[2013] UKFTT 218 (TC)
TC02632
Appeal number: TC/2011/06999
VALUE ADDED TAX - land and
buildings – election to waive exemption – whether on facts Appellant had
notified HMRC of nature of its election – appeal allowed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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EXETER ESTATES
LIMITED
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE MISS J C GORT
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MR IAN PERRY FRICS
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Sitting in public in Bristol on 6 February 2013
Mr Joe Priday, Solicitor,
appeared on behalf of the Appellant
Mr L Bingham, Officer of the
Commissioners, appeared on behalf of the Respondents.
© CROWN COPYRIGHT
2013
DECISION
1.
This is an appeal against a decision of the Commissioners of 28 June
2011, upheld on review by a letter of 10 August 2011, that the Appellant (“Exeter
Estates”) had opted to tax all the land and buildings formally known as the
Frank Tucker Yard & Buildings at Days Pottle Lane, Peamoor, Exminster,
Devon EX2 9FL (“the site”). The appeal dated 7 September 2011 is made on the
basis that HMRC have misunderstood the facts, that certain buildings and the
land on which they stood had not been opted to tax and Exeter Estates sought
the following:
“Agreement
that the extent of the option to tax is as described and/or update the original
option to tax as had been already done and/or allow a new option to tax,
backdated to the original effective date due to the fact the
notification/clarification was made within 30 days of the original option to tax.”
2.
At the hearing both parties agreed that clarification of the Election to
Waive Exemption made by Exeter Estates was required, there having been
misunderstanding on both sides.
The Background
3.
In 2006 a company F &T Consultants Ltd (now called Prydis) set up an
investment fund (Exeter Estates) to purchase the site. Exeter Estates acquired
the site from two sources, ET Holdings Ltd and Frank Tucker Commercials Ltd,
negotiations started in 2006 but completion was not in fact until June 2007.
On 18 January 2007 Exeter Estates wrote to HMRC stating that it was in the
course of acquiring an existing trading business and enclosing a completed VAT
1. At the time it had been expected that completion would be on 31 March 2007
but in the event it did not take place until later.
4.
On the VAT registration form it was requested that registration be
backdated to 31 January 2007. At Part 3 Section 14 it was recorded that it had
taken over the VAT-registered business from someone else as a going concern as
from 31 March 2007, but Exeter Estates did not want to keep the previous VAT
number.
5.
On 24 January 2007 Exeter Estates notified HMRC’s option to tax unit in
Glasgow (“the OTT Unit”) of its option to tax the site by reference to the Land
Registry title number. The site is quite extensive in area and runs beside a
dual carriageway. The Land Registry plan outlines the boundaries of the site
in red and within the red lines are eight buildings outlined in blue. The site
was (and still is) used in part as a petrol station, the buildings are
warehouses and offices let out to various companies which are, in the main,
substantial and well-known in the area.
The Law
6.
Value Added Tax 1994 Schedule 10 provides at paragraph 3(2):
“An election under paragraph 2 above shall have
effect in relation to any land specified, or of a description specified in the
election.”
7.
The Interpretation Act 1978 stated at the relevant time Schedule 1:
“ ‘land includes
buildings and other structures, land covered with water, and any estate, interest,
easement, servitude or right in or over land’…”
8.
By Notice 742A of March 2002 the Commissioners set out in their Public
Notice by paragraph 2.4 as follows:
“What is covered by the option to tax?”
“Land…..
your option to tax covers all the land, and any buildings or civil engineering
works which are part of the land….. if you later construct a building on land
that you have opted, the building will not be covered by the option to tax.”
This Public Notice was withdrawn from 1 June 2008 and
from that date, HMRC has treated buildings constructed at a later time as
covered by the option to tax.
9.
From 1 June 2008 Schedule 10 at paragraph 18 (3) provides:
“If an option to tax –
(a) is exercised in relation
to any land, but
(b) is not exercised by
reference to a building or part of a building, the option is nonetheless taken
to have effect in relation to any building which is (or is to be) constructed
on the land (as well as in relation to land on which no building is
constructed).”
10.
VAT at 1994 at Schedule 10 paragraph (5) set out the conditions for
revoking an option to tax which allowed a person to revoke an election if:
“(a) The time that has elapsed since the day
on which an election had effect is:
(i) less than three months; or
(ii) more than 20 years
(b) In a case to which paragraph (a)(i)
applies –
(i) no tax has become
chargeable and no credit for input tax has been claimed by virtue of the
election; and
(ii) no grant in relation to
the land which is the subject of the election has been made which, by virtue of
being a supply of the assets of a business to a person to whom the business (or
any part of it) is being transferred as a going concern, has been treated as an
neither a supply of goods nor a supply of services; and
(c) The person
making the election obtains the written consent of the Commissioners.
The Facts
11.
We heard evidence from Mr N J Cross, a Chartered Certified Accountant
and Company Secretary of Exeter Estates from 2 October 2006 until 31 May
2007. We also heard from a Mr G M Bagwell and Ms E Meechan, Officers of
HMRC. We were provided with two bundles of documents and sundry witness
statements and papers during the course of the hearing.
12.
The issue in the case arose out of the Notification of the Option to Tax Land/or Buildings (Election to Waive Exemption) dated 26 January 2007. We were not
provided with a copy of the original Notification although it was stated to be
contained in the bundle provided by HMRC this was not the case. It had been submitted
on line and a copy was produced at the hearing of the appeal.
13.
The person at Exeter Estates who had been dealing with the issue at the
time was a Mr Kenneth Holmes who unfortunately had died before the Tribunal
hearing. Mr Cross had worked under him and was a party to all the discussions
and correspondence relating to what was a complicated and large transaction.
We heard from Mr Cross that at the time of the Notification the immediate
intention was to continue trading in the same way as the vendor had and not to
change the VAT status of the site in any way. The status was checked with the
vendor who requested details from the unit in Glasgow, however the vendor was
unable to obtain a copy from Glasgow of its own option to tax notification. It
was suggested by Glasgow that from the detail behind the Title Number shown on
the official Land Registry map what was intended to be opted to tax by Exeter
Estates was correct, the warehousing land was under a separate Title Number
which was shown on the official map, and as it was not intended to opt to tax
the warehousing land, the vendor believed this answered the question. It was
not disputed by HMRC at the hearing that the vendor had excluded the buildings
from the opt to tax, nor was it stated that its VAT treatment, namely partial
exemption, had ever been queried by HMRC. Exeter Estates’ legal advisors were
not happy with Glasgow’s response to the vendor and advised Exeter Estates to
seek clarification from Glasgow of the status of the option to tax with regard
to the buildings. The intention was to develop the areas of the site which had
no buildings on as quickly as possible and thence to sell the whole site. To
this end Mr Cross provided the relevant details to Mr Holmes who called the
unit in Glasgow with the intention of ensuring that the areas etched in blue on
the Land Registry Title (namely the buildings) were excluded from the option to
tax. It was Exeter Estates’ intention to continue making exempt supplies of
land in so far as the warehousing was concerned in accordance with the leases
which were to be assigned to them as part of the purchase. There is a file
note of Mr Holmes’ telephone call dated 20 February 2007 which states:
“Spoken
to Option to Tax Unit regarding Exeter Estates and the extent of the option to
tax required under the terms of the draft sale and purchase agreement. It was
suggested that although the Title number referred appears to exclude the warehouses
in the Title Plan, it should nonetheless be clarified.
Agreed
this is to be forwarded to the Unit and should expressly state the option is
not being revoked, but merely clarified”
This telephone call was followed up by a letter, also
dated 20 February 2007, to the Glasgow unit which is in the following terms:
“Further to my telephone conversation with
yourselves, please see below the supplementary details as discussed for our
client Exeter Estates Limited in order to clarify the option to tax requested.
This is not a revocation. Authority has been previously provided.
SUPPLEMENTARY DETAILS FOR OPTION TO TAX
Effective date of option 24 January 2007
Title number: DN346949
Land Registry description: Lorry Yard and Buildings being
land on south side of
Day
Pottles Lane
Peamore
Exminster
Devon
EX2
9FL
Title plan
attached – note option to tax to be limited to area etched red on enclosed
plan, excluding buildings etched blue.
I trust
this limits the scope of the option and I look forward to receiving
confirmation of the option being in place.”
14.
On 5 March 2007 the Option to Tax Unit in Glasgow (“OTT”) sent Exeter
Estates a letter which stated:
“I acknowledge receipt of your correspondence
notifying your election to waive exemption under Schedule 10, Paragraph 2,
VAT Act 1994, in respect of your interest in the following property:
Address of Land/Property Effective
Date of Election
Frank
Tucker/Lorry Yard and building 24 January 2007
Being
land on South Side of
Days Pottles Lane
Peamoor
Exminster
EX2
9FL
Land
Registry Title Number DN346949 – DN146949
I can
advise that this election to waive exemption is in place with effect from the
date shown above.”
15.
This letter was followed by a further letter from the OTT unit dated 27
April 2007 which was in only slightly different terms, none of them being material
to the present appeal.
16.
Exeter Estates subsequently submitted a large VAT repayment return for
period 03/11. This repayment related principally to the construction of a new
warehouse on the site. Mr Bagwell was the officer who conducted the site visit
and there he met a director of Exeter Estates, a Mr Nick Evan, and junior
accountant, Mr Graham Whalen. Mr Bagwell raised the issue of the option to tax
at this meeting and from the documents produced and from the lack of any
partial exemption calculations being produced, he concluded that the option to
tax applied to the buildings as well as the land. In his evidence to us, Mr
Bagwell stated that he was told that the option to tax had not been intended to
cover the properties apart from the garage. He had asked to see the partial
exemption calculations which he had expected would be produced to him on the
site, but none were available, and the company’s representatives present were
unaware that such calculations were needed. In cross-examination Mr Bagwell
accepted that it was explained to him that the business was carrying on in the
same way as before and that Mr Evans did not understand the difference between
exemption from tax and zero rating. Subsequent to the visit an assessment to
tax in the sum of £205,675.41 was raised by Mr Bagwell.
17.
Following this visit, on 9 May 2011 a letter was sent on behalf of
Exeter Estates to Mr Bagwell setting out the position with regard to the option
to tax as it understood it to be, namely that it was not believed that there
had been an election to waive the exemption in respect of the buildings etched
in blue on the land registry documents. By a separate letter also dated 9 May
2011 detailed Sage accounts and also partial exemption calculations were sent for
all the relevant periods demonstrating that de minimis considerations applied.
18.
A considerable amount of correspondence followed between the parties and
various alterations were made to the assessment. Further to Exeter Estates’
insistence that the buildings were exempted from the option to tax, Mr Bagwell
made substantial enquiries of the OTT unit in Glasgow and confirmed to Exeter
Estates that no additional information was held by the unit suggesting that any
exclusions where indicated on the original option to tax applied for and
received on 26 January 2007. The documents referred to above, namely the
record of the telephone conversation and the letter of 20 February 2007 which
Exeter Estates believed had been sent to the OTT unit were provided to HMRC.
The OTT unit disclaimed any knowledge of that letter, and we heard from Ms
Meechan that, although there was a very highly organised method for
dealing with correspondence that arrived at the unit, correspondence relating
to a party which was not at the time registered for VAT, as was the present
case, caused problems because although the post was always scanned in and given
a unique reference number, there was sometimes difficulty in marrying up that
number with a non-registered tax payer. She had personally searched both the
name ‘Exeter Estates’ and the postcode and she accepted there was a possibility
of error in marrying the paperwork because the system was set up for parties
who had VAT numbers. With regard to the telephone call, a secure note is put
on the electronic folder when there is such a call. She accepted that at the
same time there had been delays at the unit in getting out acknowledgement
because of the difficulty of marrying up information and there was a backlog
because they were working under pressure.
19.
The copy of the letter of 20 February 2007 had a reference number at the
top of it and underneath was written ‘Royal Mail’. However checks with the
Royal Mail revealed that the number in question was not related to the Royal
Mail and it was deemed to be an internal reference relating to Exeter Estates.
HMRC were not prepared to accept that this letter had ever been sent to the OTT
unit.
The Commissioners’ Case
20.
The Commissioners’ case was that the buildings in question were the subject
of the option to tax made in the Exeter Estates’ original Notification of
Election in January 2007. The evidence for this was the two letters from the
OTT unit dated March and April 2007 which referred to land and buildings. It
was submitted that this was not queried by Exeter Estates after receipt of the
letters.
21.
Examination of the documents held at the Land Registry gives no apparent
reference to the buildings in question being excluded from the land. All the
Land Registry map indicates is which buildings and land perimeter are included
within the site by highlighting the building and land perimeters. It was
questioned on behalf of the Commissioners whether the letter of 20 February
was ever sent to the OTT unit.
22.
It was the Commissioners’ belief that there was a valid option to tax in
place in January 2007 which included the buildings for which rent was being
charged. It was not accepted that revocation of that option should be allowed
on the basis that Exeter Estates’ letter of 20 February 2007 was within 30 days
of the original option being made. It was submitted that if the buildings were
not covered by the option (which it was not accepted was the case) then the
rental income would have been exempt from VAT. Exeter Estates had not completed
partial exemption calculations for the receipt of rents from day one of
receiving them. The calculations were not in place when the Commissioners
first started the enquiry which supported the Commissioners’ stance that the
buildings were not excluded from the original option.
23.
We were referred to the following authorities: Finanzant Goslar v Breitsohl
C400/98, Windsor House Investments Ltd (decision No. 19666) and Grenane
Properties Ltd TC00494. On the basis of the case of Grenane the
Commissioners accepted that there were two clear elements in opting to tax,
being the election and the notification of an election. It was submitted that
in the present appeal the notification had been carried out and that there was
need for the intention to opt to be evidenced, and the evidence in the present
case did not show an intention in respect of the buildings. The Commissioners
relied principally on the following:
(i) The
buildings in question were included in the original option showing clear
intention.
(ii) There
appears to have been no attempt by Exeter Estates in relation to the
Respondents letters of March and April 2007 to query what the Respondents had
stated was covered by the option.
(iii) The
Exeter Estates’ representatives’ correspondence of 20 February 2007 has been
extensively searched for with a negative result.
(iv) No
details of any Royal Mail involvement have been provided.
(v) If
the buildings had not been opted as Exeter Estates contends, making its rental
income exempt, why were partial exemption calculations not being undertaken
which would have supported its belief that the buildings were not opted?
Reasons for Decision
24.
The original document notifying the OTT unit, is ambiguous as was
acknowledged by both parties at the hearing. The Respondents’ interpretation
of that document is entirely reasonable in the circumstances and no criticism
of them can be made in respect of that interpretation.
25.
Exeter Estates’ note of its telephone call and letter of 20 February are
both unambiguous. It was quite clearly not Exeter Estates’ intention to opt to
tax the buildings outlined in blue on the Land Registry document.
26.
We accept that the letter of 20 February was sent by Exeter Estates. We
find it more likely that the letter was either lost by the Royal Mail or at the
OTT unit than that it was never posted. There is evidence before us that the
unit was having difficulties in coping with its workload at the time and that
the system was even less able to cope when the caller was not registered for
Value Added Tax. It is possible that the OTT unit had not by 20 February 2007
dealt with the original OTT application of 27 January, as their letter of 5
March 2007 is the first document sent by them in respect of the notification.
In that case there would not even have been a file on Exeter Estates open at
the unit. There is no evidence from the OTT unit in relation to the phonecall,
and we have no evidence as to whether or not an electronic file on Exeter
Estates was open at the time of the call on 20 February 2007. It might be
expected that there would be a reference to the telephone call on the
electronic folder given the very clear note of that phonecall produced by
Exeter Estates.
27.
No explanation was given by HMRC for the second letter sent by the OTT
unit, namely that of 27 April 2007. There was no reason for Exeter Estates not
to believe that, if the first letter had been written not having taken into
consideration the communication of 20 February 2007, the second one had taken
the call and the letter into account. We do not find that that letter
demonstrates conclusively that the buildings had also been opted to tax in the
circumstances. The letter appears to be a straight forward cut and paste
address taken from the original online application. We consider it likely that
the OTT unit considered that the reference to ‘Lorry Yard and Buildings’ on the
Notification was a description of what was being referred to by Exeter Estates
when it initially made its Option to tax rather than it being an intrinsic part
of the address on the conveyance.
28.
With regard to the unavailability of the partial exemption calculations
to Mr Bagwell at the time of his site visit, there is, as was agreed by Mr
Bagwell, no rule of procedure that demands such calculations be available at
the time of a site visit, desirable though it might be. We accept the
evidence of Mr Cross that Exeter Estates had not been aware that Mr Bagwell
would be looking at the issue of the option to tax, nobody having been aware
that that was an issue at the time, it was thought that the visit related
solely to the construction of the new warehouse and the tax implications. HMRC
appear to have taken no account of the speed by which the partial exemption
calculations were subsequently produced to them, a relevant factor given the
complication of the procedure and the period of time over which the
calculations were made.
29.
We also consider it relevant that Exeter Estates was taking over a
business as a going concern and had adopted the same procedures as the previous
owner of the site. This was made clear to HMRC in the correspondence following
Mr Bagwell’s visit. It is a matter which goes to intention, but is one which
HMRC did not investigate, all their enquiries focussing almost exclusively on
the non-receipt at the OTT unit of the letter of 20 February 2007.
Conclusions
30.
In the circumstances we find that:
i)
The original option to tax, whilst intended to be in respect of the land
only, was in fact ambiguous and could properly be understood to relate to the
land and buildings.
ii)
It is unclear whether or not the OTT unit made a determination on the
issue between 27 January and 20 February 2007.
iii) It
was at all times the intention of Exeter Estates to opt to tax the land only
and not the buildings.
iv) The
above intention was clearly communicated to the OTT unit both by the telephone
call and the letter of 20 February 2007.
v)
There is no evidence that it was the case that a determination on Exeter
Estates’ OTT Notification had been made by the OTT unit before 20 February
2007, but in the event that this was the case, the call and the letter show a
clear intention to revoke the option to tax in respect of the buildings on the
land.
vi) If
the Notification to opt to tax was not considered by the OTT unit before 20
February 2007, then, as stated above, the communications from Exeter Estate of
20 February 2007 make its position quite clear, that it was not opting to tax
the buildings.
31.
For all the above reasons we find that Exeter Estates did intend to opt
to tax the buildings on the site and that this intention was clearly
communicated to the Commissioners and evidenced by the letter of 20 February
2007. The fact that the OTT unit were unable to trace that letter does not as
a matter of law mean that Exeter Estates did not send it.
32.
Alternatively, if we are wrong in our conclusion that the letter of 20
February 2007 is evidence of the intention which relates to the original
application, then we find that it is evidence of the revocation of the election
apparently made by the application of 27 January 2007. In the circumstances
this appeal is allowed and we direct that effect be given to it by the OTT
unit.
33.
This document contains full findings of fact and reasons for the
decision. Any party dissatisfied with this decision has a right to apply for
permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure
(First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be
received by this Tribunal not later than 56 days after this decision is sent to
that party. The parties are referred to “Guidance to accompany a Decision from
the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this
decision notice.
JUDGE J C GORT
TRIBUNAL JUDGE
RELEASE DATE: 27 March 2013
