that our ultimate decision terms upon whether the predominant or
overall nature of the transaction is properly to be described as involving
a licence to occupy land.
- During the
argument before us and it was submitted by each counsel that it would be
an unsatisfactory outcome for it to be determined that the fee for the
supply of the container should be subject to value-added tax whereas the
portion of the fee paid for the licence to occupy the land upon which the
container sits, is not subject to value added tax. We were urged to the
view that the issue to be determined by us is whether the contractual
arrangements entered into between the appellant and his customers, on the
basis of the written agreement to which we have referred above, is primarily
a licence to occupy land or primarily a contract for the storage of goods
within a metal container.
- Mr Joliffe
argued that in determining the overall issue we should have regard to the
content of the appellant's website, illustrated at tab six in the document
bundle; the terms of the written agreement (referred to above); the
appellant’s pricing structure; the characteristics of the metal container;
and to what part of the price, if any, was preferable to the provision of
security.
- We agree that
the various matters referred to by Mr Joliffe are each relevant, but they
are not matters to which equal weight should necessarily be given.
- We have not
yet referred to the evidence relating to the fee paid for the storage
facility. In addition to the containers that can be rented by customers
wishing to leave their goods in storage, the appellant also has several
different containers which can be rented by people wishing to take a
container away from the appellant's site so as to store goods within it at
some other location. In our judgement it is important to note the Self
Storage rates, as at the 1 October 2010, advertised by the appellant. By
way of example we refer to the rates applicable to an 80 ft.² unit. The
weekly cost of such a unit is given as £28.58 when the unit is located on
the appellant's land. In respect of a similar size unit which a person
takes to his own land, the rental figure is about one quarter of that sum.
Thus, argues Mrs Hamilton, it can readily be appreciated that the greater
part of the licence fee is for the occupation of the land upon which the
storage unit rests, rather than for the provision of the metal storage
unit itself. We appreciate that if that was the sole criterion by which
this issue was to be judged, it might be open to manipulation by those who
sought to fix their rates in such a way as to make it seem that the
greater part of the fee was payable for the licence to occupy a defined
area of land. We make it clear that we are satisfied that in this case the
appellant has not sought to manipulate anything. We accept that the
differential rates demonstrated to us are genuine commercial rates which
reflect the nature of the facility or service being provided, or each
component of it.
- Mrs Hamilton
submitted to us that the United Kingdom was obliged to implement the
Directive. In our judgement the United Kingdom has not failed to implement
the Directive but, on one view of the matter, might just possibly have
gone slightly further in the domestic legislation than may have been required
by the Directive. If so, the appellant is plainly entitled to rely upon
the domestic legislation. Mrs Hamilton also urged us to regard the overall
transaction as a single supply and submitted that if we considered that
each component of the supply was of equal importance, then we must ask
ourselves the question: What is the essential nature of the supply?
- We agree that
the supply is to be seen as a single supply. That accords with common
sense. Then, submitted Mrs Hamilton, we should examine who does what,
where, for whom and to what extent. She urged us to look at the split of
the monetary consideration and to have particular regard to the written
contract. By reference to the decision of the Court Justice of the
European Communities (First Chamber) in Belgium v Temco Europe
SA (2005) STC 1451 she submitted, correctly in our judgement, that the
essential enquiry is into the underlying purpose of the single supply or
transaction. She also relied upon that authority for the proposition that
European law concepts have to be given their own interpretation. In our
judgement although that submission may be correct, the outcome of this
appeal does not turn upon the application of any such principle.
- We were also
referred to paragraph 68 in the speech of Lord Scott in Customs and
Excise Commissioners v Sinclair Collins Ltd (2001) STC 989 where he
said :
“In my own opinion, in order for an agreement to confer a licence to
occupy for VAT exemption purposes, the relationship between the licensee and
the land must be such as to fall within the concept of occupation. Occupation
may, of course, have different meanings in different contexts. For present
purposes, however, if the occupation is to attract VAT, it needs a quality that
allows it to constitute a leasing or letting of the land within the meaning of
those words in the Sixth Directive. The characteristics of leasing or letting
must be present.”
- He then went
on to refer to the decision in E U Commission v U. K. (2000) STC 777 at
804 where the court held that the terms "leasing" and
"letting" do not imply a right of exclusive occupation or a
fixed duration for the right to use the goods in question. The court went
on to hold that prima facie the letting of sites for parking
vehicles amounts to leasing or letting within the meaning of the provision
that was then being considered. The court emphasised that such a contract
does not imply exclusive use of the car park or even of a particular space
in the car park.
- Thus, when we
return to Group 1 of Schedule 9 to the Value Added Tax Act 1994 (as
amended), we find what is, in our judgement, a clear indication from
Parliament on this very issue. The effect of Item 1 in Group 1 is to
exempt from value added tax a transaction in which a person is granted any
interest in or any right over land or any licence to occupy land.
Realising the breadth of that provision Parliament then set out various
exceptions to the general rule. The exceptions that appear in items 1(e),
(f), (g), (h) and (k) seem to us to provide substantial assistance in the
enquiry that we have to undertake. That assistance derives from the fact
that Parliament, by setting out these various exceptions, has done so
because, on any objective view of the matter, it recognised that it could
properly be argued that the grant of a licence to occupy holiday
accommodation would, without more, not attract value added tax given the
general wording of Item 1. The same applies in respect of the provision of
a licence to park a vehicle. This is a matter upon which Mrs Hamilton
relied heavily; in our view, entirely correctly.
- From the
perspective of a property lawyer, there can be no doubt that the contract
between the appellant and a customer involves the appellant granting a
right to occupy a defined parcel of land. It carries with it implied
rights to gain access to and egress from that defined parcel of land. We
accept Mrs Hamilton's submission that the function of the metal container
which rests upon the land licensed for occupation by the customer, is to
provide storage space. Indeed, that will be why most customers have
entered into the arrangement. We must avoid looking at the subjective
purpose because, to do so, would be to characterise the nature of the
transaction by reference to that perception. However, the view of the
reasonable man in the street must be that of the reasonable man well
versed in the applicable legal concepts.
- Our approach
is as follows. When we ask who is doing what, the answer we give is that
the appellant is undoubtedly, as a matter of law, granting a contractual
license to a customer to occupy a defined parcel of land. In our judgement
the agreement entered into on the facts relevant in this appeal, would not
amount to a lease, in the strict sense. This is not a case where the
appellant can store or place the customer's goods from time to time, in
such location as he sees fit,. The agreement, we acknowledge, contains a
suitable provision to apply in emergency situations only. We do not
consider that to be of any real significance in the overall outcome of
this appeal.
- That is not
the end of the matter. The next issue is where the provision of the
facility takes place. Undoubtedly, that is on land owned by the appellant,
with the customer only having a right to enter into or onto that land by
reason of the contract that he has entered into with the appellant.
- When we look
at what service or facility is provided for the money consideration paid,
we accept and find that by far the greater proportion of the money
consideration is paid for the facility of occupying the defined area of
land with the smaller portion of the payment being for the use of the
metal container itself.
- Next, we
consider that whilst the customer might procure some benefit from the
licence to occupy the land absent a metal container being upon it, for
example, by being able to store goods upon it which can properly be stored
in open conditions, the same cannot realistically be said of a customer
who simply rented the metal container with nowhere to put it upon the
appellant's land. We appreciate that we have referred to the small number
of transactions where the appellant rents out containers to those who wish
to put them on their own land; but that carries with it the substantial
expense involved in transporting the container to and from the hirer’s own
land and is an expense that would be totally disproportionate unless the
hire period was of substantial duration. It would not be commercially
sensible for comparatively short storage periods.
- We have
arrived at the conclusion that each customer does have exclusive use of a
defined space or parcel of land within the curtilage of the appellant's
yard, pursuant to a contractual license. Without that licence no storage
could take place on the appellant's land. With that licence storage may
take place on the appellant's land although it need not necessarily do so.
Thus, although at first blush the facts of this case might have suggested
that the overall service being provided was that of storage facilities, a
more detailed and necessary consideration of the facts and the legal
analysis applicable to those facts leads us to conclude that the overall
submission made by Mrs Hamilton is correct. The overall submission was
that the transactions entered into by the appellant, by way of renting out
storage facilities, amount to a single supply or facility, the predominant
nature of that supply being the provision of a licence to occupy a defined
parcel of land which, once the customer is entitled to occupy it, can be
used, or not used, as the customer then sees fit (subject only to certain
well-defined contractual limitations) for storage purposes. To put the
matter another way, the storage is parasitic upon the customer's ability
to occupy the land, whereas it could not properly be said that any right
to occupy any land arises parasitically from a contract for storage,
because such a storage contract may well amount to bailment rather than
necessitating or involving the occupation of any defined parcel of land.
31. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
Decision.
Appeal allowed.
By reason of
Item 1, Group 1 of Schedule 9 of the Value Added Tax Act 1994 (as amended) the storage
facilities provided by the appellant are an exempt supply.
Geraint Jones
Q.C.
Judge of the
First Tier Tribunal.
02 February
2011.
