Appeal Number LON/2008/1282

[2009] UKFTT 298 (TC)

TC00242

Appeal number LON/2008/1282

VAT – single or multiple supplies – Appellant providing ‘children’s parties’ for a single price – several elements of the supplies identified – held there were two principal elements, the use of a Hall and the provision of refreshments – analysis in Card Protection Plan inappropriate on the facts – whether there was a single supply on College of Estate Management principles or two supplies – Levob Verzekeringen considered – held there were two supplies of the use of the Hall and the provision of refreshments respectively – held that the single price could easily be apportioned between the two identified supplies – held further that the supply of the use of the Hall was an exempt supply of land – Belgian State v Temco Europe SA considered – appeal allowed in part

FIRST-TIER TRIBUNAL

TAX CHAMBER

DIANA BRYCE

Trading as THE BARNAppellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (Value Added Tax) Respondents

TRIBUNAL: JOHN WALTERS QC

HARVEY ADAMS FCA

Sitting in public in Norwich on 29 September 2009

R. Pipe, Roly Pipe & Partners for the Appellant

R. Smith, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

DECISION

This is an appeal by Diana Bryce (“the Appellant”) against HMRC’s decision to refuse to make repayments of output tax of £8,951.20 and £3,616.65 respectively claimed by the Appellant in December 2007 by way of voluntary disclosures of errors on VAT returns. The claims relate to the VAT periods 12/04 to 09/07 inclusive.
The output tax is reclaimed on the basis that it is a proportion of VAT charged by the Appellant for supplies related to children’s parties held at premises (“the Barn”) at Birch Farm, Hintlesham, Ipswich. The Appellant claims that the proportion relates to exempt supplies of land made by the Appellant.
We were provided with a bundle of documents and heard oral evidence from the Appellant. She also provided a Witness Statement. From the evidence we find the following facts.

The facts

The Appellant carries on a business at the Barn which is in the main a daycare nursery for very young children (in the 1-4 age group). Children’s parties, craft parties and cookery parties also take place at the Barn. Most of the Appellant’s supplies – those relating to the daycare nursery, the craft parties and the cookery parties are accepted as being liable to VAT at the standard rate. The dispute concerns the children’s parties.
The Barn is a very large venue, constructed in 2002 to 2003 at a cost of £235,000 exclusive of VAT. The main area of the Barn – which we will call “the Hall” – is 327 square meters in extent. It has a high ceiling. We were shown photographs of the interior of the Hall and in our view it resembled a sports hall, with sports pitches marked out on a wooden floor. However the Hall takes up only part (although the major part) of the building. There is also a small reception area (27.5 square meters), a very small kitchen (we were not told the area of it), a room used for café seating next to the kitchen (this is 84 square meters in area) and toilets and changing facilities (principally for use in connection with an adjacent swimming pool). There is also a room upstairs, above the changing room, where the craft parties and the cookery parties take place.
The layout of the Hall is different during weekdays, when it is used primarily as a daycare nursery for very young children and at those weekends when it is used for children’s parties. The weekday layout is one where children’s play equipment is spread out widely over the floor area. The play equipment is appropriate for the use of very young children and most of it would not normally be used by older children. There is also fencing to provide areas where tables and chairs are set out, we assume for the use of adults accompanying the children.
When the Hall is used for children’s parties at the weekend, the play equipment is gathered together and placed against the wall, and the tables and chairs are also set out in the main at the side of the Hall, leaving the main floor space free of encumbrances.
The children who attend the children’s parties at the weekend are not by any means all of the 1-4 age group. There are often older children present. Although the play equipment is available for use at the children’s parties if the hirers wish to use it, we are satisfied that the main attraction for customers is the large space in the Hall in which the children actually run up and down and use up their energy. The play equipment is in any case not suitable for the use of older children. We were told that the replacement value of the play equipment is in the order of £3,000.
Children’s parties are marketed to potential customers as “Weekend Play” parties. At the relevant time, the price charged was £7.95 including VAT for each child attending. A minimum charge applies equal to the price for 10 children, or £100. The figure of £100 may relate to the current, higher, prices now charged for children’s parties.
Customers purchasing children’s parties have a time slot of 75 minutes use of the Hall, and a further time slot of 45 minutes for refreshments in the café room. Refreshments are provided. They are described by Mr. Pipe, for the Appellant, as a ‘rudimentary buffet meal’. This is a standard refreshments package provided by the Appellant. In other circumstances (that is, outside a children’s party) it is supplied by the Appellant for a set price - £2.00 including VAT at the relevant time.
Whereas during the week when the Hall is used as a daycare nursery, children are brought for variable periods and supervisory staff are provided by the Appellant, when the Hall is used for children’s parties at the weekend there is no such supervision provided. When in use as a daycare nursery there is plainly no exclusive occupation of the Hall by any customer. However, when the Hall is used for children’s parties at the weekend, it is made available for the exclusive use of the customer (and those she/he invites to the children’s party concerned) for the 75 minute time slot contracted for.
The parties are advertised on the Appellant’s website as offering: “Exclusive use of the play barn for 1 hour 15 minutes followed by our hot or cold buffet”.
When children’s parties are held the Appellant usually provides only one member of staff (extra assistance is occasionally provided for large parties). That person is responsible for greeting the customer and her/his guests. Once the customer is ready to start the party in the Hall, the member of staff leaves the Hall and goes away to prepare the refreshments in the kitchen and arrange the café room for the later use of the customer and her/his guests. Food and cutlery are presented to the customer by the member of staff, but no service of the food is provided. The customer organises this aspect of the refreshment time. The member of staff does, however, clear up the café room and, while the customer and her/his guests are taking refreshments, the member of staff clears up and rearranges the Hall to make it ready for the next customer. There may be other users of the café room at the same time as the children’s party customer and her/his guests are taking refreshments. The customer has no entitlement to the exclusive use of the café room during the 45 minute time slot.
If any other features are required for the party, for example a Punch and Judy show, or a magician, the customer must make arrangements for them privately. The Appellant is not involved. The customer chooses what items from the play equipment will be used at the party (if any).
Children’s party customers and their guests are free to use the toilet facilities and also the nappy changing facilities which are in the changing area. They have, however, no exclusive use of these facilities, which might well be being used by other persons (e.g. customers using the swimming pool) at the time of the children’s party.
We find that the main attraction to customers of the children’s party arrangements is that they obtain the exclusive use of a very large and uncluttered covered and heated space for a children’s party. Customers find it easier to control children if they have the exclusive use of the space. Most of the business in children’s parties is done in the winter months, because in the summer months customers can arrange outside parties in gardens, etc. In the winter months the children’s party arrangements offer to customers the advantage of a much larger space than most domestic premises could provide, and also relief from the disruption that having such a party at home might cause. In addition, children can make as much noise as they like in the Hall. This is an advantage to customers because the making of noise in other venues might cause inconvenience.

The submissions

Mr. Pipe, for the Appellant, submitted that the correct VAT treatment of the consideration received by the Appellant for the children’s parties was that it should be exempt as a grant of a licence to occupy land (viz: the Hall) pursuant to item 1, group 1, Schedule 9 VAT Act 1994.
He argued that although there were three components of the supply, which he said were (a) the licence to occupy the Hall, (b) the use of the play equipment in the Hall and (c) the refreshments supplied, admittedly in the course of catering, there was for VAT purposes a single supply.
He submitted that it was for the Tribunal, following the decision of the European Court of Justice (“ECJ”) in Card Protection Plan v Customs and Excise Commissioners [1999] STC 270, to identify the principal supply, which contended was the licence to occupy the Hall. This, if supplied on its own would have been an exempt supply. The correct VAT treatment was thus, in his submission, to treat the supply – of all three components – as an exempt supply.
His argument that the licence to occupy the Hall was the principal supply was based on the relative areas of the Hall and the café room, the relatively much larger costs of construction and maintenance of the Hall as compared to the café room, the insignificant cost of the play equipment as compared with the costs inherent in the construction of the Hall, the economic reality, reflected in the pricing structure operated by the Appellant, that the provision of the Hall is a much more significant element (in a proportion of 3:1) than the provision of refreshments.
He submitted that the obvious alternative open to customers is to hold the party at home. The reason why customers would choose to buy a children’s party from the Appellant, was not, he submitted because of the catering element – this is inherently of modest value, as witness the fact that it is available at a charge of £2 a head on weekdays. The conclusion must be, he contended, that the main reason a customer would buy a children’s party is to obtain the exclusive use of the Hall, with the benefit of the play equipment which he described as “ancillary to that space”.
He emphasised the fact that 75 minutes were spent in the Hall, as compared with only 45 minutes in the café room when refreshments were taken.
Mr. Smith, for HMRC, submits that the relevant supplies made by the Appellant are single and not multiple supplies, but contends that they are properly characterised as single supplies of a children’s party and, on that basis, are not exempt but attract VAT at the standard rate.
In response to the Appellant’s contentions, he submits that the services and facilities supplied along with the space (the right to occupy the Hall) are more than merely ancillary and the supply as a whole is more than just a passive supply of land.
Commenting on the exemption in item 1, group 1, Schedule 9 VAT Act 1994 he noted that it derives from art. 135(1)(l) of the Principal VAT Directive (Directive 2006/112/EC), formerly art. 13B(b) of the Sixth VAT Directive (Directive 1977/388/EC) which provides for an exemption for the leasing and letting of immoveable property.
He cited Sinclair Collis Ltd. v Customs and Excise Commissioners [2003] STC 898 and Belgian State v Temco Europe SA [2005] STC 1451 for the propositions that such exemptions must be interpreted strictly, the fundamental characteristic of a letting of immoveable property lies in conferring, for an agreed period and for payment, the right to occupy property as if the person on whom it is conferred were the owner and the right to exclude any other person from enjoyment of such a right. He submitted that the cases also establish that in order to determine the VAT treatment of transactions, regard must be had to all the circumstances in which the transaction in question takes place, so that its characteristic features can be identified.
He submitted that the Temco decision had established that the key feature of a letting of immoveable property for VAT purposes was that it was “usually a relatively passive activity linked simply to the passage of time and not generating any significant added value” to be distinguished from “other activities which are either industrial or 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 such as the right to use a golf course, the right to use a bridge in consideration of payment of a toll, or the right to install cigarette machines in commercial premises” (ibid. at [20]).
The “exemptions referred to in art. 13B(b)(1) to (4) of the Sixth Directive” are the provision of accommodation in the hotel sector and similar supplies, the letting of premises for parking vehicles, lettings of permanently installed equipment and machinery, and the hire of safes. Mr. Smith submitted that it was clear from the reference to these “exemptions” that they were examples of activities which were not in principle “lettings of immovable property” for VAT purposes, and that it was incorrect to regard “lettings of immovable property” as in principle including similar activities to these “exemptions”, with the “exemptions” referred to being the only such activities which were excluded by the Directive from being “lettings of immoveable property”.
Further citing Temco (at [26] and [27]), he submitted that it was for this Tribunal “to establish whether the contracts, as performed, have as their essential object the making available, in a passive manner, of premises or parts of buildings in exchange for payment linked to the passage of time, or whether they give rise to the provision of a service capable of being characterised in a different way”.
He submitted that this test excluded the supplies in this case from being “lettings of immoveable property” because “there are other significant features being supplied in addition to the making available of premises or parts of a building” (to quote his Skeleton Argument at paragraph 14). He accepted on behalf of HMRC that the hiring out of a hall for meetings or parties would constitute the supply of a licence to occupy land for VAT purposes.
The other “significant features” in this case which were identified by Mr. Smith were the availability of the play equipment for use at a children’s party, the provision of refreshments and the services of the member(s) of staff to prepare the café room and clear up the Hall after a party. In Mr. Smith’s submission it does not matter that it is open to the Appellant’s customers not to use the play equipment provided, the fact that they are able to do so as an incident of the service supplied to them is, he submits, “key to identifying the supply”.
Mr. Smith submitted that the supply made by the Appellant to a customer who bought a children’s party was a single supply. In order to characterise that supply correctly for VAT purposes he submitted that the approach adopted by the ECJ in Card Protection Plan, of identifying a principal service, to which other elements of the supply must be regarded as ancillary, was not the only, or the appropriate method in this case.
Instead, he submitted that in this case the Tribunal should follow the approach of the House of Lords in College of Estate Management [2005] STC 1597 and recognise that in this case the Appellant is making one over-arching supply comprised of several elements. He also cited Levob Verzekeringen BV v Staatsecretaris van Financien [2006] STC 766 as supporting this approach. This is a case, he contended, where “two or more elements or acts supplied by the taxable person to the customer, being a typical consumer, are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split” (ibid. at [22]).
He also referred to the decisions of the Tribunal in Willerby Manor Hotels Limited (16673) and Chewton Glen Hotels Limited (20686) where it had been held that the supply of a room for wedding receptions as part of an overall package had been characterised as the supply of a wedding party, and not simply as the supply of a licence to occupy the room.
He invited the Tribunal to consider why people would want to obtain the supply – echoing Lord Slynn in Card Protection Plan, when that case returned to the House of Lords [2001] STC 174 at [25].
His submission was that the availability of toys and the provision of refreshments would be important to anyone booking a children’s party with the Appellant. Customers of the Appellant in his submission would book children’s parties with the Appellant because of the overall supply of services and not just for the space in the Hall. The provision of the other services meant that customers did not have to expend further effort to provide entertainment to the children and then to feed them.
Summing up, he submitted that when characterising the supply, it is clear that this was not a simple supply of occupation of the Hall, or a supply of such occupation with some other services which are of minor importance and are ancillary to the supply of occupation. It is, instead, he submitted, a supply which has a number of features, all of which have a more or less equal prominence and which, taken together, cannot be said to amount to the passive supply of land. The service provided could be called that of providing facilities and catering for a children’s party, but he contended that the label was unimportant. The objective nature of the supply was the important issue. However labelled, he submitted that the services supplied were not exempt, but were standard rated.

Discussion