VAT – Zero-rating – Note 20 to Group 5 of Schedule 8 – Whether provision of access to building work by scaffolding a "transfer of possession" of the scaffolding
LONDON TRIBUNAL CENTRE
GT SCAFFOLDING LTD Appellant
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: DR DAVID WILLIAMS (Chairman)
Sitting in public in London on 16 June 2003
Mr P D Raper, FCA, for the Appellant
Miss S Rahman of counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents
© CROWN COPYRIGHT 2003
DECISION
- GT Scaffolding Ltd (GT) is the successor to a partnership of the same name. It appeals against a decision of the Commissioners of Customs and Excise dated 7 November 2002 that certain supplies made by GT were not zero-rated supplies but were or included separate standard rated supplies of the hire of scaffolding.
The legislation
- The appeal focuses on the meaning and application of note 20 to Group 5 of Schedule 8 to the Value Added Tax Act 1994. That Schedule lists the supplies that are zero-rated for the purposes of section 30 of the 1994 Act. Group 5, item 2(a) applies zero-rating to:
the supply in the course of construction of a building designed as a dwelling or number of dwellings or intended for use solely for a relevant residential purpose or a relevant charitable purpose …
of any services related to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity …
Note 20 to that item states:
20 Item 2 and Item 3 do not include the supply of services described in paragraph 1(1) or paragraph 5(4) of Schedule 4.
- Schedule 4 to the Act is entitled "Matters to be treated as supply of goods or services". Paragraph 1(1) provides:
Any transfer of the whole property in goods is a supply of goods, but subject to subpargraph (2) below the transfer –
(a) of any undivided share of the property, or
(b) of the possession of goods,
is a supply of services.
Paragraph 5(4) provides:
Where by or under the directions of a person carrying on a business goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, that is a supply of services.
- Section 19(4) of the 1994 Act provides:
Where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply shall be deemed to be for such part of the consideration as is properly attributable to it.
The facts
- Save for the precise description of the supply or supplies made by GT, the facts are not in dispute. The appeal concerns the small part of the business of GT that involves supplies that fall within item 2(a) of Group 5. It is not disputed that those supplies are supplies of services, not goods, for VAT purposes. Nor is it disputed that, aside from reference to note 20, the supplies are supplies of services within item 2 of Group 5. The only question in dispute is whether the supplies made by GT are indivisible supplies that fall within the scope of note 20, or whether they consist of two or more linked supplies, one or some of which fall within that note.
- GT's contention is that it makes a single form of supply to all its customers. Mr Tulett, the owner and controller of GT, gave evidence that GT provides what he called a "full service" on the same terms to all his customers. Some of those customers were involved in constructing dwellings or other construction work involving zero-rating, but most were not. But that made no difference to the service offered. The only difference was that, on the advice of GT's accountants, GT did not charge VAT on supplies to which item 2 applied. Mr Tulett stressed, and the tribunal fully accepts, that GT did not, and never had, hired scaffolding as a separate supply. The service was, it was submitted for GT, better described as providing building access services for his customers.
- For the Commissioners, Mr O'Dell, the officer involved in the assessment, explained that he had formed the view that, on the facts, GT supplied two separate services to its customers. These were the services of hiring scaffolding to the customers, and the separate service of erecting the scaffolding. The Commissioners accepted that the service of erecting the scaffolding was within item 2 of Group 5, but not within note 20, but took the view that the hire of scaffolding was within note 20.
- The tribunal heard full evidence from both Mr Tulett and Mr O'Dell. It was also supplied with details of individual supplies to which item 2 was relevant, and other documentation including the registration details of GT for VAT purposes.
- In the tribunal's view, the approach of the Commissioners that there were two separate supplies by GT – those of hiring scaffolding and of erecting scaffolding - has oversimplified the position. Nor did the labels given by both parties to the transactions involved in this case particularly assist in determining whether the services or any part of them are zero-rated. Mr Raper, representing GT, stressed that GT's business was that of providing access. That may be so. But it is equally the case that this is done with the use of scaffolding and no other form of structure or machinery. Mr Tulett explained to the tribunal at its request why scaffolding was used for construction purposes rather than tower structures or mobile machinery.
- The problem therefore is the identification of what elements are involved in the services supplied by GT, whether those elements can be categorised as a single service or more than one service, and whether that service, or any of those services, properly fall within the terms of note 20.
- The tribunal finds that the "full service" supplied by GT involves: advising customers and agreeing with customers on the amount of scaffolding required, and the timing of the provision of that scaffolding, to ensure full and safe access to construction sites; delivering and erecting scaffolding (normally in a phased operation involving several separate stages of delivery and erection) to meet the customer's requirements consistently with safety requirements; maintaining the scaffolding safely on site (including where necessary replacing stolen or damaged scaffolding and making good damage to the structural integrity of erected scaffolding); the removal (also often phased) of the scaffolding; and throughout retaining responsibility for the risks arising from the structures (including the risks of loss and damage and of liability to third parties) and providing staff to make modifications and repairs to the structures at short notice.
- Mr Tulett explained why GT did not hire scaffolding but provided only its full service. He pointed out that the hire of scaffolding used to be a major part of the business activity in which he had been involved for many years as an employee of well known national companies. Now it was increasingly uncommon in his experience for hire to take place without any other element to the contract. The main reason for this, in his opinion, was the increasing level of safety requirements imposed on those erecting and using scaffolding. As compared with the time when he started in the business, the law now required much more exacting safety measures and imposed higher levels of requirements on exactly how scaffolding was to be erected and by whom. This could now only properly be done by appropriately qualified staff wearing proper safety equipment such as a harness. Further, the details of the way the scaffolding was to be erected in any case, such as the provision of handrails at all levels, had to be followed. Most customers either did not know about these rules or did not have the qualified staff to provide them themselves.
- Consequently, it was an invariable term of business that only GT's staff could add to, alter, or take down and scaffolding. But GT, in is view, went further than that. It retained not only the ownership but also the possession of the scaffolding throughout. The converse of this was that GT maintained the necessary level of qualified staff to attend to scaffolding installations throughout the period of any installation. It also maintained insurance cover on the installations. If any scaffolding was excess to the requirements of a site, it remained in the possession of GT, so that any loss was that of GT not the customer. Further, it was GT, not the customer, who decided precisely how much scaffolding was needed for a site to provide the necessary safe access at a particular stage of construction.
Was there a hire of scaffolding?
- The starting point of the Commissioners in this case, as Mr O'Dell explained, was the guidance given by Commissioners in Notice 708/02 at paragraph 3.4.2:
Goods hired on their own are always standard-rated:
- hire of …. Scaffolding … (although the service of erecting or dismantling
can be zero-rated if the conditions of 3.1.2 are met).
The tribunal finds that slightly confusing. It refers to the hire of goods on their own but then in the case of scaffolding refers to services supplied at the same time as the goods. Read strictly, that could mean that if the hire of the scaffolding was never supplied on its own, but only with other services, then the note would not apply. And that seems to have been how the accountants advising GT read it. As presented to the tribunal, the words "on their own" did not feature in the Commissioners' approach. Instead, the Commissioners applied the label "hire" to some part of what GT supplied and "erecting or dismantling" to the rest and only then considered the hire on its own.
- The point must also be taken that the term "hire" is not used in Note 20. There is no question here of the transfer of an undivided share of the property in goods, so if paragraph 1(1) of Schedule 4 is to apply, there must be "the transfer … of the possession of goods". Alternatively there must be shown to be "by or under the directions of a person carrying on a business … goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business … ". The matching of this wording to Group 5 is somewhat untidy because, of course, these paragraphs are drafted as definitions of the distinction between "goods" and "services", not as exceptions to a zero-rating Item. But that distinction is not in issue in this case. The Commissioners put the case to the tribunal on the basis that it was paragraph 1(1) and not paragraph 5(4) that applied here. In other words, the view of the Commissioners is that there is a transfer of the possession of the scaffolding by GT to its customers as the supply or one of the supplies made by GT.
- The Commissioners pressed on me the authority of the decision of Judge Medd, the former President, in Peter J Guntert The Abingdon Scaffolding Co (decision 10604 made on 11 May 1992). The dispute in that case arose from the contention of the company that it supplied only erection and dismantling services. The company maintained that it did not agree to hire the scaffolding and it did not charge for leaving it on site. Judge Medd found in a short decision that the contention that the supply did not involve leaving the scaffolding on site for use by the customer was "absurd". Otherwise, the contract merely provided for the company to erect the scaffolding and then take it down again immediately. In the judge's view the price clearly involved the use of the scaffolding by the customer, and there had to be an apportionment of the consideration.
- Subject to the point below, the tribunal is entirely happy to follow that view. But, in a sense, the contention in this case is the opposite of that. Here GT make a positive feature of the continuing provision of the scaffolding and services. Instead, the facts raise an issue to which Judge Medd did not refer. It is whether "transfer of the possession" is an accurate description in law of what took place and, implicitly, whether "transfer of the possession" and "hire" are the same thing.
- The tribunal leaves aside the question of the meaning of "hire". That involves issues of bailment that may or may not be relevant in this case. It therefore passes no comment on the wording used by the Commissioners in their note. It focuses instead entirely on the issue of whether GT "transfers the possession" of the scaffolding (or, perhaps more properly, the individual items that constitute the goods involved in the erected scaffolding) to its customers.
- "Possession" is a term bearing many meanings in law, some applied particularly (but not relevantly for present purposes) to the English concept of land. In connection with goods, the key concept of possession in this context seems to be that of control over the goods. "The visible possibility of exercising over a thing such control as attaches to lawful ownership" and "the act or fact of possessing, or condition of being possessed; the holding something as one's own; actual occupancy as distinct from ownership" are the two most relevant definitions in the Shorter Oxford English Dictionary. Similar approaches are found in the Chamber's Dictionary.
- However, it is not the term "possession" on its own but the phrase "transfer of the possession" which is critical. This must take its flavour from its context in defining the difference between goods and services, because that is where the phrase is found. It must also be distinguished from a transfer of the whole property in the goods, and from a transfer of the possession later to be associated with a transfer of the property because those are dealt with separately in paragraph 1. Taking those points into account, "transfer of the possession" means, in the view of the tribunal, the transfer of the control over the goods or, approached from a different standpoint, the transfer of exclusive possession. That is confirmed by the reference to "transfer of the possession" (meaning all of it), and by the separate provision made for the use of goods in certain situations in paragraph 5(4) and referred to in Note 20.
- Does "transfer of the possession" take place here, and if so when? On the facts, it cannot take place until at the very earliest the scaffolding is fully and safely erected. And there would be a retransfer to GT on each occasion when GT's operatives come on site to alter it or dismantle it or perhaps declare the erection unsafe until adjusted. So there would have to be a series of transfers between GT and its customers at various times during the contract. But does transfer of "the possession" take place even during those periods? It is a very clear term of business that the customer cannot in any way properly alter the arrangement of the scaffolding consistently with the agreement even where a previous alternation has taken place by accident or deliberate third party intent. (The tribunal noted that the point is spelt out in capital letters across the face of the contract documentation it saw in a way no reasonable person could miss.) Further, the likelihood is that a customer has no clear idea how much scaffolding is, or more properly what individual items of scaffolding are, involved at any one time. Nor, as the risk does not transfer, does the customer need to know. If items go missing, the customer has no liability to make them good. But if the focus is on the "hire of goods" in the sense of the "transfer of the possession" then it is on the individual parts of the scaffolding, not on the erected structure that is created to provide access. It may be thought counterintuitive to the idea of the transfer of control over goods that a customer can be said to have control when it has no need to be aware of what goods it "controls", cannot choose their quantity, cannot alter their arrangement in any way, and can be entirely excluded from their use if certain eventualities arise. In addition, on the facts, the customer also has assumed no risk of liability to or from third parties if things go wrong, and can look to GT to make good any losses. On that basis, the tribunal is not satisfied that the Commissioners have established than any part of the services supplied by GT fall within paragraph 1(1) of Schedule 4, and therefore within note 20 to item 2 of Group 5. This is subject to the limited proviso that there may be cases (though the tribunal saw details of none) where an exceptional prolongation of a contract with a customer over an extended period changes the nature of that contract.
- That can be tested against the coherence of the scheme of which this note forms part in two ways. The tribunal accepts, first of all, that GT and its advisers are not in any way engaged in VAT avoidance intheir approach to these transactions. GT applies the same terms of trade to all of its businesses regardless of the use to which the scaffolding is put and regardless of the identity of the customers. Most of its business is subject expressly to VAT. Only a small part of its business relates to "new build" or similar construction work to which this case is relevant. Further, it has established clear external commercial reasons for what it does. There is no sense of artificiality in GT providing its "full service", as Judge Medd clearly found there was in the previous case. Secondly, on the above analysis if there is any "transfer of the possession" involved, then there would typically be a series of separate transfers and retransfers of the possession during the course of an individual contract between GT and a customer. Further, the nature of the agreements are such that neither GT nor the customer could state in advance when each transfer and retransfer would occur or how long it would last. This raises obvious practical difficulties in applying VAT to each of these transfers until a retransfer occurs. And there might, on the evidence of Mr Tulett, be five or six such transfers followed by retransfers in a typical eight week contract. This is a very different arrangement to one which would fall expressly within the note set out by the Commissioners in their guidance as a hire (or bailment) of scaffolding where a customer takes possession of, presumably, an identified amount of scaffolding and keeps that possession until the hire is ended. Nor are these points to which the attention of Judge Medd was drawn in the case cited to the tribunal.
- The tribunal's conclusion is that – whatever may be the case elsewhere in the building industry – the normal terms on which GT conducts its business are such that it does not "transfer the possession" of the goods constituting its scaffolding to its customers at any time. Consequently the Commissioners have failed to establish that paragraph 1 of Schedule 4 applies to GT. Consequently note 20 does not apply. The "full service" provided by GT therefore falls, without any exception, within Item 2 of Group 5, whether it is properly to be regarded as the supply of one service or of several services.
- The appellant therefore succeeds. It is entitled to costs in the usual way. If costs cannot be agreed, then the question is to be referred to the tribunal for decision.
DR DAVID WILLIAMS
CHAIRMAN
RELEASED:
LON/02/1103
