Weekly VAT Update – 30 May 2017
Whether separate supply of room for civil wedding is exempt or taxable
This case involved an appeal to the Upper Tribunal. It concerned a hotel in Newquay called Blue Chip Hotel (BCH) in which a room (the Tamarisk Room) was approved for civil weddings. The First Tier Tribunal held that the hire of the Tamarisk Room was a separate supply, even where it was sold as part of a wedding package, which included the wedding ceremony and other services, such as catering and the hire of other rooms, which point was not appealed. The First Tier went on to hold that the supply of the Tamarisk Room was not an exempt supply of an interest or right over land, but was standard rated because it went beyond passive letting – it was this point that was appealed to the Upper Tribunal.
There was no challenge to the First Tier’s findings of fact. The Upper Tribunal looked at Temco, a leading case that was decided by the European Courts, as well as several others, and decided that, in order to be a supply of the leasing or letting of immovable property (exempt), a transaction between the landlord and the tenant must:
- confer on the tenant the right to occupy the property as if the tenant were the owner;
- allow the tenant to exclude from enjoyment of such a right persons who are not permitted by law, or by the contract, to exercise a right over the property;
- be for an agreed period which may be restricted but must not be occasional and temporary; and
- be in return for payment.
HMRC’s submission focused on two of those points, namely:
- Did customers have a right to occupy the Tamarisk Room as owner and exclude any other person from the enjoyment of such a right?
- Did BCH add any significant value to the hire of the space?
On the exclusivity point, HMRC focused on the general right of the public, under specific legislation, to access a ceremony held in the Tamarisk Room. But the Upper Tier disagreed with both HMRC and the First Tier, and stated that the requirement that members of the public must be allowed access during the ceremony is a legal requirement. The rights of BCH as owner were subject to that legal requirement, and it follows that the right of the customer to occupy the Tamarisk Room was also subject to that requirement. But just because the customer could not assert exclusivity with respect to members of the public exercising their rights of access does not stop the occupation having the necessary exclusivity to be considered a letting of immovable property.
However, for the appeal to succeed there was a second point as to whether significant value was added. This time, the Upper Tier agreed with the decision of the First Tier, but for slightly different reasons. To hold a legal wedding ceremony required the Tamarisk Room to be approved under the Approved Premises Regulations. The service provided by BCH was not simply making a room available to the customers – it was the provision of an approved room for a marriage ceremony. This meant that the Tamarisk Room had to be a seemly and dignified venue for such proceedings and BCH had to meet the obligations imposed on it by the Approved Premises Regulations, such as making a responsible person available and supervising the use of the room. It was therefore held that the supply was more than just the passive letting of property, and was standard rated, and the appeal by BCH was dismissed.
Whether husband and wife were in business together
In this case there were two businesses, one operated by Mr Belcher and one by Mrs Belcher. One business was that of a male hairdresser and the other was a ladies’ hair salon, both were called ‘Crewe Cuts’. They were both operated from the same premises, but with different entrances. HMRC decided that they should be VAT registered as a single business operating as a partnership.
HMRC stated its reasons for deciding that there was a single business as:
- The partnership self-assessment is for Crewe Cuts as one business, not separate.
- The partnership annual accounts are for Crewe Cuts as one business, not separate.
- They share business rates and utilities.
- Crewe Cuts have one telephone number for customers, not separate lines.
- Monies from both ladies and barbers are pooled at night and placed into one business account.
- Purchases for both ladies and barbers have one suppliers account, not separate.
- The partnership (husband & wife) split profits 50/50 on the SA returns.’
The Tribunal accepted that the self assessment partnership return was submitted as such due to lack of knowledge of the couple. The Tribunal also accepted that they did not divide the profits of a single business between themselves on a 50/50 basis but pooled, as a family matter between husband and wife, the net profits of two businesses into one or more joint banks accounts. Mr and Mrs Belcher gave evidence that each would individually decide on a question of selling or taking a partner into the barber’s shop or the ladies’ salon as indicative of their objectively performing the activities of the barber’s shop and the ladies’ salon on their own behalf and under their own responsibility. The Tribunal found that this was one of the most persuasive indicators that they were separate businesses and allowed the appeal.