Principal and Fellows of Newnham College in the University of Cambridge v Revenue and Customs Commissioners [2008] UKHL 23, [2008] All ER (D) 210 (Apr)
House of Lords
Lord Hoffmann, Lord Hope, Lord Walker, Lord Mance and Lord Neuberger
16 April 2008
A decision as to whether or not acts attributable to a body such as a school or college amount to occupation of premises for VAT purposes is a question of degree, sensitive to the particular facts, and one in which an appellate court has to pay considerable respect to the opinion of the fact-finding body.
David Milne QC and Andrew Hitchmough (instructed by Mills & Reeve, Cambridge) for the college.
Philippa Whipple (instructed by the solicitor for the Revenue & Customs (HMRC)) for the commissioners.
The taxpayer was a Cambridge college. In 2000, it decided to build a new library. As an educational institution, the college made exempt supplies for the purpose of VAT. It was concerned that it would accordingly not be credited with the input tax on the goods and services on which it had been charged VAT. It therefore devised a scheme to recover the VAT. It acquired a shelf company, in which all the shares were held by the college and the board of directors was composed of the college members.
On the completion of the new library, the college leased it to the company on terms which gave the company exclusive possession of the library. The college sold all the books, fixtures, fittings and equipment in the library to the college. An agreement was concluded for the hire of the books, which covered the provision by the company of books on hire to members and related services in return for a fee paid by the college. The college seconded library staff to the college and an administration agreement was concluded under which the college provided administrative services to the company. A lease of land was also an exempt supply, but the college gave notice of an election to waive the exemption under para 2 of Sch 10 to the Value Added Tax Act 1994 (VAT 1994). The intention was that the lease to the company would thereby become a taxable supply and the college would be entitled to recover all the input tax attributable to making that supply, namely the VAT on the cost of building the library.
The issue arose as to whether or not the college, as the developer, had remained in “occupation” of the land. If it had been in occupation within the meaning of para 3A(7) of Sch 10, the library was “exempt land” as defined in that paragraph and the grant of the lease was not a taxable supply. HMRC held that it had been and decided to disapply the college’s election under para 2(3AA). The VAT and Duties Tribunal dismissed the college’s appeal, but a subsequent appeal was allowed by the Court of Appeal. HMRC appealed to the House of Lords.
Lord Hoffmann:
His lordship referred to Sinclair Collis Ltd v Comrs of Customs and Excise C-275/01 [2003] STC 898, [2003] All ER (D) 160 (Jun) and Halifax plc v Customs and Excise Comrs C-255/02 [2006] Ch 387, [2006] All ER (D) 283 (Feb).
HMRC said that those cases on the meaning of “occupy” for the purposes of VAT 1994, Sch 9 had no application to the meaning of “occupation” in para 3A(7) of Sch 10. The latter was an anti-avoidance provision which should be given a wide meaning. The underlying policy was that exempt suppliers should not be able to create a taxable supply of the land by the grant of a lease and still use it for the purposes of making exempt supplies. “Occupation” should therefore be interpreted to mean any physical presence on the land by which the grantor continued to use it.
His lordship did not agree. In choosing the concept of occupation, Parliament had to have been aware that it came with a well-understood meaning. There was never a time when a mere physical presence on land for the purpose of making use of it, like playing a round of golf, would have been regarded as occupation.
Services
HMRC did not suggest that the separate personality of the company should be ignored or that the agreements should not be taken at face value. On that basis, it was clear that the college was entitled to the provision of services for its members but could not be said to be in “occupation” of the library. There was nothing in the arrangements, whether in law or in practice, which contradicted or displaced the right of exclusive occupation granted to the company by the lease. The services provided by the company to the college were by no means “relatively passive”. The essence of the right conferred on the college was the right to the use of the books. The right to enter on the premises for the purpose of taking them out or consulting them was only ancillary to that primary right. In the circumstances, therefore, the college had not been in “occupation” of the premises.
A decision as to whether or not acts attributable to a body like the school or college amounted to occupation of premises was a question of degree, sensitive to the facts. An appellate court had to pay considerable respect to the opinion of the fact-finding body. In the instant case, the tribunal did not really consider whether or not the facts amounted to occupation by the college, rather than (or in addition to) occupation by the company, because they simply lumped the two bodies together. The Court of Appeal, however, did consider the question and concluded that occupation by the college had not been established. His lordship would not have disturbed that judgment, even if he had been inclined to take a different view. He was, however, in full agreement with the Court of Appeal on the point.
The appeal would therefore be dismissed.
Lord Hope, Lord Mance and Lord Neuberger delivered concurring opinions, and Lord Walker dissented.
