TMI Blog1998 (12) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... interest in the total sum of 21,786.26. The facts are stated in the opinion of Lord Slynn of Hadley. Nigel Pleming Q.C. and Michael Kent Q.C. for the commissioners. Roderick Cordara Q.C. and Perdita Cargill-Thompson for the taxpayers. Their Lordships took time for consideration. 16 December. Lord Browne-Wilkinson. I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Slynn of Hadley. For the reasons which he gives I would allow this appeal. LORD SLYNN OF HADLEY. My Lords, this is an appeal by the Commissioners of Customs and Excise from a decision of the Court of Appeal that the respondents were not liable to pay the amount of value added tax assessed by the Commissioners in respect of services provided at a block of flats known as Nell Gwynn House in London. In so deciding the Court of Appeal reversed the decision of Popplewell J. who had upheld the decision of a VAT tribunal that the tax was payable. The respondents to the appeal are three partners in a firm of solicitors, Graham Harvey, who are, and who have since 1993 been, Trustees of the Nell Gwynn House Maintenance Fund. By an undated agreement of appointment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the tenant and with the maintenance trustee that throughout the maintenance period the lessor would, in respect of a period in which any flat in the building is let without the tenant being required to pay a maintenance contribution, or for the period during which any flat in the building is unlet, pay a sum equal to the maintenance contribution, such sums paid by the lessor being dealt with for all purposes as if they were a maintenance contribution paid by the tenant of the flat. By clause 5 it was provided: (A) The maintenance trustee shall retain out of the sums received by it in respect of the annual maintenance provision aforesaid and the maintenance adjustment its remuneration calculated in accordance with paragraph 2(2)(ii) of Part III of the third schedule and adjusted in accordance with paragraph 3 thereof and shall pay the balance into a bank having the status of a trust corporation in an account named 'the Nell Gwynn House Maintenance Fund' and shall hold such balance (hereafter called 'the maintenance fund' which expression includes the assets in the hands of the maintenance trustee for the time being representing such fund and the income the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain and clean the building and the equipment therein. So far as possible the duties to be performed by such staff will be designed to provide a complete full time luxury level of service and will include: [the day-to-day management of the building, the cleaning of parts of the residential premises, the running and maintenance of the building, the provision of a telephone answering service and the provision of a letting office including the collection of rent and other payments due thereunder]. There is a proviso to paragraph (1) that there shall be payable by the tenant to the maintenance trustee by way of additional charge to be credited to the maintenance fund certain sums including any value added tax payable on such sums. In the block there are 435 flats, 270 of which are let by the landlords or their predecessors. At the time of the tribunal hearing the staff consisted of a general manager and 17 other persons working under the general manager's supervision including a house manager, porters, night supervisor, clerks, engineer and cleaners. An important part of the functions of the general manager and his administration staff consisted of sub-letting on short lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenance contribution, in so far as attributable to staff salaries and wages, or whether it was only the maintenance trustee's remuneration, being three per cent. of the maintenance contributions, or whether it was some other amount. The third question is whether it makes any difference to liability for VAT that the maintenance contributions are, after deduction of their own remuneration, held by the maintenance trustee on trust. These first three issues are, as the respondents contend, closely related. They say in their written case that: If their submissions on the proper supply are correct, then so are their submissions on the proper consideration and vice versa. I agree and consider them together. Article 2 of the Sixth VAT Directive (Council Directive 77/388/E.E.C. of 17 May 1977) provides that there shall be subject to VAT the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such. In section 2 of the Value Added Tax Act 1983, passed to give effect to the Directive, as amended it is provided that: (1) Tax shall be charged on any supply of goods or services made in the United Kingdom, where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices made by the appellants to the lessor. Alternatively the maintenance contribution made by the tenants under the lease and/or by the lessor also under the lease. The remuneration of the trustees provided for by the lease is in my judgment capable of and does constitute consideration. Sir Christopher Slade, with whom Swinton Thomas and Butler Sloss L.J.J. agreed, concluded [1996] S.T.C. 310, 321, that the relevant supply of services in the present case is the arrangement by the trustees for staff to supply services to the tenants and the lessor, not the sale by the trustees of staff services. In my opinion the tribunal's analysis of the position is the correct one. It may well be that the maintenance trustee could have fulfilled its obligations under paragraph (1) of the fourth schedule to the lease To employ and keep such staff to perform such services as the maintenance trustee shall think necessary in and about the building by contracting with third parties for the provision of those services. Then they would simply have arranged for those services to be provided. But they did not do this. They entered into contracts of employment, or service, with individual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, by article 11A(1)(a) of the Sixth Council Directive, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser and that consideration means everything received in return for the supply of services or the provision of services (Second Council Directive Annex A, paragraph 13) and Apple and Pear Development Council v. Customs and Excise Commission (Case 102/86) [1988] 2 All E.R. 922. 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. In the present case however it is said that that cannot apply firstly since the respondents only arranged for the provision of services and cannot be, and are not, remunerated for anything above that and secondly because the respondents are trustees receiving and holding moneys on trust and these cannot constitute consideration for the supply of services. VAT being a tax on turnover can only be levied on moneys properly regarded as part of turnover, which these moneys when received by the trustees were not since they were not received actually and beneficially by the trustee. In support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not the remuneration it received. That consisted in what the bank could keep for itself, calculated as the net result of all transactions over a given period of time. In Customs and Excise Commissioners v. Plantiford (unreported), 5 November 1998 the question arose as to whether a sum for packing and postage which the purchaser agreed to pay had to be added to the price of the goods for the purpose of constituting the consideration for the supply of such goods by the plaintiff. Laws J. held that the moneys received by Plantiford Ltd. were not received by it to hold on behalf of Parcelforce who were actually to deliver the goods. The sum of 2.50 (being postage of 1.63 plus packing of 0.87p) was received by Plantiford for itself, even though its expenses would include the sum of 1.63 for postage. It was therefore necessary to count it as part of the consideration received by Plantiford for the services it provided. It thus formed part of the turnover. It does not seem to me that these cases resolve the present question. In the Glawe Spiel case the owner of the gaming machines did not receive for his own use the money earmarked in the reserve box for winnings. It was only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il Directive and that the consideration for such activities is the net payment of service charges plus letting office fees paid into the fund. It follows that it is not necessary to refer any questions to the European Court of Justice on this point under article 177 of the Treaty of Rome. The fourth issue The respondents contend that even if they are wrong as to what is the supply and as to what is the consideration, the effect of article 11A(3)(c) of the Sixth Council Directive is to exclude amounts beyond the specified remuneration from the taxable amount. Secondly they say that any supplies of maintenance, upkeep and cleaning of the building would be exempt from the imposition of VAT pursuant to group 1, item 1 of Schedule 6 to the Act of 1983. As to the first point, article 11A(3)(c) provides: The taxable amount shall not include: . . . (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 appellants issued Customs and Excise Notice 700 (revised 1 August 1991) setting out their practice as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' employees, they were not the repayment for expenses paid out in the name and for the account of the purchasers or customers. The respondents cannot rely on article 11(A)(3)(c). As to the second point, Group 1, item 1 of Schedule 6 to the Act of 1983 exempts from VAT the grant . . . of any interest in or right over land or of any licence to occupy land . . . other than certain categories. This was to implement article 13(B) of the Sixth Council Directive which provides: Without prejudice to other community provisions, member states shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse: . . . (b) The leasing or letting of immovable property excluding . . . . member states may apply further exclusions to the scope of this exemption. The parties agree that this provision would exempt the provision of maintenance services if made by the lessor to the lessee; the services would be part of the grant of the leasehold interest. See also British Airways Plc. v. Customs Excise Commissioners [1990] S.T.C. 643. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as here. In Henriksen case one of the lettings was exempt as a letting of immoveable property and the other letting was excluded from the exemption as premises and sites used for parking vehicles . The issue was how one interpreted the exemption read with the exclusion in a situation where there was a close relationship between the two lettings. In the present case we are dealing with immoveable property in article 13B(b) which is exempt but not with any of the exclusions from the exemption. The supply of services is quite separate from any of the exclusions and is by a different taxpayer. Accordingly, it does not seem to me that the linking of two services so as to treat them as one arises. In Customs and Excise Commissioners v. Wellington Private Hospital Ltd. [1997] S.T.C. 445, 462, Millett L.J. said: In determining whether what would otherwise be two supplies should be regarded as a single supply the court has to ask itself whether one element is an 'integral part' of the other, or is 'ancillary' or 'incidental' to the other; or (in the decisions of the Court of Justice) whether the two elements are 'physically and economically dissociable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the light of the directive. The respondents say that if maintenance contributions or part of them are considered to have accrued to the benefit of the respondents and such moneys must be seen as part of the consideration for the grant of the lease, the respondents must for the purposes of the Act be treated as if they were themselves making the grant of the lease. Accordingly, paragraph 7 of Schedule 6A by a legislative fiction removes the separate supplier problem by treating the respondents as if they were making the grant of the lease. With respect to the ingenious and able arguments of Mr. Cordara, I do not consider that this paragraph has any relevance to the present case. Schedule 6A is concerned with the removal or waiving of tax on taxable supplies. Thus paragraph 1 provides that the grant of certain lands which is zero-rated is to be taken to be a taxable supply in the course of a business which is not zero-rated by virtue of Group 8 of Schedule 5 to the Act. Paragraphs 2 to 4 deal with the election to waive exemption in respect of land. Paragraphs 5 and 6 deal with the developers of certain non-residential buildings, e.g. in paragraph 6 certain rights in la ..... X X X X Extracts X X X X X X X X Extracts X X X X
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