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

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	DECISION

The appeal

1.  Clowance Owners Club Limited (the Owners Club/the Appellant) appeals against a decision of the Respondents (Commissioners/Customs) dated         14 June 2002 that the Appellant’s supply of timeshare facilities to individual timeshare owners comprises a single supply of standard rated facilities.

The legislation

The Sixth VAT Directive

2. Article 11 of the Sixth Council Directive of 17 May 1977 on the harmonization of the laws of member States relating to turnover taxes – common system of value added tax: uniform basis of assessment, 77/388/EEC (‘the Sixth VAT Directive’) provides for the determination of the taxable amount of a supply. Article 11(A)(1) reads as follows :

“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.

3.  In contrast, Article 11(A)(3) provides that the taxable amount shall not include :

“(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.”		

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	The Value Added Tax Act 1994 (VATA 1994)

4.  Section 19 VATA 1994 sets out the domestic UK provisions relating to the calculation of the taxable amount in a given supply. Section 19(1) provides as follows :

“(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.”

5.   Section 19(2) provides that if the supply is for consideration in money, its value shall be taken to be such amount as, with the addition of the VAT chargeable, is equal to the consideration.  Section 19(3) states that if the consideration does not consist or does not consist wholly in money, its value is to be taken to be such amount in money as is equivalent to the consideration.  Schedule 6 to the Act provides for a different basis for valuation in special cases.

The various companies

6.   The Appellant is one of a number of legal entities associated with the ownership, administration and management of the Clowance Estate and Country Club (the Estate) near Camborne, Cornwall.  The various legal entities are :

(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’).

7.     Holdings and Management are in the same VAT group.  The Appellant is not. The Trust does not have a separate VAT registration.

The Edinburgh Decision

8.   On 14 June 2001, another VAT and Duties tribunal which had sat in Edinburgh in the appeal of Holdings v Commissioners of Customs and Excise [Mr Gordon Reid, Chairman] promulgated its decision. Reference throughout this decision to the “Edinburgh Decision” is to this tribunal decision Number 17289.

9.    The appeal in the Edinburgh Decision concerned the paper classification of certain management charges paid by timeshare owners to Management.  Holdings, as representative of a VAT group, brought a claim for repayment of VAT paid on those charges.  The issue in particular was whether the management charges represented a single supply that was  entirely subject to		

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	VAT or consisted of a number of component parts, each of which had to be examined to see whether it bore VAT.

The issues

10.   The Appellant’s case, as disclosed by its Notice of Appeal dated 10 July 2002 is that :  “The decision notified in writing on 14 June 2002 and received on 17 June 2002 ignores much of the decision in the appeal of Clowance Management Co Ltd v Customs and Excise ref EDN/99/142 which we maintain applies equally to the Clowance Owners Club Ltd …”

11.  Further details of the Appellant’s case have been provided during correspondence with the Commissioners and during the course of this appeal and can be summarized as follows :

(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.

12.   The Commissioners contend that :

(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.		

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	The evidence

13.  A bundle of documents was produced by the parties. Oral evidence was given on behalf of the Appellant by Mr Ian Robert Burton (Mr Burton) who is the Company Secretary of Holdings and a Director of Owners Club.  Oral evidence was given on behalf of Customs by Review Officer Richard John Phillips (Officer Phillips)

The facts

14.   From the evidence before us we find the following facts.

Background

15.   The Estate is situated at Praze-an-Beeble near Camborne in Cornwall.  The Estate (according to its website) is “the leading timeshare rentals resort in Cornwall.  It is comprised of 108 “RCI Gold Crown Units”, for either purchase or rental, ranging from sleep 4 up to sleep 8, a multi-million pound leisure complex, boasting and indoor heated swimming pool, squash court, gymnasium, sauna, solarium, Jacuzzi, restaurant and bar, 2 full size tennis courts, 2 Australian “short tennis” courts, a badminton court, a 9 hole golf course, a 4 acre lake and 97 acres of landscaped parkland”.

16.  The Estate has in excess of 5,000 family members who either own their holiday time to use at the Resort or exchange with one of over 3,700 different resorts in over 100 countries world-wide.  The timeshare industry has developed a system of exchangeable points, called RCI points, which enables timeshare accommodation to be taken at other participating resorts.

17.  The 108 units are timeshare apartments and lodges.  The freehold of the leisure facilities and main house (which is used for the administration of the Estate and storage) are owned by Holdings.  The leisure facilities are provided by Holdings for the benefit of the individual timeshare owners.

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

18.  The management of the estate is structured through a number of different legal entities (as set out in paragraph 6 of this decision) and using a variety of different legal documents.  These are as follows :

(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.

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	19.   The overall structure is that a long lease of the freehold interest of the estate has been granted on trust to the Trustees of the Trust.  The terms of the Trust require the trustees to grant individual “ownership certificates” to owners of a contractual licence over part of the estate.  The consideration for
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.

21.  Under the Trust Deed, the Custodian Trustees are entitled to grant and have granted licences, known as Ownership Certificates, to individuals who thereby become timeshare “owners”.  Each owner becomes a member of the Owners Club.  According to the Edinburgh decision, it contains the following terms :

“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

		

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	(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………….

4.  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.

5.   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 ………

7.   The Trustees shall :
…
(d)  Join in the Maintenance Agreement and enforce the same in the event 		

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	that the Club enters into winding up either voluntary or compulsory or neglects to carry out its obligations in relation to the same either under its
Memorandum and Articles of Association or under the said Maintenance Agreement
…

(f)   On any failure of the Club to perform its duties to its Members either
under 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 out
the 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 ……
…

10.   The Trustees shall be entitled to be reimbursed with all their traveling subsistence and other out-of-pocket expenses incurred in the execution of their duties hereunder (including Value Added Tax as appropriate) together with such reasonable fees for acting as such shall be agreed between the Trustees and the Club (or failing such agreement shall be determined by the Settler or failing it by the Auditors) all such feels being payable by the Club in addition to the payment of one per cent of Maintenance Fees for charitable purposes and hereinabove provided.” 
…

15.  This Clowance Trust shall terminate on the 1s day of January 2064 upon which date the Trustees shall surrender or otherwise terminate any remaining Leases or like rights and shall be paid all remuneration and expenses then owned to them and shall apply any surplus assets after discharging all liabilities to Local Charitable Objects.”

(2)  The Long Lease

22.  According to the Edinburgh decision, the Lease contained the following terms :

“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 

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	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.

2.   THE LANDLORD hereby reserves unto itself the exclusive right to require the tenants to grant weekly Licences to occupy Demised Premises (with power to make such recurring if the Landlord shall think fit) and for a period of years expiring not later that eighty years from the 1st day of January 1984 without payment of any nature becoming due to the tenants but subject to such Licences paying a correct proportionate part of the cost of observing the covenants as to repair maintenance insurance payments of outgoings and all other obligation herein contained and the Landlord further reserves the right of occupation to itself or others authorised by it and whether for reward or not during all periods not forming the subjects of such Licences.

3.   THE TENANTS being the Trustees of the Clowance Trust as Trustees but not further or otherwise hereby jointly and severally covenant with the Landlord (but to the intent that they shall have no personal liability and that the extent of their liability shall not exceed the assets for the time being of the Trust) as follows …
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.

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	(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”

23.  Under a Deed of Indemnity and Undertaking dated 31 May 1984, the Owners Club undertook to the Trust to fulfil the Trust’s obligations under the Long Lease. The Owners Club was thereby obliged to pay to the Landlord 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”.

3.  Individual Purchase Agreements

24.  The Purchase Agreement signed by individual timeshare owners obliges then to comply with the memorandum and Articles of Association of the Owners Club. In return, Holdings agrees to sell to the purchaser a licence in the form of an Ownership Certificate for a given weekly period.  Holdings receives a one-off purchase price.   The Purchase Agreement also includes an obligation to pay an annual management charge.  Clause 3 provided as follows :

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.”

25.  The Schedule to the Purchase Agreement sets out various further, contractual terms.

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 		

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	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.”

26.  Clause 9 provides :

“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

27.  The Memorandum of Association of the Owners Club contains an Objects clause 3.  Clause 3(a) states that the Owners Club has been established to enable it to enter into an agreement with the Trust by which it will assume “complete responsibility for the maintenance repair replacement servicing cleaning management and upkeep generally of holiday premises situate at Clowance Hall …. [the Lodges and Common Parts].”

28.  The remainder of clause 3 provides as follows :

“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 

		

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	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”

29.  The Memorandum also specified that the liability of the company is
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.

30.  Article 1 of the Articles of Association sets out a number of definitions. “Maintenance Fee” is defined as : “That annual charge levied by the Club in accordance with the provisions of these Presents from its members calculated on a weekly occupancy basis and intended to cover the expenses of adequately providing and sustaining the services and accommodation standards for their benefit.”  “Sinking Fund” is defined as

“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.”

31.  Clause 6 deals with membership of the Owners Club.  It provides that each Licencee of a Lodge or a permitted Assignee of such a Licencee shall be a Member.  Article 32 establishes a Committee of not less than five and not more than fifteen members.  Article 37 provides that the business of the Club shall be managed by the Committee who may pay all expenses incurred in promoting and registering the Club.

32.  Article 72 was amended by the Owners Club after the Edinburgh Decision was promulgated.  It now reads as follows (with additional words being underlined and the omitted words deleted ):

“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 		

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	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 of insurance 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.”

33.  Article 73 sets out the provisions relating to the raising of the management fee.  It is set out in full :

“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.”

34.  Article 73 also makes provision for the maintenance fee to be altered to cater for the following situations:

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	“(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.

35.  Article 75 obliges the Owners Club to keep insurance on foot for a 

	

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	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

36.  A new Management Agreement became effective from March 2001 in anticipation of the Edinburgh Decision following the first two days of the hearing. It was entered into by the Owners Club, the Trust, Management and Holdings.  The Objects of the Agreement are stated to be as follows :

“1.  To ensure that the members of the Club enjoy the services (including the appropriate leisure facilities) that their Club engages and to a fair and reasonable standard.

2.  To make sure that the legal obligations for repair and maintenance and the like falling upon the Custodian Trustees (being the trustees of the Trust) under Leases of parts of the Clowance Estate and which the Club has by Deed of Undertaking and Indemnity undertaken to assume and be responsible for in their stead, shall be fulfilled.

3.  To provide administrative facilities for the Club and for the Custodian Trustees, and also to provide for the payment of the honoraria of the latter.

4.  By then joining in this Agreement, to give the Custodian Trustees the right to enforce it themselves against any party in breach, thus enabling them to fulfil their trust by preserving the long-term interests of the Members.

5.  So that advantage may be taken of technical and other innovations arising in the future, to give the Club the right if it wishes and in its own discretion to request a variation of standards and details of services but with appropriate variation in the Management Fee.

6.  For the Members by paying a modest but regular surcharge on one penny in the pound of their Management Fee [as the Charitable Fee].

7.  To provide funds to the Club for maintenance of a reserve Fund of prudent and sufficient size to meet the cost or assist in meeting the cost of 9a) repairs, renewals and replacements of … the Lodges and the Common parts … and (b) other items of expenditure which the Management Company, the Committee of the Club and the Custodian Trustees agree should be met from the Fund.”

37.  Clause 1 of the Agreement provides as follows :

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	“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 …”

38.  Clause 3 sets out a mechanism, by which, following consultation and/or agreement with the Custodian Trustees, the management fee may be increased or decreased.  The amount of the management fee (previously referred to as the Maintenance Fee) is to be calculated in accordance with clause 4. It provides as follows (with amendments since the Edinburgh Decision tribunal sat underlined) :

“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.”

		

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	39.  The Management Fee payable by any individual member is calculated under Clause 5.  It is by reference to the total amount to be paid, less any sum to be met from the Reserve Fund, once “divided between those holding weekly group Ownership rights in each type of Lodge in such equitable proportions as the Committee of the Club acting reasonable shall determine, due regard being had to the different types of Lodges and to the correct allocation of disbursements paid on behalf of members.”

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.

41.  Clause 8 of the Management Agreement states that the expenses of both the Trust and the Owners Club shall be payable by Management on demand as part of the services defined in Clause 10.  Clause 10 reads as follows (with amendments following the Edinburgh Decision underlined) :

“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 Management Maintenance Company as and when they become due of all recurring charges against relating 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 payments standing disbursements (any commission discount or rebates obtained thereon going to reduce the cost of the Standard Annual Services being retained by the Management Company for its own benefit.

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	42.  Various details surrounding the operation of Club in practice are set out in paragraphs 15 ff of the Edinburgh Decision.  It records that the Management Company presents a draft budget, which the finance sub-committee “generally approves after discussion. The level of services and 
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

43.  The structure may therefore be summarized as follows.  The trust deed vested the land in the Trust.  The formal transfer of the land was achieved by the Lease.  Both made express provision for the trustees of the Trust to grant contractual licences to individual timeshare owners. The anticipation was that the Trustees would pay a peppercorn annual rent.  Payments for the timeshares themselves were made directly to Holdings.

44.  The Lease provided expressly that payment for the timeshares direct to 
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.

45.   Pursuant to both the Deed of Trust, the Lease and the individual purchase agreements, it was envisaged that the Trust and/or the Owners Club would charge and the purchasers would pay an annual management charge.  The Purchase Agreement specified the sum excluding VAT, but individual purchasers agreed in their Purchase Agreement to subscribe to the Owners Club and to be bound by its memorandum and Articles of Association.  Both those documents and the management agreement address in detail the nature of the management and maintenance services to be provided by the Owners Club and management. They also deal with the composition of the annual management charge which is then levied by the Owners Club on the timeshare owners.

Factual chronology

46.  The tribunal in the Edinburgh Decision, having considered the nature of the services rendered and the supplied made, concluded at pages 50 and 51 as follows :

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	“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 ….

47.  The Edinburgh Decision stated finally at pages 52 and 52 :

“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.”

48.  The Commissioners did not seek to appeal against the Edinburgh Decision.

49.   On 13 September 2001, Customs Officers Phillips and Holmes visited the Appellant’s premises. The purpose of the visit was to finalise payment of a repayment claim made by Holdings following the VAT Tribunal’s decision.  Officers discovered that a large part of the VAT claim for refund that had been related to wages and salaries paid by Management which Holdings had claimed was a disbursement.  This element was disallowed.  The Commissioners subsequently approved an overall payment to Management of £108,747 as against an original claim for £429,133.95 – a reduction of nearly £320,387.

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	50.   Another purpose of the visit was also to examine whether or not the Owners Club should be registered for VAT on the basis that the Tribunal had considered that it was acting as principal in the course of supplies of timeshare and other management services made by it using Management as an agent.  Officer Phillips stated that he would discuss with the Policy decision of the Commissioners (Policy) whether Management could be seen as acting as agent for the timeshare owners individually rather than Owners as a separate legal entity.  The question of whether the Owners Club should be VAT registered in the light of the Tribunal decision was therefore passed to Policy for consideration.

51.    By letter dated 28 November 2001 from Officer Phillips to Mr Burton, the Appellant was notified that the Owners Club was indeed considered to be the principal in relation to the supplies which Management claimed as a disbursement.  The Commissioners therefore expressed their intention to register the Owners Club for VAT.

52.  On 5 December 2001, Mr Dave Graham of the VAT Planning Group Ltd acting for the Appellant wrote to the Commissioners querying the requirement for registration.  The letter stated :

“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 .”

53.  Officer Phillips replied by letter dated 13 March 2002.  He pointed out that the Tribunal had found that Management invoiced the timeshare owners only as an agent of the Owners Club.  It was the Owners Club who was responsible for the maintenance, repairs and renewals to the timeshare properties and who paid business rates, for which services it charged its timeshare owners a maintenance fee.  On behalf of the Commissioners he 		

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	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.

54.  A meeting was then held on 21 March 2002 at which Officers Phillips 
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.

55.     Officers Phillips and Holmes formed the initial view that certain payments made in respect of statutory charges for rates, water rates and sewerage, TV licences could be characterized as disbursements, with costs being attributed equitably to each time share owner.  Nonetheless, the local officers made clear that they would need to seek confirmation from Policy that this was the correct position before reaching a final agreement with the Appellant.

56.   Changes were also introduced to the Appellant’s invoicing arrangements following the Edinburgh Decision.  The amended invoice charged for what were compendiously described as “services”, with the management fee for those services attracting VAT at the standard rate.  In addition, the invoice separated out the following items (although still under the heading “Management Fee”) as allegedly being disbursements of management (as agent for the Owners Club) :

 		

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	(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.

58.   On 14 June 2002, Officer Phillips wrote to Mr Graham setting out the decision the subject of this appeal.  It reads as follows :

“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.

59.   A Notice of Appeal was filed by the Appellant on 10 July 2002.  By an accompanying letter of the same date, Mr Graham complained that the Commissioners’ decision failed to take into account the Edinburgh Decision.  He also stated that the “HQ decision also overturns an agreement made with 		

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	local staff including the local band 9.  This agreement was made subject purely to ‘rubber stamping’ by the Headquarters personnel involved.”

60.  By a further letter dated 16 august 2002, Mr Graham notified the Commissioners that the Appellant had amended Article 72 of its Articles of Association at its AGM on 24 June 2001 with a view to characterizing various payments as disbursements.  A further meeting between officer Phillips and Mr Burton took place on 28 August 2002.  The following points (inter alia) were noted by the officer : [the relevant documents were also produced at the tribunal hearing]

(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

61.   At the conclusion of the oral hearing of the appeal, the tribunal issued a direction asking the Appellant to deliver a submission on the exact nature of the annual levy of the local authority (Kerrier District Council) on the Clowance Estate and Country Club including its apartments and lodges and the Respondents were given the opportunity to reply.

62.  As a result, Mr Phillips on behalf of Customs wrote to the Kerrier District Council on 7 July 2004 in the following terms :

“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

		

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	*        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 :-

1.    On which person or company have the rates demands been levied ?

2.    Who would be held responsible for any debts, resulting from non-
       payment of the rates demanded ?

3.    Two demands are made to the business, as noted above.  Can you
       confirm if these are ‘global’ charges or whether there are valuations
       which include separate calculations for each of the individual timeshare
       lodges/apartments.

4.   One of our VAT public notices (701.20 – Caravans & Houseboats)
      includes a paragraph regarding the liability of local authority charges in
      relation to seasonal or holiday parks. It states :-

     …as the owner of a seasonal or holiday park, you will pay non-domestic
     rates on the whole sit. If you attribute a proportion of the rates to the
     individual caravan owners using the official apportionment made by the
     local valuation office (under Regulation 4 Notice) any charge is outside
     the scope of VAT and no VAT should be charged on it.

     Would you please confirm if such an official apportionment under
     Regulation 4 has been made in respect of the Clowance Estate and
     whether such an apportionment under that authority would be considered
     relevant to timeshare holiday units …”

63.  The Revenues Manager of the Kerrier District Council replied on 14 July 2004 as follows :

“The answers to your questions are as follows :

1.   The rate demands for the above property have been levied on Clowance
       Estate Management Limited.

2.   The above company would be held responsible for any debts arising
      from the non-payment of the rates demanded.

3.  There are two ‘global’ assessments for the estate, one for the leisure
     centre and another for the timeshare complex.

4.   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 St
     Austell”.

 (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 

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50	VAT Notices

64.  During the course of the appeal we were referred to the following extracts from 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 :

1.    you acted as the agent of your client when you paid the third party;

2.    your client actually received and used the goods and services provided
       by the third party;

3.    your client was responsible for paying the third party;

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	4.    your client authorised you to make the payment on their behalf;

5.    your client knew that the goods or services you paid for would be
       provided by a third party;

6.    your outlay will be separately itemised when you invoice your client;

7.    you recover only the exact amount which you paid to the third party; and

8.    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

63.   We were referred by both representatives to the following 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

64.   For the Appellant, Mr Gibbon argued that there was not a single supply of other standard rated facilities to individual time share owners by the Appellant because the disputed items of expenditure were not cost components of the Appellant’s supplies of maintenance and other related services to the individual time share owners.  He referred the tribunal to Neuberger J’s judgment in Appleby Bowers for guidance when considering whether there was a single supply or separate supplies.

		

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	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.

67.   Further in the alternative. He suggested that if the tribunal decided that the disputed items of expenditure did form part of the Appellant’s charges for a single standard rated supply of services, Extra Statutory Concession 3.35 of VAT Notice 48 should be applied and the Appellant should be allowed to apportion the consideration received as between the differing VAT liabilities of the constituent elements of the supply (which would result in each of the disputed items of expenditure being free from VAT as being wither exempt fro VAT or outside the scope of VAT).

68.   Mr Gibbon contended that the decision of the Commissioners of 14 June 2002 ignored much of the Edinburgh Decision which the Appellant maintained applied equally to the Owners Club.  He cited many parts of the Edinburgh Decision in support of the appeal.

69.   He replied particularly upon the Edinburgh tribunal’s acceptance that one form of disbursement, outlay or expenses, is expenditure incurred by an agent in the performance of his duties and therefore the principal has no liability to the third party [page 49 of the Edinburgh Decision].  He also mentioned that the Edinburgh Decision stated at page 50 :

“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.”

		

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	70.  Mr Gibbon pointed out to the tribunal that the Commissioners accepted that in time share arrangements certain elements of the charges to time share owners are not cost components of the periodic charge made to the individual owners.  He quoted VAT Notice 709/3 at paragraph 5.6 which states :

“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.

71.  Mr Gibbon argued that the Appellant acted as an agent of the time share owners in arranging for the disputed items of expenditure to be paid and the individual owners were responsible for the said items.  It was also maintained that each outlay had been separately invoiced to the individual owners and only the exact amount had been recovered.   The tribunal was referred to an extract from page 45 of the Edinburgh Decision which stated :

“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”.

72.  Turning to the agency question, Mr Gibbon submitted that an analysis of the prime documents made it clear that the individual owners were aware that certain items of expenditure would be made on their behalf by the Appellant through the management company.   He quoted the ownership certificate, the Schedule to the Group Ownership Agreement clauses 4(a) and (b) and paragraph 10 of the Management Agreement and Article 72 of the Articles as examples.  In discharging the charges and disbursements the Appellant was 

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	acting as agent for the individual owners.

73.  The dicta of the Edinburgh Tribunal were referred to by Mr Gibbon to add force to his assertion that rates, water and sewerage rates, TV licences and the charitable trust donation were not supplies at all and outside the charge of VAT.  He specified the following two extracts :

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.”

74.  After the hearing, the Appellant complied with the tribunal’s direction with reference to the rating position and in an amended submission dated 18 June 2004 maintained that the persons liable for non domestic rates in respect of a property are the rateable occupiers of the property.  It was pointed out that although there do not appear to be any English cases where the identity of the occupiers of time share lodges has been considered this is not the position in Scotland.  The tribunal has been referred to the decision by the Scottish Lands Valuation Appeal Court in the case of The Forest Hill Trossachs Club v Assessor for Central Region 1992 SLT 295.  There is was held that “the primary right of occupation was that of the individual members, and the Club was merely a facility to give effect to those rights” and further that the fact that a number of people used a property in succession to one another, each only for a short period, was not a bar to regarding them together as the occupiers” and further “that on the facts the units of occupancy for valuation purposes had to be the individual lodges and the occupiers had to be those who directly occupied each lodge.”

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 

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	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

75.  Mr Beal on behalf of the Commissioners put forward several contentions which can be summarized as follows :-

(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.

76.  He argued that there were three basic problems with the Edinburgh Decision which were :

(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.

77.  Mr Beal referred the tribunal to various cases including Nell Gwynn, Plantiflor and Card Protection.

78.  On 12 July 2004, as a result of the tribunal’s decision released on         18 May 2004, Mr J E Pattison of the Solicitor’s Office of Customs wrote in response to the Appellant’s submission on the question of the annual levy which is made by Kerrier District Council and commented as follows:

“… On the question concerning the basis upon which the local council 

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	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

79.  In considering the arguments of the parties. We first identify the legal principles we should apply.  We will then decided a number of disputes arising out of the evidence before us. Finally, we apply the legal principles to the relevant facts.

80.  Neither the laws of the United Kingdom nor the Sixth VAT Directive make any reference to the distinction between single and multiple supplies.  Goods are distinguished from services, and different regimes as to the time and place of supply are provided for them;  that is all.

81.  Because of this, there have always been difficulties in determining the correct VAT liability of transactions consisting of separately identifiable services.  This is particularly relevant where, if supplied on their own, some elements would be taxable and others would qualify for relief from VAT such as being exempt.   This occurs in this appeal where in the opinion of Customs, TV licences, insurance premium, water and sewerage rates. Local authority rates and loan interest and repayments hereinafter called “the items” are passed on to the individual timeshare owners as cost components of the charge the Owners Club makes for supplying the facilities to the individual owners.  These items have different VAT treatment if they were separate supplies.

82.    It is common ground in this appeal and we find that in addition to the items described in the previous paragraph, there is a management charge 

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	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.

83.   The Appellant has not disputed that the management charge for service (which also include laundry, cleaning, stationery, replacements, telephone and electricity amongst other costs) is one supply and subject to VAT at the standard rate.  What is at issue is how the items should be treated from a VAT point of view.  The Appellant argues that they are all disbursements and therefore should not be ancillary to the single supply of management services.  It also contends that the Owners Club acts as agent for the individual owners in discharging these items which are effectively disbursements. The argument put forward by Mr Gibbon for the Appellant is set out in his skeleton argument as follows :

“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 ?

84.  The leading case in this field is Plantiflor.  That company supplied plant bulbs by mail order.  It arranged for the bulbs to be delivered by Parcelforce.  It charged its customers £2.50 for this and paid £1.63 to Parcelforce retaining the balance.  It only accounted for output tax on the amounts it retained and failed to account for tax on the amounts which it passed on to Parcelforce.  The Commissioners issued a ruling that Plantiflor was required to account for output tax on the full amounts paid by the customers.  Plantiflor appealed, contending that the delivery of the bulbs was a separate supply.

85.  In Plantifor the House of Lords reversed the decision of the Court of Appeal which had been relied upon in the Edinburgh Decision.

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 :

		

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	“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.

30.  It seems to me that looking at the written terms of both contracts (Plantiflor and its customer;  Plantiflor and Parcelforce) it is not shown that this £1.63 or any other of the 400,000 sums of £1.63 became on payment to Plantiflor the property of Parcelforce.  They are not sums earmarked for Parcelforce.  They are part of the receipts by Plantiflor as part of its turnover.  The fact that by a direct debit mechanism Plantiflor must pay Parcelforce the total sum of £1.63 times the number of parcels delivered in any period does not convert the specific payment by the customer to Parcelforce into a payment to or on behalf of Parcelforce. This may not be exactly the same as the case where, e.g. a builder agrees to do work for which he will have to procure materials, the cost of which is part of the eventual price but it is sufficiently near to require an analogous result as Laws J thought.  The analogy is perhaps nearer if the contract includes the provision of a particular item (a tap) which the builder is to obtain from a particular supplier at a known price for which the builder pays in advance and which is included in the overall charge for the work, unless it is shown that under article 11(A)93)(c) of the Sixth Directive the price of the tap is repayment of an expense “paid out in the name and for the account of the [customer] and which [is] entered in his books in a suspense account”.

31.  In the present case it is not possible to say that £1.63 was paid out “in the name and for the account of the customer” even if the moneys here can be treated as entered in Plantiflor’s books as a separate account. Even if, by the time Parcelforce got the periodic direct credit for all parcels delivered during the relevant period, it knew the name and address of the customers from the parcels or even from a list, it would not be sufficient to constitute each part of the global direct debit or credit as being in the name of for the account of the individual customer.”

86.  Lord Millett at paragraph 58 identified the problem faced by Plantiflor.  It was obliged to charge VAT on the sums it received for the bulbs, but could not reclaim the cost of the postage as input VAT as it was an exempt supply.  

		

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	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.”

87.  Finally, at paragraph 67, Lord Millett concluded as follows :

“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 

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	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.”

88.  In Nell Gwynn Lord Slynn at p.181 held that consideration in the context of Article 11(A)(1)(a) of the Sixth VAT Directive meant “everything received in return for the supply of services or the provision of services’ …  In the ordinary way the taxable amount would be the payment made to the person who provides the services which here would be the maintenance trustee.”  At p.182, Lord Slynn also cited with approval the judgment of Laws J in Plantiflor (which was the reasoning subsequently upheld by the House of Lords in that case).  The distinction which Lord Slynn drew was that Plantiflor had received the sum of £2.50 for package and posting for itself, even though £1.63 of this was to be paid to Parcelforce as an expense.

89.  Adapting these principles, we find that as a generality the relationship between the Appellant and the individual timeshare owner is not one of agency.  It will only apply to each separate item where it is found to be a genuine disbursement.  We therefore reject the argument put forward by Mr Gibbon in this connection.

Were the various items disbursements ?

90.  We have already set out in paragraph 65 of this decision the extracts from VAT Notices and particularly the requirements of Notice 700 paragraph 25.1.1.  This sets out the eight conditions which all have to be met in order for the Owners Club to treat a payment to a third party as a disbursement for VAT purposes.

91.  This tribunal accepts the evidence of Officer Phillips as to what he found when he met Mr Burton on 28 August 2002.  We make the following findings on the various items :

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.

		

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	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.

92.  With the exception of the TV licences, the Owners Club was responsible for paying the third parties in each instance. Furthermore, the owners Club did not act as agent of timeshare owners when the third parties were paid. These are two of the conditions set out in paragraph 25.1.1 of Notice 700.

  

		

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	Single or Composite Supplies

93.  The European Court of Justice judgment in Card Protection CTEC establishes five principles which are as follows:

1.    Supplies made in a single transaction should not be artificially split;

2.   The essential features of the transactions must be ascertained to
      determine whether the taxable person supplies several distinct principal
       items or a single item;

3.   There is a single supply where one or more elements constitute a
      principal item, with one or more other elements which are “ancillary”;

4.   An item is “ancillary” if it does  not constitute an aim in itself, but a
      means of better enjoying the principal item supplied;

5.   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.

94.  Except for the TV licences none of the services represented by the itemised charges is made directly to the individual timeshare owners.  Each is supplied and invoiced to one or other of the companies in the Clowance group.  Nor could those services readily be attributed to any one individual. Indeed, for those timeshare weeks of the year which remain unsold, there is no individual who could be said to enjoy the benefit of any particular service.  In substance and reality, what the charges represent are cost components in the overall supply of managed accommodation made by the Owners Club.  The position is analogous to the charge levied by Parcelforce for postage in the Plantiflor case.

95.  In our view, except for the TV licences which are a genuine disbursement within the context of paragraph 10.8 of Notice 700 the other itemised charges are “ancillary” within the guidelines laid down in Card Protection CTEC and form part of a single composite supply.

96.  Taking into account all the evidence, except for the TV licences, we agree with the Commissioners’ contention that the structure created by the Appellant clearly demonstrates that it is obliged to provided management and maintenance services for the benefit of the ultimate timeshare owners.  It represents in its totality a single composite supply.  The timeshare owners 

		

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	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

97.  In its notice of appeal dated 10 July 2002, the Appellant contends that the contested decision “ignores much of the decision in the appeal of Clowance Management Co. Ltd. V Customs and Excise Ref. EDN/99/142 which we maintain applies equally to the Clowance Owners Club Limited.”

98.  The impact of the Edinburgh Decision is that the Owners Club at all material times is to be construed as the principal behind the supplies of management and maintenance services.  Management’s role is at all material times merely to act as an agent or intermediary for the Owners Club.  The Commissioners have given effect to that ruling in the Edinburgh Decision by requiring the Owners Club and not Management to account for output tax on the supplies of management services.

99.  The judgment in the Plantiflor case has reversed the decision in the Court of Appeal which was referred to in the Edinburgh Decision and with particular reference to the Appellant’s argument that an agency exists between the Appellant and the timeshare owners, the legal interpretation has been altered adversely as far as the Appellant is concerned.

100.  Therefore, we cannot concur that the Edinburgh Decision which was decided on many of the facts found in this decision applies to the ruling of the Commissioners in their letter dated 14 June 2002.

Conclusion

101.   Were the Appellant’s arguments to be accepted, it would radically alter the nature of the liability to VAT.  By inserting appropriate clauses in any contract, a trader would be able to reduce the taxable amount of its supplies by hiving off the core cost components and claiming that any sums paid in respect of them were disbursements settled by the trader in the name of and for the account of his client.  The situation would be identical to the example given in Plantiflor of a builder supplying a particular, individually costed tap.

102.  The only itemised charge which satisfies all of the conditions in paragraph 10.8 of Notice 700 are the fees for the TV licences..  None of the other items can likewise be tolerated.

Decision

103.  Except for the fees for the TV licences, the appeal is dismissed.

		

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15	104.  There is no order as to costs.

RODNEY P HUGGINS
CHAIRMAN

Release Date: 8 October 2004

LON/2002/0565