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United Kingdom VAT & Duties Tribunals Decisions |
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You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Clowance Owners Club Ltd v Customs and Excise [2004] UKVAT V18787 (08 October 2004) URL: http://www.bailii.org/uk/cases/UKVAT/2004/V18787.html Cite as: [2004] UKVAT V18787 |
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18787
VALUE ADDED TAX : Timeshare charges; whether cost components in a single onward supply of facilities to time share owners or a basket of services including certain charges as disbursements; appeal only allowed as to one charge; EC Sixth Directive Articles 11(A)(1)(2) and (3)(C); VATA 1994 sections 19(1) and (2)
LONDON TRIBUNAL CENTRE
| CLOWANCE OWNERS CLUB LIMITED | Appellant |
and |
|
| THE COMMISSIONERS OF CUSTOMS AND EXCISE | Respondents |
Tribunal Chairman: Rodney P Huggins F.C.I. Arb.
Dr Michael James
Sitting in public in Plymouth on 29 and 30 April 2004.
Nigel Gibbon, Solicitor, for the Appellant.
Kieron Beal of Counsel instructed by the Solicitor's Office for Customs and Excise for the Respondents.
... COPYRIGHT 2004
DECISION
The appeal
The legislation
The Sixth VAT Directive
"1. The taxable amount shall be :
(a) in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies, including subsidies directly linked to the price of such supplies."
62. Article 11(A)(2) states that :
The taxable amount shall include :
(a) taxes, duties, levies and charges, excluding the value added tax itself:
(b) incidental expenses such as commission, packing, transport and insurance costs charged by the supplier to the purchaser or customer. Expenses covered by a separate agreement may be considered to be incidental by the Member States.
"(a) price reductions by way of discount for early payment;
(b) price discounts and rebates allowed to the customer and accounted
for at the time of the supply;
(c) the amounts received by a taxable person from his purchaser or
customer as repayment for expenses paid out in the name and for the
account of the latter and which are entered in his books in a suspense
account. The taxable person must furnish proof of the actual amount
of his expenditure and may not deduct any tax which may have been
charged on these transactions."
The Value Added Tax Act 1994 (VATA 1994)
"(1) for the purposes of this Act the value of any supply of goods or services shall, except as otherwise provided by or under this Act, be determined in accordance with this section and Schedule 6, and for these purposes subsections (2) to (4) below have effect subject to that Schedule."
The various companies
(1) Clowance Holdings Limited ('Holdings')
(2) Clowance Estate Management Company Limited ('Management).
Management is a wholly owned subsidiary of Holdings.
(3) Clowance Owners Club Limited ('the Appellant'). It is a non-profit
making distributing company limited by guarantee.
(4) The Clowance Trust ('the Trust').
The Edinburgh Decision
VAT or consisted of a number of component parts, each of which had to be examined to see whether it bore VAT.
The issues
(a) The Appellant contends that the Edinburgh Decision governs the
Appellant's VAT position in respect of the disputed charges.
(b) The individual timeshare owners are responsible for certain payments
and the Appellant acts as an agent on their behalf in making such
payments. The Appellant has no interest in any of the timeshare
apartments or lodges or any of the common parts of the Clowance
Estate.
(c) The disputed charges made to the individual timeshare owners can be
treated as disbursements.
(d) Alternatively, statutory charges such as general rates, water rates, TV
licence fees etc are not supplies for VAT purposes.
(a) The Edinburgh Decision may be distinguished in that the supplies upon
which the tribunal was required to rule in that case were made between
the Clowance VAT Group and the Appellant. The supplies in question
in this appeal are in fact between the Appellant and individual
timeshare owners.
(b) The disputed items are supplied to the Appellant and not to the
individual timeshare owners and do not therefore qualify for
disbursement treatment for VAT purposes by the Appellant.
(c) The disputed items are cost components of the Appellant's onward
supply of standard rated facilities.
(d) Alternatively, the Appellant has failed to demonstrate that they satisfy
the conditions required for the disputed items to qualify as
disbursements for VAT purposes disbursed on behalf of the timeshare
owners.
The evidence
The facts
Background
Not all the timeshares have been sold, there are several still on the market. Only 50 weeks in any year are available for sale.
The management structure of the Estate
(1) A Trust Deed dated 31 May 1984;
(2) An associated long Lease;
(3) Individual Purchase Agreements;
(4) The Memorandum and Articles and Articles of Association of Club;
(5) A Management Agreement effective from March 2001.
the grant of that contractual interest passes to Holdings. Individual owners enter into agreements with Holdings and the Trust whereby they agree to subscribe to and be bound by the memorandum and Articles of Association of the Owners Club. Club in turn has entered into the Management Agreement with Management, Holdings and the Trust. The individual timeshare owners are thereby tied into the management structure established by the Management Agreement. We now examine the relevant provisions of these instruments in turn.
(1) The Trust Deed
20. The freehold of the estate is owned by Holdings. According to paragraph 2 of the Edinburgh Decision and accepted by us in 1984 it granted a long lease, (subsequently extended to 2068) of the freehold to the Trustees of the Clowance Trusts. The trustees acting under these trusts, originally set up in 1984 are known as Custodian Trustees. The purpose of the trust was to protect the timeshare owners' rights in the event of the insolvency of Holdings. It is presumed that this is to cater for the fact that a contractual licence granted to a timeshare owner would not confer any protected (or 'protectable') proprietary interest in the Estate.
"A. In this Deed except where the context otherwise requires :
(a) "Estate" means the Clowance Estate at Praze-An-Beeble hereinabove referred to
(b) "Lodges" means dwellings erected or converted from existing buildings on the Estate
(c) "Club" means Clowance Owners Club Limited (being a non-profit distributing company limited by guarantee and formed and owned by its members as hereinafter defined)
(d) "Common Parts" means those parts of the Estate made available by the Settlor for the common use of Members and Club
(e) "Ownership certificates" means licence giving intermittent rights of occupation of a Lodge
(f) "Group Ownership Rights" means the rights conferred by the Ownership Certificates
g) "Member" means the owner (or in the case of joint ownership the first named owner) of Group Ownership Rights granted by any Ownership Certificate being ipso facto a Member of the Club
(h) "Management Company" means Clowance Owners Management Company Limited (a wholly owned subsidiary of the Settlor) or other the person company or firm from time to time under contract or engaged to perform and provide management and other services for the Lodges and the Common Parts and the Members or its sub-contractors
(i) "Maintenance Agreement" means an agreement for the general management and running of the Lodges and the Common Parts and any other facilities on the Estate intended to be entered into by the Trustees of the Club the Management Company and the Settlor
(j) "Undertakings" means such undertakings as are described in Clause 7(i) of this Deed
(k) "The Trustees" means the First Trustees and the survivors of them and the other Trustees for the time being of this Deed
(l) "Leases" means each and every lease of a Lodge or of amenity facilities and areas granted by the Settlor to the Trustees.
(m) "Local Charitable Objects" means organisations purposes or objects which in the unfettered opinion of the Trustees will be of benefit to the neighbourhood and inhabitants of the said Parish of Crowan in the County and Duchy of Cornwall or its immediate neighbourhood but excluding the Estate and Members or any persons organisations or things situated or resident therein or thereon .
- The Trustees shall hold the Lodges demised by the Leases for the terms of years thereby granted UPON TRUST to grant Ownership Certificates as required by the Settlor in accordance with the Leases and to carry such Ownership Certificates into effect AND UPON TRUST to terminate Ownership Certificates and grant new Ownership certificates as required by the Club in accordance with Articles of Association.
- The Trustees shall stand possessed of the additional one per cent of the Club's budget provided for the Clowance Trust under Article 73(b) of the Articles of Association of the Club UPON TRUST for Local Charitable Objects
- The Trustees shall :
(d) Join in the Maintenance Agreement and enforce the same in the eventthat the Club enters into winding up either voluntary or compulsory or neglects to carry out its obligations in relation to the same either under itsMemorandum and Articles of Association or under the said Maintenance Agreement(f) On any failure of the Club to perform its duties to its Members eitherunder the Maintenance Agreement or under its memorandum and Articles of Association or as a result of any entry into winding up be it voluntary or compulsory of the Club or for any other reasons the Trustees shall carry outthe functions of the Club under the Maintenance Agreement (but not so as to involve the Trustees in any personal effort) and shall use their best endeavours to ensure that the Members or those who were Members of the Club immediately prior to its winding up and who are the owners of Ownership certificates shall together form a new replacement Club or similar nature and with similar objects to those of the Club and upon being satisfied that this has been done shall enter into fresh Maintenance Agreements and Undertakings
(2) The Long Lease
"1. IN CONSIDERATION of the rent and tenants' covenants hereinafter reserved and contained and in consideration of the reservation hereout of the exclusive rights of the Landlord to require the Tenants to grant Licences giving sole weekly rights of occupation of the Demised Premises as hereinafter provided and pending the requisition of such grants to retain the said exclusive right of occupation of the same during non-licensed weeks HEREBY DEMISES unto the Tenants the property described in the Schedule hereto (being the Demised Premises ) TO HOLD the same unto the
Tenants as joint tenants from the 1st day of January 1984 for term of eighty years determinable nevertheless as hereinafter mentioned and paying therefore during the term hereby granted the yearly rent of One pound annually in advance the first payment thereof having been made on the execution of these presents and being for the first year of the said term.
To pay the reserved rent on the days and in the manner aforesaid
To pay all existing and future rates taxes assessments and outgoings whether Parliamentary local or otherwise now or hereafter imposed or charged upon the owner or occupier of the Demised Premises except any such as the owner is by law bound to pay notwithstanding any contract to the contrary
To repair and keep the demised Premises including the drains and sanitary and water electrical gas central heating and all other apparatus and all fixtures and additions thereto and the furnishings fittings and inventory and other contents thereof in good and tenable repair and condition throughout the term and to yield up the same in such repair and condition at the determination of the tenancy hereby created
Both internally and externally to keep the Demised Premises and the aforesaid contents thereof in a good state of decoration repair and refurbishment using proper materials and skilled workmanship at proper frequency
(9) To keep the Demised Premises insured at all times throughout the tenancy in the joint names of the Landlord and the Tenants from loss or damage by fire flood and other risks and special perils normally insured against under a householder's comprehensive policy on property of the same nature as the Demised Premises
(16) To permit the Landlord at any time but without any expenses falling upon the Tenants to carry out such improvements enlargements and alterations for the benefit of the Demised Premises as the Landlord may desire.
(17) To execute all Licences for occupation without charge as may be produced by the Landlord in the form and at the time that it shall require in connection with each such licence
(18) To honour all Licences for occupation by they intermittent recurring or not as the Tenants shall grant on the directions of the Landlord
(19) To pay a fair proportion according to user of the cost of maintaining repairing cleansing and renewing all water electricity drainage sewerage
telephone and other service media as may serve the demised premises and any other premises jointly such proportion to be conclusively determined by
the Surveyor for the time being to the Landlord"
3. Individual Purchase Agreements
Annual Management Charge
The Management Charge for 199 .. is .(excluding VAT), and is not payable by the Purchaser/is payable by the Purchaser on .. The Management Charges payable by the Purchaser for future years will be determined in accordance with the Articles of the Club and the Management Agreement referred to in the Schedule overleaf."
Clause 8 reads as follows :
"In accordance with its memorandum and Articles of Association the Club has entered [into] a Management Agreement with [Management] . The responsibilities of [Management] under the Management Agreement include the maintenance and repair of the lodges, apartments and commons services and facilities, the provision of lighting, water and refuse collection, the
cleaning and servicing of the units between occupation periods, the collection of management charges (and interest on arrears), the settlement of Trustee's expenses, rates, insurance and similar payments and the provision of administrative services and facilities for the running of the Club."
"The Managing Charge payable by each member of the Club under the Management Agreement is a proportion of the total costs each year of providing all the management services, including the Management Company's factorial fee, a contribution to the Reserve Fund which is kept primarily to assist with the costs of repairs and renewals, and a contribution
of 1% of the Management Charge towards charitable purposes in the neighbourhood of Clowance The Management Charge does not cover members' telephone calls, electricity or breakages, all of which are paid for
separately by members."
4. The Memorandum of Association and Articles of Association of Club
"Objects
3(b) To manage and administer the Lodges and Common Parts for the benefit of the Licencees and other lawful occupants thereof (hereinafter called "Group Sharing Owners") and to comply with the Club's obligations contained mentioned or referred to in the Undertaking and all Leases Licences and Tenancies from time to time affecting the divers parts thereof and to collect all monies payable by the Group Sharing Owners to the Club and to provide or procure the provision of such services and so all such acts and things for the benefit of the Group Sharing Owners and some or any of then as may be necessary or desirable.
(c) To execute a Management Agreement . for the general management and running of the Lodges and Common Parts and to enforce its rights under that Agreement .;
(d) In the . event of persistent and substantial breaches of the same resulting in the non-supply or defective or sub-standard supply of such services and supplied itself to provide or procure the provision of the same either directly or by employing others.
(g) To determine and fairly and equitably to apportion levy and collect and to make rules and assessments in connection therewith the charges calculated to recover the anticipated expense of fulfilling procuring and causing others
to fulfil the above objectives (including by addition thereto of its own running and out-of-pocket expenses and prudent contributions to sinking funds for planned replacement and refurbishment and also for contingencies) together with any additional level equivalent to a further one per cent of the sum total thereof (hereinafter called "the Charitable Levy")
(i) To carry out such improvements to the Common Parts and other areas and services of common benefit to all Group Sharing Owners as may be authorised by a Special Resolution and gain the approval of Clowance Trust
(j) To carry out such improvements and additions to any specific property being the subject of Group Sharing Residential occupation as may be unanimously approved by all the Group Sharing Owners of the same and at their expense and subject to the prior approval of Clowance Trust and the Planning Authority if necessary"
limited by guarantee of payment of up to £1 per member; and that it is non-profit making. The Maintenance Agreement was attached as a schedule to the Memorandum of Association.
"A deposit of money to be built by regular contribution from Members and an element of the Maintenance Fee with the intent of financing planned replacement and refurbishment of Lodges and Common Parts at sufficient frequency to ensure unimpaired long term high standard enjoyment thereof."
"72. The Club shall be assessed as the person or entity in possession of all Lodges Common Parts and any other real or tangible personal property of the Club owned or possessed in common by the members. All costs incurred by the Club in satisfaction of any liability arising within, caused or in connection with such property or any part thereof or in connection with the Estate or any part thereof or the expenses of the administration of the Club and the cost of
fulfilling all obligations under the Leases of Undertaking and the Maintenance agreement shall be expenses of the Club or disbursements payable by the Club on behalf of the owners and included in the management fee,and all sums received as proceeds of, or pursuant to, be expenses of the Club,and all sums received as proceeds of, pursuant to, any policy ofinsurance of which the Club is the beneficiary or carried by the Club securing
the interest of the members against liabilities or losses arising within, caused by, or connected with the Lodges the Common parts or the administration of the Club or howsoever shall be receipts of such administration."
"73. (a) The Management Fee: shall be fixed prior to the beginning of each year by the Committee and apportioned by it between all members who hold
Ownership Certificates (who shall receive a copy of it) as follows :
(ii) From 1st January 1989 onwards and whilst the Maintenance Agreement subsists the fee shall be fixed by the Committee as provided for under Cause 4(a) and (b) and 5(a)(ii) thereof
(iii) On the Maintenance Agreement terminating for any reasons (unless renewed) the Committee shall make such arrangements for providing maintenance either by engaging another contractor or by means of the Club itself providing such maintenance (with or without sub-contractors) or in any other manner that it may deem expedient and having made such arrangements the Committee shall prepare a budget of all expenses necessary in its option for such provision of the same supplies and services to the members and to the Club to the Trust as would have been provided had the Maintenance Agreement continued including the provision of a twenty five per cent uplift thereon as a provision to the Sinking Fund and including also a further uplift of one per cent on the total of the above two items for the purposes of the Charitable Levy together also with any prudent reserves for contingencies (other than those intended to be covered by the Sinking Fund) but taking into account any accumulated reserves (other than the Sinking Fund)
The Committee shall obtain confirmation from the Auditors that such budget is in their view realistic and the Committee shall also obtain confirmation from the Custodian Trustees that in their opinion it is calculated to ensure full observance by the Club of its obligations under the Undertaking.
Having received both such confirmations the Committee shall apportion the above total sums between those Members holding Group ownership Certificates as they shall consider fair and reasonable due regard being had to the different types of Lodges."
"(b) Sinking Fund: The Committee shall at all times maintain a Sinking Fund having regard to its adequacy for future requirements of planned renewal and replacements and shall ensure such adequacy when preparing its budget by taking into account any anticipated extra need
(c) Vacant Weeks: Vacant weeks in a Lodge in relation to which ownership Certificates have not been sold shall not attract maintenance Fees from the developer in view of its Five Year Fixed Fee guarantee
(d) Closed Period : During the Annual Closed Period no Maintenance Fees shall be chargeable and the standing expenses for this periods shall be included in the calculation of the Maintenance Fee such period being primarily intended for the carrying out of maintenance and so as to conform to the requirements of Planning Consent
(e) Supplementary Assessments : The Committee may at any time during any year (but not before 1st January 1989) amended Maintenance fees by increase or decrease should they determine that the funds provided thereby are likely to be too great or too little to pay the costs of operation and management of the Club or to provide actual replacements of furnishings fixtures and fittings or proper contribution to any sinking fund for any such
provision and to maintain and repair any Common Parts or likewise for any
specific Lodge or Lodges or in any situation which the Committee deems to be an emergency and shall issue Supplementary Assessments therefore
(h) Personal expenses : Additionally each Member shall be responsible for the cost of all services individually supplied and metered (or if not metered fairly and reasonably assessed as the Committee shall have determined) in respect of each Lodge as he shall be for the cost of any special services or expenses which the Committee deems it necessary to charge in the way of the cost of repairs replacement cleaning loss or damage arising from the use of such lodge by him or by any person or persons with his consent including any loss or expense to any other member of his property or that of any guest or sub-licencee of his in any Lodge at any time.
(i) The "Estimated Annual Fee" : referred to in the Maintenance Agreement shall be such sum as the Auditors to the Club (acting as independent experts) shall determine as being the actual cost of providing all the services and supplies referred to therein extracted from the books of account of the management Company by the Auditors for one year and used by then by way of guidance only in estimating the cost of providing the same for the next year adjusted on the basis of sub-clause (j) below and the Auditors shall issue a Certificate of their estimate which shall be the Estimated Annual Fee and a copy thereof shall be delivered to the Trust which shall in turn certify to the Club that such has been received
(j) The basis for charges to be used in calculating the estimated Annual fee referred to in sub-clause (i) above shall be such as will provide a profit of twenty per cent on cost to the Management company on all items except the contribution to the Sinking Fund, the disbursements referred to in clause 10(f) of the Maintenance Agreement, and the payment of the expenses of the Members of the Committee of the Club and of the Trustees and the honoraria of the latter.
number of specified perils, including public and occupiers' liability, fire and employer's liability. Article 76 provides that such an insurance is obtained for the benefit of Club. In contrast, each member is responsible for taking out insurance for personal belongings or to cover personal accident. Article 78 provides that Club was to be the "true and lawful Attorney" of each member in respect of such insurance. Article 80 defines the common parts and grants members rights of access to them. Article 83 sets out the arrangements for surrender or transfer of any timeshare.
5. The Management Agreement
"1. Provision of Standard Annual Services
" The Management Company will have the exclusive right and obligation to provide or procure the provision of all the Standard Annual Services described in clause 10(a) to (f) below as and when necessary and without
prejudice to the generality thereof the management Committee will have the exclusive right and obligation to provide supply and fit or procure the provision supply and fitting of repairs, renewals and replacements to the Lodges, contents of the Lodges and the Common Parts in accordance with a comprehensive planned programme which it shall prepare, submit to and agree with the Committee of the Club at regular meetings "
"4. Amount of Management Fee
Calculation
The Annual Management Fee shall be composed of the total of the following elements:
(i) The Budgeted Annual Fee (defined in sub-clause (b) below) excluding such amount as the Management Company and the Committee of the Club shall reasonably agree should be met from the Reserve Fund.
(ii) An additional ten per cent or such other percentage up to a maximum of twenty as shall be considered appropriate by the Club (acting reasonably) of the above being the mandatory contribution to the Reserve Fund.
(iii) VAT on the total of the sums mentioned in sub-clauses (i) and (ii) above as the law shall demand
(iv) A sum equal to one per cent of the total of the sums mentioned in sub-clauses (i) and (ii) above being the Charitable Levy
(b) The Budgeted Annual fee is the budgeted cost in the year in question of providing all the Standard Annual Services as agreed between the Management Company and the Committee of the Club, which shall include all disbursements paid on behalf of the members of the Club where these disbursements are part of the Standard Annual Services and shall be divided as provided below between all the members and shall :
(i) Apply to that year
(ii) Be calculated as to yield a profit of fifteen per cent of it (the Factoring Fee) to the Management Company except that there shall be no profit on the payment of the individual personal expenses of the Committee Members and the Custodian Trustees and the honoraria of the latter, which profit will be paid to the Management Company profit account quarterly in arrears on the fifteenth day following the end of the quarter to which it relates, the said profit payments being calculate on the actual costs expended in the preceding quarter so that the Factoring Fee which the Management Company receives is based on actual expenditure including expenditure from the Reserve Fund."
40. Clause 5(b) provides that the amount payable by each member shall be billed to him by Management and collected by management as agent for the Owners Club.
"Standard Annual Services
These shall be provided under Clause 1 above irrespective of whether the provision of the services is arranged so that the cost of the services is an obligation of the management Company as a principal or an agent for the members collectively or individually :
(a) For the Lodges and all buildings and facilities in the Common Parts external and internal cleaning routine maintenance and all changing of line and the laundering thereof and all necessary repairs servicing provision of security safety-checking breakdown maintenance and redecoration of the same and their contents and the general management and administration thereof
(b) All gardening groundsmen's work forestry stream lake and pond maintenance and all other proper husbandry and keeping those parts of Clowance Estate as form the Common Parts including the leisure facilities currently or as may in the future be enjoyed by the members and of those other areas over which Members shall enjoy rights of way and access.
(c) All fee collection and book-keeping and record keeping referred to above
(d) All services and supplies necessary fully and punctually to meet all obligations falling upon the Custodian Trustees under the Leases of the Lodges and the Common Parts and on the Club under Deed of Undertaking and Indemnity given by it to the Custodian Trustees
(e) For the Trust and the Club facilities as provided in clause 8 above
(f) The discharge by the ManagementMaintenanceCompany as and when they become due of all recurring chargesagainstrelating to the Lodges and the Common Parts in the nature of general and water rates insurance meter and telephone rentals and any other equipment rental and any other similar paymentsstanding disbursements(any commission discount or rebates obtained thereon going to reduce the cost of the Standard Annual Servicesbeing retained by the Management Company for its own benefit.
fees are thus determined The Sinking Fund or Reserve Fund contribution is currently 10%. It is collected by the Management Company and deposited in the Owners Club bank account. The Charitable Levy of 1% is collected monthly by the Management Company and deposited in the bank account in the name of Clowance Trustees."
Summary of the Arrangements
Holdings was "subject to such Licencees paying a correct proportionate part of the cost of observing the covenants as to repair maintenance insurance payment of outgoings and all other obligation herein contained." This is because the repairing covenant was nominally imposed on the Trustees of the Trust. In fact, the repairing covenant was substantively imposed on the Owners Club, by virtue of its undertaking and indemnity. This meant that the Owners Club was responsible for keeping the property both in a good state of decoration repair and refurbishment" and also insured against the relevant perils. The costs of doing so would amount to costs incurred in managing the estate.
Factual chronology
"With the exception of the Sinking Fund, the Tribunal considers that insofar as the disputed items in this appeal constitute services, they fall into case (ii) in the passage quoted above. These items would relate to insurances, water ad sewage rates and the bank loan. None of these expenses was incurred by the Appellants or the Management Company (A in the quoted passages) in
the course of making their own supplies of services such as grounds maintenance to the Owners Club or the timeshare owners (B in the quoted passage). Rather, these were specific services supplied by third parties (C in the quoted example), the insurance company supplying the insurance services (which the Owners Club has to take out in accordance with clause 75 of the Articles of Association), the water and sewage authority supplying water and sewage removal facilities, and the bank providing the loan all direct to the Owners Club or the timeshare owners (B in the quoted example). The Appellants, through the Management Company have merely acted as the Owners Club's known and authorised representative in accordance with clause 5(b) of the Maintenance Agreement in paying these various third parties for the services provided directly to the Owners Club or in settlement of a legal liability of the Owners Club or the timeshare owners, e.g. rates. They do not form part of the consideration for the Appellant's own services to the Owners Club. They did not form part of the cost components of the service provided by the Management Company to the Owners Club. Finally, it may be noted that these payments all fall within clause 10(f) [see clause 4(b)(iii)]. This is consistent with the conclusions we have reached on this branch of the appeal .
"In summary our decision is that (1) insofar as the Appellants have paid VAT on the portion of the sum claimed in their invoices, rendered to the timeshare owners in accordance with clause 5(b) of the Maintenance Agreement and Clause 5(b) of the Management Agreement, that is attributable to the repayment of expenses incurred by the Management Company on behalf of the owners Club in connection with insurance, rates, water and sewage rates, the Bank of Scotland loan repayments, and TV licences, such VAT was not due on that portion."
"Before any meeting to discuss this is considered I would appreciate detailed clarification as to why Policy Section has come to the conclusion that the Owners Club should be registered and what justification they have for suggesting that this should be retrospective. I say this for the following reasons :
• Customs & Excise, like ourselves had a period of 28 days from the date of the Tribunal Decision to go back and have various matters clarified and ruled on. Why was the question of possible registration not raised within this period ?
• The Tribunal rules that the amounts relating to rates, water rates, TV
licenses etc were Statutory Demands and therefore did not represent
taxable supplies by any party. I would therefore require the Policy
Section to specify exactly what amounts it now considers to relate to
the making of taxable supplies.
• As it appears that you are suggesting that the Owners Club should be
registered and that this suggestion arises from the Tribunal Decision,
I would appreciate detailed clarification as to why the Policy Section
feels that any action to register that entity should be retrospective ."
concluded that the fee for maintenance services was taxable. Each timeshare owner's liability for the share of the maintenance fee, was, according to the Tribunal, a liability to the Owners Club and not to Management.
and Holmes met with Mr Burton and Mr Graham. The question was discussed of whether the Owners Club's liability to be registered for VAT should be back-dated. The Appellant's representatives were informed that guidance from Policy would be sought concerning whether or not the registration should be back-dated. Officers Phillips and Holmes re-attended the Appellant's premises on 23 April 2002. They examined the accounts kept by the Owners Club. Those accounts showed that the Owners Club was the principal in the supply of maintenance services to timeshare owners. The Officers noted that according to their interpretation of what was discussed at the meeting, all parties agreed the following points :
(1) The Owners Club made supplies of maintenance services to the
timeshare owners in consideration for the annual maintenance fee.
The Owners Club should therefore raise proper VAT invoices to the
timeshare owners. If Management were to continue to invoice the
timeshare owners, it should be made clear that they were acting as
agents for the Owners Club;
(2) Management made supplies of maintenance services to the Owners
Club. Management should account for VAT on the value of that supply.
It should raise a proper VAT invoice for the Owners Club and the
latter would in principle be able to reclaim the amount invoiced as input
tax in the usual way;
(3) The Owners Club should be VAT registered. Registration would take
effect from the date of the Edinburgh Decision.
(1) Rates (which are business rates);
(2) Insurance;
(3) TV licence;
(4) Water;
(5) Sewerage;
(6) Charitable trust donation;
(7) "Owners' Club" Loan interest and repayments;
(8) Payroll
57. The invoice states at the foot that "services include maintenance, cleaning, stationery, replacements, telephone, electricity, etc."
After a period of several months in 2002, the invoice was amended by the exclusion of the word "Payroll" from the list of disbursements.
"It is the Owners' Club, (OC), which buys in everything necessary to meet its contractual obligation to ensure the facilities promoted by Clowance are available to each owner. It is not the owner's responsibility to arrange and pay for rates or TV licences or insurances or to make any payments to the club's creditors. The owners buy time in the property for a specified period and with the provision of specified amenities for which they pay an agreed fee. The OC calculates its fee to take into account of all the costs it incurs in supplying the agreed facilities to its members."
The letter itemised each group of disputed charges and gave reasons for the disallowance as "disbursements".
The following "conclusion" was made at the end of the letter :
"based on the known facts of this case so far, it is the opinion of the Commissioners that all the disputed charges, TV licence, rates, water rates, insurance and loan repayments are charges to the Owners Club and are passed on to the owners only as cost components of the charge the OC makes for supplying the facilities to the individual owners. It follows that VAT should be accounted for by the Owners Club on these elements from the date of registration for VAT."
At the tribunal hearing, Officer Phillips readily admitted that after the Edinburgh Decision was released, he had formed the view that the various items separated out in the invoices sent to individual timeshare owners could be regarded as disbursements. Policy formed a contrary view.
local staff including the local band 9. This agreement was made subject purely to 'rubber stamping' by the Headquarters personnel involved."
(1) One TV license was issued to each lodge and apartment. The address on
each licence related to a lodge or apartment. The cost was allocated
proportionately to each timeshare owner;
(2) Two separate business rate demands were received from Kerrier
District Council. One related to the leisure centre. The other related to
the whole of the timeshare complex and premises;
(3) Water rates were billed monthly and represented a global charge;
(4) The insurance policy charged a global premium. A proportion of
the premium was allocated to non-owners' areas, such as the restaurant
and sales areas;
(5) The management charge was made up of the following items :
(a) The cost of managing the disbursement items;
(b) The cost of the maintenance services;
(c) The cost of the staff payroll;
(d) A factoring fee of 15% of all the above charges, including
disbursements;
(e) VAT on the maintenance services, the payroll and the 15%
factoring fee.
Rate demands
"I am aware that Non-Domestic Rates are demanded in respect of the above timeshare holiday estate for the following :
* Time Share Complex and premises
* Leisure Centre and Premises
Disclosure of Information
I would be grateful if you could provide details in respect of the following requests for information, in connection with the rating years ended 2002, 2003 & 2004 :-
- On which person or company have the rates demands been levied ?
- Who would be held responsible for any debts, resulting from non-
payment of the rates demanded ?- Two demands are made to the business, as noted above. Can you
confirm if these are 'global' charges or whether there are valuationswhich include separate calculations for each of the individual timesharelodges/apartments.- One of our VAT public notices (701.20 Caravans & Houseboats)
includes a paragraph regarding the liability of local authority charges inrelation to seasonal or holiday parks. It states :-as the owner of a seasonal or holiday park, you will pay non-domesticrates on the whole sit. If you attribute a proportion of the rates to theindividual caravan owners using the official apportionment made by thelocal valuation office (under Regulation 4 Notice) any charge is outsidethe scope of VAT and no VAT should be charged on it.Would you please confirm if such an official apportionment underRegulation 4 has been made in respect of the Clowance Estate andwhether such an apportionment under that authority would be consideredrelevant to timeshare holiday units "
"The answers to your questions are as follows :
- The rate demands for the above property have been levied on Clowance
Estate Management Limited.- The above company would be held responsible for any debts arising
from the non-payment of the rates demanded.- There are two 'global' assessments for the estate, one for the leisure
centre and another for the timeshare complex.- I am not aware of any apportionment being made, but may be this is a
matter you should take up with the Valuation Office Agency in StAustell".
(1) VAT Notice 709/0 at paragraph 5.6 where the Commissioners provide : "You may be able to treat some of the components of the periodic charge as disbursements, for example, insurance and rates. But you must meet the
VAT Notices
(1) VAT Notice 709/0 at paragraph 5.6 where the Commissioners provide : "You may be able to treat some of the components of the periodic charge as disbursements, for example, insurance and rates. But you must meet the
conditions of a disbursement before you can do this for VAT purposes."
(2) The Commissioners have also recognised that certain components of an annual charge or subscription would be exempt from VAT or outside the scope of VAT if charged separately and they have published an extra statutory concession allowing non-profit making bodies to apportion the consideration received from members between the taxable and non-taxable elements.
Extra statutory concession 3.35 is published in VAT Notice 48 and provides as follows :
"Apportionment of certain membership subscriptions to non-profit making bodies
"Where a membership body supplies, in return for its membership subscription, a principal benefit, together with one or more ancillary benefits, it will normally have to treat the subscription as being in return for that principal benefit. This means that the body will have to ignore the liability to the VAT of the ancillary benefits and account for VAT on the whole subscription based on the liability to VAT of that principal benefit.
However, bodies that are non-profit making and supply a mixture of zero-rated, exempt and/or standard rated benefits to their members in return for their subscriptions , may apportion such subscriptions to reflect the value and VAT liability of those individual benefits, without regard as to whether there is one principal benefit. This concession may not be used for the purposes of tax avoidance."
(3) Notice 700, paragraph 25.1.1 states as follows : [the numbers have been added for clarification]
"You may treat a payment to a third party as a disbursement for VAT purposes if ALL the following conditions are met :
- you acted as the agent of your client when you paid the third party;
- your client actually received and used the goods and services provided
by the third party;- your client was responsible for paying the third party;
- your client authorised you to make the payment on their behalf;
- your client knew that the goods or services you paid for would be
provided by a third party;- your outlay will be separately itemised when you invoice your client;
- you recover only the exact amount which you paid to the third party; and
- the goods or services which you paid for are clearly additional to the
supplies which you make to your client on your own account."
Cases
Hazelwood Caravans and Chalets Ltd v Commissioners of Customs and Excise [1985] VATTR 179 (Hazelwood Caravans)
Canary Wharf Ltd v Commissioners of Customs and Excise [1996] VATDR 323 (Canary Wharf)
Nell Gwynn House Maintenane Fund Trustees v Commissioners of Customs and Excise [1999] 1 WLR 174 (Nell Gwynn)
Appleby Bowers (a firm) v Customs and Excise Commissioners [2001] STC 185 (Appleby Bowers)
Commissioners of Customs and Excise v Plantifor Ltd [2002] UKHL 33; 1 WLR 2287 (Plantifor)
Card Protection Plan Ltd v Customs and Excise Commissioners CTEC Case C-349/96 [1999] STC 270 (Card Protection CTEC)
Card Protection Plan Ltd v Customs and Excise Commissioners HL [2001] STC 174 (Card Protection HL)
Quaysiders Ltd v Commissioners of Customs and Excise [2001] VTD 17204 (Quaysiders)
The arguments for the Appellant
65. He asserted that in any event the charging of the disputed items of expenditure satisfied the test of being disbursements as envisaged by paragraph 5.6 of VAT Notice 709/3.
66. In the alternative, he submitted certain of the disputed items of expenditure, namely rates, water & sewerage rates, television licences were
not supplies for VAT purposes being quasi government charges and the charitable levy was also not consideration for any supply, being specified contractually to be outside of the Budgeted Annual Fee for the standard Annual Services.
"Another form of disbursement is simply an outlay or expense incurred by one party on behalf of another; there, the supply is generally made direct to the principal and the agent is simply paying the third party on behalf of his principal.
The administrative act of paying is part of the agent's service for which he charges a fee; but the consideration for the service is the fee and not the fee plus the outlay paid in the course of performing the administrative service; the fee would no doubt reflect the cost to the agent of employing staff to carry out the necessary paperwork and draw a cheque in favour of the third party and so on."
He pointed out that the Edinburgh Decision went on to record that none of the disputed items of expenditure formed part of the consideration for the Management Company's supply of services and that they were paid (page 51) "in settlement of a legal liability of the Owner's Club or the time share owners e.g. Rates."
"You may be able to treat some of the components of the periodic charge as disbursements, for example, insurance and rates. But you must meet the conditions of the disbursements before you can do this for VAT purposes."
In other words, he said the Commissioners accepted that items such as insurance and rates were not part of the periodic charge for services provided by a management company or, as in this case, an owner's club.
In addition, the Appellant argued that the Commissioners have also recognized that certain components of an annual charge or subscription would be exempt from VAT or outside the scope of VAT if charged separately and it was mentioned that Customs published an extra statutory concession 3.35 in VAT Notice 48 allowing non-profit making bodies to apportion the consideration received from members between the taxable and non-taxable elements. Mr Gibbon said that this concession existed to assist those non-profit making bodies which did not meet the disbursement criteria required by paragraph 5.6 of Notice 709/3. he maintained nevertheless that the Appellant did meet the disbursement conditions which are set out in paragraph 10.8 of Notice 700.
Mr Gibbon went through the eight point test set out in paragraph 10.8 of Notice 700 and said the Appellant considered it had met each level.
"the liability of the individual members is to pay the proportion allocated by the Owners Club in accordance with paragraph 73(a)(ii)(b)-(j) [of the Articles of Association] and the Maintenance Agreement Clause 5(a)(ii) [now 5(a) of the Management Agreement]; in summary these provisions apportion the amounts payable by the Owners Club among the members according to lodge size or some other equitable basis".
acting as agent for the individual owners.
At page 42
"The second element itself consists of a variety of components, payment for some of which cannot possibly be classified as consideration for the supply of goods or services, e.g. rates; these relate to a statutory liability and are not in respect of a service provided by the Owners Club, the Management Company or any other party."
And at page 46
"With the exception of the Sinking Fund, these payments relate to either services provided by third parties, and not by the Management Company e.g. insurances, repayment of bank loan, water rates, or were not payments for the supply of goods or services at all, e.g. the Charitable Levy, TV licences and rates."
The Appellant argued that the facts and circumstances pertaining in respect of The Forest Hill Trossachs Club were very similar to the facts and circumstances pertaining to the Owners Club.
The Appellant has informed the tribunal in its submission that after the Forest Hills decision was handed down it was agreed with local assessors in Scotland that as a matter of convenience the rateable occupiers of timeshare properties in Scotland would be entered in the appropriate Valuation Rolls as the original development company and "and others", provided that the
original developer still owned at least one week. The was because the computer programme used by the assessors did not contain a sufficiently large field to accommodate the names of all the individual timeshare owners.
The arguments for the Respondents
(a) The Edinburgh Decision may be distinguished in that the supplies upon
which the Tribunal was required to rule in that case were made between
the Clowance VAT Group and the Appellant. The supplies in question
in this appeal were in fact between the Appellant and individual
timeshare owners.
(b) The disputed items were supplied to the Appellant and not to the
individual timeshare owners and did not therefore qualify for
disbursement treatment for VAT purposes by the Appellant.
(c) The disputed items were cost components of the Appellant's onward
supply of standard rated facilities.
(d) Alternatively, the Appellant had failed to demonstrate that they satisfy
the conditions required for the disputed items to qualify as
disbursements for VAT purposes disbursed on behalf of the timeshare
owners.
(a) The Plantifer decision was that of the Court of Appeal which had been
reversed subsequently in the House of Lords.
(b) The Management Agreement which became effective from March
2001 and the Articles of Association of the Owners Club were amended
as a result of the Edinburgh Decision.
(c) There were some factual inaccuracies which he pointed out to the
Edinburgh tribunal.
" On the question concerning the basis upon which the local council
charge Clowance with local non-domestic rates, in the Commissioner's view, nothing in the further material provided by the Appellant alters the validity of the Commissioners' case on this point. The Commissioners would reiterate that the demand notices, which the Appellant has sought to 're-charge'(which are the only invoiced in issue in this appeal), clearly demonstrate that non-domestic rates are paid by the 'business' of Clowance Estate. Those demand notices are to be found at pages 177 to 180 of the Appeal Bundle of Documents. They clearly show non-domestic rates being demanded in respect of the "Time Share Complex and Premises' and the 'Leisure Centre and Premises' respectively. The further demand notice submitted by the Appellant (which does not form part of the invoices in dispute in this appeal) is in the same terms. None of those demands separately itemise the timeshare interests. The demands are made globally by Kerrier District Council.
It is the Commissioners' view that either the Appellant is the proper person to pay those rated, or the invoices should not in any event have been recovered by the Appellant (as opposed to Clowance Estate Management Ltd, to whom the relevant bills are addressed). The Commissioners take the view that what cannot be suggested is that Clowance pays council tax (i.e. "domestic rates") on behalf of timeshare owners. The reason for this is two-fold, Kerrier District Council levies non-domestic rates and secondly, the demand notices are not addressed to the individuals."
Reasons for decision
which consists of various costs made by the Owners Club including the cost of managing the items, the cost of maintenance services, the cost of staff payroll, a factoring fee and VAT on these costs. The largest amount in the
invoices rendered to each individual timeshare owner on a regular basis since 2001 is only for the management charge.
"The totality of the agreement entered into by each individual timeshare owner in entering into the Group ownership Purchase Agreement therefore includes provisions that there are certain recurring charges against the lodges which will be discharged on behalf of the individual timeshare owners as disbursements by the Appellant via the Management Company.
In the discharging of these charges and disbursements the Appellant is acting as agent of the individual timeshare owners."
Was there an Agency relationship ?
Lords Slynn and Millett gave the leading speeches with which Lords Hobhouse and Scott agreed. Lord Slynn found at paragraphs 23 and 24 that the separate delivery of flower bulbs was a supply of services which was ancillary to the main supply of goods (the bulbs themselves). His Lordship also rejected an argument advanced by Plantiflor that it had only been acting as an agent in the supply by Parcelforce of delivery services. At paragraphs 29 to 32, he criticised the conclusion of the Tribunal that Plantiflor had solely been acting as an agent or intermediary for the customer when dealing with Parcelforce :
"29. This conclusion however does not take into account the terms of the agreement between Plantiflor and Parcelforce. It is plain from the terms of
the agreement to which I have referred that Parcelforce was to deliver parcels "for Plantiflor". Parcelforce was to "charge Plantiflor" and Parcelforce was to pay invoices from Parcelforce by direct debit transfer. There is nothing in that agreement to express or even indicate that the two contracting parties were not acting as principals, in other words that Plantiflor was acting as agent for its customers. There is no link between Parcelforce and the customer. Since all that Parceforce knew was the name of the addressee on the parcel, (or perhaps even only the address), it might well not know the identity of the customer. Plantiflor agreed to pay postal charges; Plantiflor and not the customer was liable to pay Parcelforce. Even though Parcelforce supplied the service for delivery of the goods there was no consideration passing from the customer to Parcelforce. Plantiflor agreed to arrange delivery including paying Parcelforce for the postage and the customer paid Plantiflor for that.
It was in an effort to avoid this situation that Plantiflor worded its agreement with its customers so as to make it appear that it was only acting as agent for
the customer in arranging delivery of the bubs. At paragraph 61, Lord Millett identified the difficulty with this strategy, which was that it did not fit the facts. Plantiflor had not entered into an agreement with Parcelforce as agent for the customers as undisclosed principals. Plantiflor was contractually liable to pay the postage charges, not the customers. At paragraph 63, his Lordship noted :
"63. Plantiflor advertises that it "deliver[s] every order, whether large or small, direct to your home"; and its undertaking to arrange delivery by Parcelforce and to advance al postal charges to Parcelforce is an undertaking to make all necessary arrangements to have the goods delivered. The customers acceptance of Plantiflor's terms does not authorise Plantiflor to bring him into a direct contractual relationship wth Parcelforce so that, if Plantiflor defaults in payment of postal charges to Parcelforce, the customer, who has already paid postage to Plantiflor, could find himself liable to pay it over again to Parcelforce. None of the parties to these arrangements had any such intention."
Dealing with an argument that strict agency was not necessary to be able to rely on Article 11(A)(3), Lord Millett pointed out that if that were so, value added tax would operate in a very different way. At paragraph 65, he observed :
"It is not enough that the recipient is bound by his contract with his customer to make the payment and that the amount in question is entered in his books in a suspense account, The payment must be made "in the name of and for the account of" the customer, and this has regard to the payment from the perspective of the recipient. It requires that the payment should discharge a pre-existing indebtedness of the customer. Not merely of the person making the payment. Otherwise the description of the payment would mean nothing to the recipient."
"67. To sum up: there were three distinct supplies in the present case, and it is necessary to identify the particular supply for which the payment made by the customer was the consideration:
(i) The supply by Parcelforce to Plantiflor of the service of delivering its customer's goods. This was supplied pursuant to a contract for delivery made between Parcelforce and Plantiflor and was for a consideration payable by Plantiflor. It is (or would if Parcelforce were a private carrier be) a taxable supply.
(ii) The supply by Parcelforce to the customer of the service delivering his goods to him or his order. This supply was also made pursuant to the contract for delivery between Parcelforce and Plantiflor. It was made in
circumstances in which the customer incurred no liability to Parcelforce to pay a consideration and was not (and would not even if Parcelforce were a
private carrier be) a taxable supply.
(iii) The supply by Plantiflor to the customer of an arrangement service for which Plantiflor charged £1.63 per parcel. Whatever else was included in this supply, it was not the service of actual delivery. That was supplied by Parcelforce. What the customer received for his money was the benefit of the arrangements which Plantiflor had made with Parcelforce to deliver its customer's goods to his order without charging him in the normal way. Since Plantiflor made this supply for consideration, it was a taxable supply."
Were the various items disbursements ?
Non-domestic rates
Kerrier District Council levies non-domestic rates on both the timeshare complex and premises and on the leisure centre and premises. The Council has confirmed that the rate demands are levied on the Management Company who would be held responsible for any debts arising from non-payment There are two 'global' assessments for the estate.
Water rates
South West Water invoices Holdings for water and sewerage service charges. Water is supplied to the complex as a whole and not to individual units. The water is not supplied to individual timeshare owners.
TV licence
The licences are issued to each individual unit designated as "The Secretary, Clowance Estate Club and numbered as such on the face of the licence with the notation, "What this licence allows you and any person living on the premises occupied by you at the above address". Each fee is for a separate amount for each timeshare unit.
Insurance
A combined policy has been taken out in the name of Holdings and is specified to cover as insured all of its subsidiary companies. The policy provides cover against property damage and loss of contents in respect of the main house, leisure centre and chalets as separately listed items. The Articles of Association require the individual timeshare owners to have their own individual cover for personal possessions and personal accident.
Charitable trust donation
As referred to in the Edinburgh Decision at page 40 this is not part of the estimated annual fee; it is collated by the Management Company "on behalf of the Owners Club" and the whole amount paid directly into the Clowance Trustees' bank account for furtherance of charitable purposes.
We do not consider this to be the nature of a "disbursement" as it does not come within the description of a "service."
Loan interest
It was established at the beginning by Mr Burton that due to the losses generally a bank loan had to be taken out by the Owners Club due to the Club's business activities and the interest paid was arbitrarily split between all the timeshare owners. The timeshare owners are not responsible individually for paying this interest to the bank. We consider the interest is not a disbursement.
Single or Composite Supplies
- Supplies made in a single transaction should not be artificially split;
- The essential features of the transactions must be ascertained to
determine whether the taxable person supplies several distinct principalitems or a single item;- There is a single supply where one or more elements constitute a
principal item, with one or more other elements which are "ancillary";- An item is "ancillary" if it does not constitute an aim in itself, but a
means of better enjoying the principal item supplied;- The fact that a single price is charged is not decisive.
This was endorsed by Neuberger J in Appleby Bowers. He held that if two or more distinct elements in a supply could be discerned then the supply could be regarded as a single supply if one was the principal elements and the other or others were ancillary or merely incidental to that principal element. The issue was not whether one element of a complex commercial transaction was ancillary or incidental to, or even a necessary or integral part of. The whole, but whether one element of the transaction was merely ancillary or incidental to, or a necessary or integral part of any other element of the transaction.
expect to receive a week's stay in accommodation which has been properly maintained and serviced. They would also expect to receive the fully-functioning amenities they were promised when they entered into their individual purchase agreements. In return, they have agreed to pay a management fee.
The Edinburgh Decision
Conclusion
Decision
RODNEY P HUGGINS
CHAIRMAN
Release Date: 8 October 2004
LON/2002/0565
