20686

VAT – exemption – land – wedding venue – not an exempt supply – appeal dismissed.

	
LONDON TRIBUNAL CENTRE 			   

 
 	
	CHEWTON GLEN HOTELS LTD	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

	Tribunal:	RICHARD BARLOW (Chairman)	
		
Sitting in public in London on 19 February 2008

Mr Simon Anslow of Tenon Limited for the Appellant

Mr Sarabjit Singh, counsel, instructed by the Solicitor for HM Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2008

DECISION

1.	The appellant appealed against an assessment totalling £1,579 for the periods ending December 2003 to June 2005.  At the hearing it was agreed that the appeal should also be treated as relating to a subsequently issued assessment totalling £1,851 for the same periods.  Both assessments contain small amounts that do not relate to the issues in this appeal and which were not in dispute.

2.	The amounts in dispute all relate to the question whether supplies of rooms used for wedding ceremonies were correctly treated as exempt from VAT under item 1 of Group 1 of Schedule 9 to the VAT Act 1994.  In the correspondence between the parties it appeared that the part of the assessment relating to £1,579 that was for room hire was not in fact disputed by the appellants but during the hearing it appeared that it was and this decision is given on the basis that the items giving rise to the assessments are all in dispute so far as they relate to the hiring of rooms for wedding ceremonies.

3.	I heard evidence from Mr Michael Rice who was until recently the financial controller at the hotel.  Mr Singh cross examined him to elicit further details of his evidence but it was not disputed.  I also read a witness statement from Mr Alan Whitehead, a Customs officer, and read a number of documents including brochures issued by the appellant and correspondence between the parties.  My findings of fact are based on that undisputed evidence. 

4.	The dispute between the parties arises in the following way.  Chewton Glen Hotel provides services relating to wedding ceremonies as well as other hotel services and its premises have been licensed for the conduct of wedding ceremonies for some years (certainly throughout the periods assessed) and more recently also for civil partnership ceremonies.  Couples wishing to marry or enter into partnerships are offered a comprehensive service by the appellant which can encompass, for example, food served as canapés or full meals, overnight accommodation, flowers, make up, music and dancing and other related services as well as the use of a room for the ceremony itself.  The ceremony is usually in a separate room if the wedding is to include a reception or full meals because the guests would have to leave that room after the ceremony while it was readied for the meal or other reception.  The hotel has extensive grounds which are suitable for wedding photography.   

5.	Not all couples choose a full package of services and some book the room for the ceremony and only have drinks served there but no food.  Mr Rice said that about one couple a year might have literally only the room and not even have any drinks served.

6.	The assessments were raised because Mr Whitehead visited the appellant and found that it had been accounting for VAT on the basis that where a couple booked a room for their wedding or partnership ceremony the payment represented consideration for an exempt supply where only limited additional services were ordered such as drinks only or drinks and canapés to be served in the same room as the ceremony, which Mr Whitehead decided was not the case. Initially, having raised that question with Mr Rice and the assistant accountant employed by the appellant, Mr Whitehead was informed that the appellant agreed that £9,200 had been incorrectly treated as consideration for exempt supplies in what became the period of the assessment because that amount related to cases where it was agreed that the couple had other services provided with the hire of the room which took that hire outside the scope of the exempting provisions.  An example would be a case where the couple had canapés and drinks served in the room where the ceremony occurred.  Mr Whitehead therefore issued an assessment that included VAT on the basis that the £9,200 was a VAT inclusive figure.  That was £1,370 of the £1,579 assessment (ignoring rounding).  

7.	Subsequently, Mr Whitehead issued the second assessment in the sum of £1,851 which related to the cases where the appellant was still asserting that there had been separate supplies of exempt services which were those cases where the couple had hired the room for the ceremony and only had drinks.  In those cases the appellant was asserting that the drinks were merely ancillary to the room hire and that therefore the supply was a licence to occupy land.  At the hearing the appellant contended that the drinks and canapés situation was also exempt, reverting therefore to the position it had held to be the case before it conceded that the first assessment was correct.

8.	I find as a fact that even in the cases where there is literally only an agreement to hire the room for the ceremony (only one such case was identified in the periods assessed), the hirers also receive permission to park at the hotel and to use the common facilities such as toilets and receptionist services to direct guests to the ceremony and more significantly perhaps to use the grounds for photography.  I was told that the respondents had not in fact included in the assessment the single case where the room hire was the only element of the supply ordered by the customers.   

9.	In all but that one case, where the couple were not having a full meal or reception they at least also received drinks and often canapés as well served in the room used for the ceremony.

10.	The appellant’s contention is that the supply of the room in the cases in dispute falls within Item 1 of Group 1 of Schedule 9 to the VAT Act 1994, which provides for exemptions and which reads, so far as relevant:

“The grant of any interest in or right over land or any licence to occupy land, …”.

11.	The respondents did not suggest that any of the exceptions applies.  The exceptions for hotel accommodation are restricted to cases where the accommodation is supplied as sleeping accommodation or in conjunction with it and to cases where accommodation is supplied for the purposes of catering.  In cases where only canapés and drinks are served the exception would not apply because the room would not be supplied for the purpose of the catering.

12.	Two issues arise.  The first is whether the supply of the room, in the circumstances found to apply, is capable of falling within the exemption.  The second is whether, even if the supply of the room is capable of falling within the exemption, the supply of other services takes it outside that exemption and, if so, what else needs to be supplied before it is taken outside the exemption.

13.	The VAT Directives which are implemented by the VAT Act require the exemption of “the leasing or letting of immovable property” (Art 13B(b) of the Sixth Directive and 135(1)(l) of the Common System Directive).  The European Court of Justice (ECJ) has held that that phrase constitutes a concept of European Union Law independent of the laws of the Member States.

14.	In Belgian State –v- Temco Europe SA [2005] STC 1451 the ECJ held as follows:

“19. In numerous cases, the court has defined the concept of letting of immovable property within the meaning of art 13B(b) of the Sixth Directive as essentially the conferring by a landlord on a tenant, for an agreed period and in return for payment, of the right to occupy property as if that person were the owner and to exclude any other person from enjoyment of such right [the court then cites five cases].

20. While the Court has stressed the importance of a period of letting in those judgments, it has done so in order to distinguish a transaction comprising the letting of immovable property, which is essentially a relatively passive activity linked simply to the passage of time and not generating any significant added value … from other activities which are either industrial and commercial in nature, such as the exemptions referred to in art 13B(b)(1) to (4) of the Sixth Directive, or have as their subject matter something that is best understood as the provision of a service rather than simply the making available of property, such as the right to use a golf course …, the right to use a bridge …, or the right to install cigarette machines in commercial premises … ”.   

15.	Referring first to paragraph 19 of the ECJ’s judgment it seems plain that, even allowing for the fact that the terms landlord and tenant are not to be given a meaning based on the laws of the UK, the transactions in question in this case are far removed from the letting of property by a landlord to a tenant or that the couples occupying the wedding room do so in any sense as owners with the right to exclude others.  Paragraph 20 is even more clearly relevant.  The “letting” of the room is not a passive activity which does not generate added value.  No doubt the letting of the rooms at the rates charged, which are £600 or more according to the appellant’s brochure, add very considerable value to the value of those rooms as property held by the appellant compared with the value if they were only used passively in the sense described.  The transaction is best understood as the provision of a service and a transaction of a commercial nature even in those cases where the room is let without much, if anything, additional by way of specific services being provided.

16.	The reference to art 13B(b)(1) emphasises the points already made.  The reference to these as “exemptions” is a mistranslation because they are exceptions to the exemptions (the French version of the judgment uses the word exceptions).  The exception for the provision of accommodation in the hotel sector is particularly pertinent although the UK legislation appears to implement that in a slightly more restricted way than was intended because it limits the exception to sleeping accommodation, and accommodation associated with that or with catering, whereas the directive seems to expect that all hotel sector accommodation would be excepted.  The Directive, by excepting accommodation in the hotel sector of the economy as a whole, supports and amplifies the conclusion that can be derived from the ECJ’s judgment to the effect that a transaction of the sort under consideration is not intended to be exempted.         

17.	The appellant submitted that where the transactions in question consisted of the supply of the use of the room for the ceremony and little else, namely either literally nothing or only drinks served in the room with or without canapés, then the categorisation of the supply should be determined by the room hire element as the principal element of the supply.  I have found as a fact that all the hirers have the opportunity to use the grounds for photography and will receive at least some receptionist services to guide their guests to the room, parking and use of the common areas of the hotel so that there are no cases where literally nothing other than the use of the room is provided.

18.	The ECJ gave guidance about how a supply should be analysed where it consists of several elements in its judgment in Card Protection Plan Ltd –v- Customs and Excise Commissioners [1999] 2 AC 601.  In paragraph 29 the Court said:

“ … a supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical consumer, with several distinct principal services or with a single service”.

My holding, based on the evidence, is that there is a single supply from the economic point of view.  The wedding services of the hotel are supplied as a package, as its brochure makes clear, and although the elements chosen by the customers are broken down so far as cost is concerned there is in my view a single supply. 

19.	That says nothing about how that supply should be categorised.  The ECJ dealt with that in paragraph 30 of its judgment as follows:

“30. There is a single supply in particular cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the same tax treatment as the principal service.  A service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a better means of enjoying the principal service supplied …”. 

In those cases where the room hire is accompanied only by the service of drinks in the same room and the opportunity to take photographs and to receive the limited receptionist services I have described and use of the common areas of the hotel it is realistic to regard those additional elements as a better means of enjoying the principal service of the room hire.  The addition of modest amounts of food such as canapés served in the same room does not take the additional services beyond what can be described as a better means of enjoying the use of the room as a principal service and an aim in itself.  In cases where more extensive additional services such as a reception, meals or dancing etc are provided then it is realistic to regard the package as a whole as going beyond the hire of the room and services purely ancillary thereto.

20.	I hold that although the appellant was right to regard the room hire with minimal additional services, such as I have described in the previous paragraph, as being characterised for the purposes of charging VAT as room hire, that in no way answers the question whether that room hire is an exempt supply.  It may be a condition that before a room hire could be an exempt supply it would have to be the principal supply but the principles derived from the Temco case still apply and I hold that the room hire, even in the transactions in issue in this appeal, did not constitute an exempt supply.

21.	I should add that a number of other cases were cited to me but I hold that the principles referred to in the Temco and Card Protection Plan cases are sufficiently clear to make it unnecessary to examine in detail those other cases.

22.	It follows that the appeal is dismissed. 

 RICHARD BARLOW
CHAIRMAN
Release Date: 20 May 2008

LON/2006/0855