[2009] UKFTT 223(TC)

TC00173

Appeal number: LON/2007/0599

Value Added Tax: exemptions – VATA 1994, Schedule 9 Group I, items 1(d) and (e) – whether hire of property for weekend events a taxable supply of a ‘similar establishment’ to an hotel – alternatively a taxable supply of holiday accommodation – whether an exempt supply – appeal dismissed

FIRST-TIER TRIBUNAL
TAX

	ACRYLUX LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S 
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	Tribunal Judge Malcolm Gammie CBE QC
					Tribunal Member Mrs Lynneth Salisbury

Sitting in public in London on 17th February 2009

Andrew Fisher (Accountant) for the Appellant

David Manknell (Counsel) instructed by the Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.	By a Notice of Appeal dated 16th March 2007 Acrylux Limited (“the Appellant”) appealed against an assessment dated 28th December 2006 in the sum of £75,455.06, a misdeclaration penalty issued on 9th January 2007 in the sum of £8,732.00 and a decision on reconsideration dated 20th February 2007.  These related to the letting of premises known as “Huntsham Court”.
2.	In addition to the documents provided by each party, we heard evidence from David Macbeth (the sole director of the Appellant) and Jacqueline Bratt (the Company Secretary).  The Respondents put in evidence witness statements by two of their officers, Alan Miles and Leslie Bingham to which no objection was taken.  Mr Miles was called to confirm one correction to a VAT audit report that he had prepared, where he had recorded that the Appellant’s accountant had accepted that the disputed supplies were taxable.  He should have recorded that the accountant considered them to be exempt supplies.  That is the question we have to resolve.
The Facts
3.	Huntsham Court (the “Property”) comprises a large house with 22 bedrooms and grounds.  Under previous (unrelated) ownership the Property had been used as an hotel but this venture had proved unsuccessful given the remote location and lack of suitable local amenities and facilities.  The Appellant had bought the Property intending to turn it into residential apartments but had been advised by English Heritage that it could take considerable time to get planning permission for conversion and in the meantime the Appellant needed to generate income from the Property to service its finance costs. The Appellant therefore embarked upon its current activity of ‘short-term letting’ to generate some income from the Property.  
4.	The Appellant has a dedicated website for the Property and the introductory page describes the Property in the following terms—
“Huntsham Court
Huntsham Court is a Historic Victorian gothic country house based near Bampton, Devon.
If you are looking for a Venue to hold a special event – Weddings, Wedding Reception, Birthday Party or Anniversary, Huntsham Court is the place to be, set in the heart of the countryside in beautiful rural Devon.
Feeling more adventurous? The House is a fantastic setting for a Murder Mystery/Going back in time in costumes or just a get together with a large group of friends
With exclusive self catering hire, the possibilities are endless!!!”
5.	The introductory page is also used to indicate future available weekend dates.  There then follow photographs of the exterior of the Property and of its rooms, which are described in the following terms—
“We have 22 bedrooms ranging from twins to doubles to family rooms, with extra room for perhaps the larger family.
A large Great Hall for wedding ceremonies, discos etc with our own monarch looking down on you.
Drawing room and adjoining library for wedding receptions seating 100/120 guests. For pictures of examples showing how the halls are decorated see the Event Setups page.
Dining Room for formal dinner parties or buffets.
Bar and lounge for all your spiritual needs!
Butlers pantry for general tea, coffee, cakes, childrens meals, etc.
Large Kitchen for your use or approved caterers. Well equipped with 10 burner gas oven.
Outside Tennis courts, football area with goals and croquet lawn for your use while at the house.”
6.	There is a separate link to a page that describes the bedrooms (each of which is named after a composer) and provides a floor plan of the Property.  There is also extra accommodation available under separate agreement on the third floor of the Property (known as “The Russian Suite”, where the bedrooms are named after Russian composers.  Evidently this is not usually let (and is kept locked) due to its defects but can be made available on payment of an additional fee to avoid losing custom.  The pictures show that the Property is fully furnished and equipped including, for example, bed linen.
7.	The events setup page of the website indicates that the Property can be used as a venue for different types of events, for example—
Weddings
Wedding Breakfast
Wedding Venues
Birthday Parties
Christmas Parties
New Years Eve Parties
Anniversaries
Group Get-togethers
Murder Mysteries – Themes
The Property has also been used for filming and photo shoots.  By far the largest use of the Property, however, is for weddings and the webpage provides pictures of various rooms set up either for a wedding ceremony or for the wedding breakfast/reception.  Mr Macbeth did not disagree with the description that appeared in the report prepared by the Respondents’ officer after his visit to the Property in July 2006 that—
“Hirers use the property as a venue for wedding reception celebrations, conferences and parties where guests/delegates can then stay overnight.  In all cases the supply is the use of the house with furnished sleeping accommodation.”
8.	Two other pages – Activities and Useful Services – describe the variety of activities that can be found close to the Property.  The activities include adventure, airsports, fishing, shooting, golf, etc.  The services include bakers, butchers and hog roasts, caterers, entertainment, florists, hairdressers, massage, photography etc.
9.	The standard charges for the Property are described as follows—
“Rates up to Dec 2008:
£6,250 for Weekends
(up to three night stay)
Easter, Christmas and New Year £8,000 for up to 5 days
Private Self Catering Hire of Venue to include:
Grand Hall
Library
Drawing Room
Dining Room
Bar + Ice Machine
22 Bedrooms Ensuite
(of which 3 are two-bedroom family rooms)”
10.	No formal legal document is usually drawn up by solicitors in relation to each hire but the following are stated to be the terms and conditions upon which the Property can be hired—
“1. Exclusive hire of house is £6,250 (2008) self catering (2 nights, 3rd night free of charge) based on 22 bedrooms (sleeping up to 44 people), plus £500 returnable deposit. Price includes bed linen, towels, hot water, central heating, crockery and cutlery for up to 44 people. Up to 6 extra single beds available at £25 per bed.
Booking Fee = £1,000 to secure venue, then 2 weeks prior to date £5,250 plus £500 returnable deposit (if no extras incurred).
The £500 returnable deposit is refunded within 2 weeks providing there are no mishaps, thus the total amount is £6,250.
2. Large parties:- matching cutlery, crockery, tables, chairs and glasses can be hired at £7.00 per head with approved caterers only. Tablecloths are £7.00 each and napkins 75p each. An extra £150 is charged for large parties of 60 – 120 people in order to cover extra wear and tear, extra £250 for parties of 120 – 200.
3. We entrust our beautiful house to you in good decorative order – we would like it to be returned to us in a similar state. If furniture is moved – then we ask that it be returned to its original place. We also ask you not to leave any bottle, cans or cardboard boxes – all of these must be taken to the recycling centre in Sampford Peverell.
4. Owing to fire hazard – no candles and there is a no smoking policy in the house.
5. Please remember, £1.00 will be charged on bottles and cans or boxes left for our disposal and all rubbish is to be placed in the green bin provided.
6. No fireworks/fires unless organised by a qualified display team who have their own comprehensive insurance.
7. Unfortunately, owing to past experience, no marquees to be allowed (only gazebos over hog roast/barbeques.
8. The house is let on an exclusive hire basis. No services are provided to you.
9. Confetti outside only. Petals please.”
11.	The terms and conditions had been modified since July 2006 when Mr Miles visited the Property.  Apart from a general increase in the price charged, condition 1 referred to the price being based on up to 40 beds and including linen, etc., for up to 40 people.  The final sentence to condition 3 had been added since July 2006.  Condition 5 began with the words “If self-catering” instead of “Please remember”.  Condition 8 read—
“The house is let self-catering – but other options are available:- Hire of house staff to waitress, clean and tidy - £7.50 per hour. Sundays and Bank Holidays double time.
Special occasions, e.g. weddings – bar (if providing own drinks) – girls available at same rates as above to serve, clear and wash up.”
12.	Mr Macbeth and Ms Bratt were cross-examined on the nature of the services that the Appellant provided in connection with the Property.  Their evidence (which we accept) was that they played no part in the organisation of the weekend’s activities at the Property.  This was left to whoever had hired the Property for the weekend.  To the extent that the hirer needed caterers, waitresses or other services, that was for them to organise.  The Appellant’s role was limited to recommending suppliers of particular services.  It was not suggested that any of the suppliers of catering or other services to particular hirers were associated with the Appellant.  
13.	When asked why the Appellant had changed condition 8 Mr Macbeth said that this was because they had been told that the Appellant should not offer any services beyond letting the Property.  Ms Bratt said that the website had been produced by the son of a lady who had provided waitressing and cleaning services and £7.50 per hour reflected her charge.  (The Appellant had previously explained in correspondence that an early version of the website had been prepared by someone who did not fully understand the nature of the Appellant’s business.)  Because neither Ms Bratt nor Mr Macbeth had the technical expertise to amend the website it had continued to provide an inaccurate description for some time.  Ms Bratt confirmed that it was the responsibility of the hirer to clean, wash up and tidy up the property at the end of the weekend (see condition 3).  Midweek, however, the Appellant would arrange for independent cleaner to prepare the Property for the following weekend, for example polishing floors, dusting and changing linen and towels.
14.	In his witness statement Mr Bingham for the Commissioners reported that he had contacted Mid Devon District Council in November 2007 to clarify the licensing of the Property.  The response he received from the Licensing Manager for the Council indicated that the premises were licensed for the sale of alcohol.  She also noted that the Appellant’s business seemed to consist of letting the Property, generally for the weekend and that the guests run the Property as they like.  
15.	The Licensing Manager noted that the website appeared to give a fair idea of how the Property was run.  She also noted that the Council had been in dispute with the Appellant on the extent of their licence because hirers of the Property put on entertainment but the Appellant’s licence did not allow regulated entertainment or the provision of facilities for such entertainment.  Following visits by the Licensing Enforcement Officer the Appellant had agreed to vary their licence to cover all activities at the house.  The premises licence register on 14 October 2008 lists permitted activities as the performance of live music, playing of recorded music, dance performance, entertainment of similar descriptions, facilities for such activities, the provision of late night refreshment and the retail sale of alcohol.
16.	It is not suggested, however, that the Appellant’s activities include the provision of any such entertainment activities or the retail sale of alcohol.  Mr Macbeth explained and Ms Bratt confirmed that they had a licence because they believed it was required and made the Property more valuable.  
17.	Mr Macbeth said that the Appellant restricted its lettings to around 120 days because the Property was rated as domestic property for Council Tax purposes. He understood that it would affect the rating of the Property if the Property was let for more days.  (We should add that we do not know whether this is correct but we consider that it has no relevance to our decision.  The question for us is what was the nature of the supplies being made through Huntsham Court.  In our view, the rating of Huntsham Court has no bearing on that question in this case.)
The Law
18.	Item 1 of Group 1 of Schedule 9 to the Value Added Tax Act 1994 provides that the grant of any interest in or right over land or of any licence to occupy land is an exempt supply.  There are exceptions from this exemption, however, in respect of the provision in an hotel, inn, boarding house or similar establishment of sleeping accommodation or of accommodation in rooms which are provided in conjunction with sleeping accommodation or for the purpose of a supply of catering (item 1(d)) and in respect of the grant of any interest in, right over or licence to occupy holiday accommodation (item 1(e)).
19.	Item 1(d) is supplemented by Note (9) to Group 1, which states that—
“‘Similar establishment’ includes premises in which there is provided furnished sleeping accommodation, whether with or without the provision of board or facilities for the preparation of food, which are used by or held out as being suitable for use by visitors or travellers.”

20.	Item 1(e) is supplemented by Note 13 to Group 1 of Schedule 9, which states that—
“‘Holiday accommodation’ includes any accommodation in a building, hut (including a beach hut or chalet), caravan, houseboat or tent which is advertised or held out as holiday accommodation or as suitable for holiday or leisure use, but excludes any accommodation within paragraph (d)”

21.	The exemption arises from Article 135(2) of the (recast) Sixth Directive, which provides (so far as relevant) that—
“2. The following shall be excluded from the exemption  

(a) the provision of accommodation, as defined in the laws of the Member State, in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites;”

22.	We note that on 13th January 2004 Mr Macbeth called the National Advice Line to advise HM Customs and Excise that the Appellant had bought an hotel (the Property) but was planning to use it for hiring out to private parties and weddings.  He asked to be advised of the correct VAT treatment and was told (according to the Respondents’ record) that so long as this was all he was doing, i.e. not renting rooms separately or providing accommodation, the hire would be an exempt supply.  The Respondents’ record did not match Mr Macbeth’s recollection.  His recollection was that he was asked whether there was accommodation, to which he replied affirmatively, and he was then advised that as long as the rooms were not let separately there would be no taxable supply.
The parties’ contentions
23.	Mr Manknell put the Respondents’ case relatively briefly.  He noted that the Appellant hires out the Property for “special events”, offers accommodation on a standard weekend tariff, provides crockery, cutlery and tablecloths, engages cleaning contractors to clean the premises midweek and encourages hirers to use caterers from an approved list.  He said that it was “beyond doubt” that the Property is a “similar establishment” to an hotel.  Alternatively, the Property was “even more plainly” holiday accommodation.  Either way, he said, the supply was not an exempt supply.  He said that even if the Respondents had given the Appellant misleading advice regarding the nature of these supplies, that was not a matter for us.
24.	Mr Manknell relied on four cases—
(1)	Case C-346/95 Blasi v Finanzamt Munchen 1 [1998] STC 336;
(2)	Geoffrey Ross Holding and Hune Monica Holding VAT Decision 19573 (20th February 2006)
(3)	Leez Priory VAT Decision 18185 (17th January 2003); and
(4)	Chewton Glen Hotels Limited VAT Decision 20686 (20th May 2008).
We consider these cases below in arriving at our decision.
25.	Mr Fisher noted that the Property was not commercial property.  It was a large private dwelling house which was neither an hotel nor a similar establishment and that its size and nature rendered it entirely unsuitable as holiday accommodation.  It was hired on an exclusive basis and it was entirely for the hirer to determine how the Property was used.  The hirer was not obliged to use any or all of the sleeping accommodation.  The Appellant provided no catering, accommodation or other services to the hirer.  Apart from Leez Priory, Mr Fisher also relied on Asington Ltd VAT Decision 18171 (6th June 2003).  Referring to De Voil’s Indirect Tax Service, Mr Fisher noted that, “the exemption from exclusion applies to the provision of accommodation in a relevant establishment; it follows that the supply of the establishment itself is not excluded from exemption.”
Our decision
26.	We start by considering the various cases to which we were referred.  
27.	In Leez Priory the Appellant provided the services of a wedding venue at the Priory.  It is clear that in this case the Appellant offered significant services to accompany the setting whose virtues its brochure extolled.  Thus, “The marriage ceremony can be tailored to the individual couple and our staff will be delighted to advise you on this, as with every other aspect of the day”; “Your reception may be constructed to your requirements when any number of services may be added to an overall venue charge  for the exclusive use of Leez Priory and grounds”; “Our chef, photographer and florist are all available to custom build the event to your specification”.  The Priory also offered overnight accommodation to guests.
28.	The issue was whether the venue charge was exempt as being for the supply of a license to occupy land.  In identifying the issues that it had to resolve, the Tribunal in Leez Priory said this—
“26. It is clear to the Tribunal that if the Appellant only offers the use of the premises of Leez Priory, granting an exclusive licence to use the house and grounds and that no other supplies are made, this will amount to an exempt supply of the grant of a licence to occupy land under Schedule 9, Group 1 of the Value Added Tax Act 1994 (Item 1). However, the Tribunal finds as a fact that while this is a possibility. It is not the normal transaction and it is not a transaction which the Appellant seeks, as the Appellant seeks to make other supplies with the right to use the premises.
27. Three questions arise for the determination of the Tribunal. Was there a separate supply the subject of a venue charge or was there a composite supply within which supply the venue charge was incorporated? If there was a composite supply was there a main supply which characterises the supply? Thirdly, is the matter covered by the argument that in any event Leez Priory is a ‘similar establishment’ to a hotel, inn or boarding house within Item 1(d) of Group 1 to Schedule.”
29.	The taxpayer’s evidence in Leez Priory was that it was unusual for the Priory to be hired only for a wedding without any other services being required.  The more normal situation was for it to be hired as a wedding venue with some of the services offered.  What in effect the taxpayer was seeking to do (supported by an earlier Customs & Excise ruling agreeing to this course) was to treat the venue charge as a separate item in the overall cost of holding the wedding at that venue with all the services that Leez Priory offered.  Unsurprisingly the Tribunal concluded that—
40.  [The taxpayer] sought to supply a complete package of which the venue charge represents only a part and, taking a ‘typical’ example, the smaller part. 
and
41.  [The taxpayer] was not seeking to make a separate supply of the licence to use Leez Priory; it was seeking to make a composite supply of what is termed wedding functions. 
And
“The supply of the wedding function was therefore a composite one. and represents in the finding of the Tribunal the main supply. Within that main supply a number of services were ancillary and optional but the supply to the typical customer was the package. It appears to the Tribunal to be a distortion in economic terms if the venue charge, admittedly an essential preliminary were to be treated as the principal service when the other services in fact amounted to the major part of the transaction.”
That supply was fully taxable.
30.	In the Appellant’s case the situation is reversed.  The principal supply that the Appellant is seeking to make is that of the Property for short term use.  The associated ‘services’ to hirers are relatively minor, such as recommending other suppliers and drawing their attention to the attractions and entertainments of the area.  The midweek cleaning is no more than what is sensibly required to ensure that the Property is fit for hire the following weekend.  The Property is the package that the Appellant is seeking to supply, but the package is a fully furnished and equipped package.  Hirers have to supply what they need for their weekend celebration or entertainment through their own efforts, through buying in third party services or through a combination of the two.  The Appellant’s part in that is minimal.  What the Appellant supplies is a property equipped with the basic amenities needed to sustain two or three days of use by hirers and their guests.
31.	Despite its initial conclusion the Tribunal in Leez Priory went on to consider the position if in fact there was a distinct supply of a licence to occupy the land.  As to whether Leez Priory was a ‘similar establishment’ to an hotel, inn or boarding house, the Tribunal adopted the following reasoning—
49.  It clearly is not a hotel, inn or boarding house. The similarity between Leez Priory and such establishments is that it provides to those persons who have entered into the class of customers by arranging to take advantage of its facilities, food and drink. and sleeping accommodation where the latter is specifically reserved.

52. In the present appeal the dissimilarity between Leez Priory and any hotel or inn providing food, drink, accommodation and other hospitable services is that it is not open to all, that it is open only to those who take it for wedding functions and the activity connected with the celebration of weddings, and that the sleeping accommodation is limited to 13 rooms. Leez Priory does not hold itself out to be an establishment open to visitors or travellers generally.
53. It follows that Leez Priory would without any doubt be a ‘similar establishment’ as it provides food, drink, accommodation and other hospitable services, were it not for the fact that these services are provided to a strictly limited class of persons that is to say wedding parties and this by prior agreement. It is not open to members of the public generally. It appears to the Tribunal that this dissimilarity is not necessarily decisive. Establishments similar to a hotel, inn or boarding house could well offer the same facilities as a hotel, inn or boarding house but specify that they were for a limited class of paying customers.  The crux of the matter must be whether the dissimilarity that Leez Priory is not open to the general public is so great that Leez Priory cannot be a similar establishment even though it is in fact an establishment in all respects similar to a hotel, inn or boarding house save that it is only available to a specific class of client that is to say those wishing to have a supply of wedding functions. It does not seem to the Tribunal that an establishment in other respects similar to a hotel, inn or hoarding house becomes dissimilar by the fact that it only supplies the services usually supplied by hotel, inn or boarding house to wedding parties.”
32.	Similar comparisons can be made and questions asked in the present case.  The Appellant provides through the Property fully furnished weekend accommodation that is similar to the accommodation that the weekend hirer and his guests might expect to find in an hotel.  Huntsham Court was, of course, used as an hotel by its previous owners.  At that point, however, the similarities cease.  One defining characteristic of an hotel (as also with Leez Priory) is the provision of other services to go with its sleeping accommodation.  Mr Fisher would also say that hotels ordinarily let out rooms on an individual or family basis, and not the whole property.  It is not entirely out of the ordinary, however, for a party of guests to hire all the rooms in a small country hotel for a weekend, possibly associated with a family wedding or other celebration.  
33.	It would be unusual in those circumstances, however, for the proprietor to hand over the keys of the hotel to the family party concerned and absent himself from his hotel for the weekend.  No doubt there might be any number of ‘health and safety’, insurance or similar issues involved for the hotel proprietor if he took that course but more particularly his guests would still expect to benefit from the usual hotel services.  One question, therefore, is whether the absence of the services usually associated with an hotel, inn or boarding house means that Huntsham Court is not a ‘similar establishment’.  The fact that what is supplied in this case is the entire house rather than particular rooms does not, however, seem to us to be a decisive distinction.  
34.	Asington Ltd (VAT Decision 18171) concerned the letting of refurbished and furnished flats in Edinburgh.  The taxpayer had acquired the property and converted it into 8 self-contained flats suitable for the serviced residential flat market.  It let seven of the flats for a year from 1st April 2002 to another company (“TCP”) that specialised in this particular flat market.  The flats were let to TCP fully furnished together with all necessary linen, towels, kitchen equipment, utensils, crockery, glasses, telephone and cable television.  As the Tribunal put it, “In short, each flat or apartment was ‘kitted out’ by the Appellant, as part of their arrangement with TCP, for immediate occupation.”  TCP then set about letting the flats to a mixture of holiday makers and travellers, such a businessmen. TCP also supplied a variety of services such as reception, telephone, fax and e-mail, laundry and dry cleaning.  Most lets to ultimate users lasted between one night and about 8 weeks.  Around March 2003 the arrangements between Asington and TCP changed so that the ‘lease’ was replaced by an ‘agency agreement’.
35.	The Tribunal concluded as follows—
“We conclude on the facts that what TCP provided to its customers was furnished sleeping accommodation, with facilities for the preparation of food, which are used or held out as being suitable for use by visitors or travellers.  Fountain Court as operated by TCP in conjunction with their office at Grove Street is an establishment which is similar (but not identical) to the provision in an hotel, inn or boarding house of sleeping accommodation.  The similarities are, apart from the provision of furnished accommodation, the provision of services such as housekeeping and reception services and facilities.  By contrast, we find as fact that Asington provided no such housekeeping or reception services.  They created the infrastructure which, when such facilities and services were provided, would enable furnished sleeping accommodation to be provided.  We find as fact that what Asington provided could not be used and would not be suitable for use by visitors or travellers without the provision of some form of housekeeping services, however limited, and/or some form of reception facilities, to arrange the proper changeover from one transient visitor to another i.e. change of laundry, cleaning of premises and handover of key and the like.”
36.	Mr Fisher would want us to conclude that the Appellant is in the same position as Asington.  Closer examination of the Tribunal’s reasoning in Asington, however, indicates why the Appellant is not in the same position as Asington.  Thus, in considering the nature of Asington’s supply, the Tribunal reasoned as follows—
“We begin with an examination of the lease.  Our findings disclose that it is essentially a commercial lease of furnished residential property with some restriction on the use by the tenant TCP.  There is no additional element of service supplied as one invariably finds in the hotel and allied sectors of trade, such as cleaning, however limited, or change of bedding to make the sleeping accommodation suitable for and capable of use by a succession of short term or transient residents.  The main differences between the supply by Asington and the supply by TCP are (i) Asington supplied seven apartments in one supply to one person for a period of a year; (ii) TCP supply individual apartments to different individuals for different periods all generally short and less than eight weeks; (iii) Asington supplied the building and the furnishings.  TCP supply the same building and furnishings to individual customers and, in addition, they supply a significant package of services with a built-in infrastructure which included reception, car parking, and housemaid services, office facilities, and individual telephone billing for each apartment.  The provision of temporary accommodation by TCP to its customers is in potential competition with that provided by the hotel and allied sectors of trade; in our view, the provision of seven apartments in one supply for a period of a year is not.  In our opinion, therefore, the nature of the supply by Asington is the provision of furnished residential accommodation without any additional element of service.  It is that additional element of service which makes the difference between a let of furnished residential accommodation and the provision in an hotel, inn or boarding house or similar establishment of sleeping accommodation or of accommodation in rooms which are provided in conjunction with sleeping accommodation.  In an hotel or similar establishment in that sector of trade, the stay is generally short; a cleaned room and a bed and fresh linen or duvet are generally expected to be provided for each new visitor or traveller; that is the very nature of furnished sleeping accommodation in the hotel and allied sectors of trade; Asington had no infrastructure to enable them to provide such facilities.  That is an important difference between the supply by Asington to TCP on the one hand and the supplies by TCP to its customers whether it be one corporate customer with a succession of employees travelling to Edinburgh on business from time to time throughout the duration of the let to TCP, or a mixture of holiday makers and other travellers, business or otherwise.”
37.	The Appellant falls somewhere between Asington and TCP.  The Appellant cannot say that it provides furnished residential accommodation without any additional element of service.  It supplies a fully equipped Huntsham Court (which may not go much beyond Asington’s supply) but it also provides some form of booking or reception service (via its website and to meet hirers, let them into the Property and show them its facilities); it cleans the Property midweek to provide cleaned rooms equipped with clean linen and towels for each new visitor or traveller.  This obviously falls some way short of the services that TCP ‘added’ to Asington’s fully equipped flats when letting them on a short-term basis.  But did these minimal services provided by the Appellant suffice to transfer it from the exempt to taxable category?
38.	The conclusion of the Tribunal in Asington suggests that they were.  In relation to Item 1(d) of Group 1 it observed that—
“It is clear on the authorities that the essential features or common characteristics of supplies falling within Item 1(d) include (i) temporary furnished sleeping accommodation, (ii) occupation by a transient resident who is away from home for one reason or another, and (iii) some related element of service, whether it simply be a change of bedding from time to time or minimal cleaning on change of occupant or a more extensive range of housekeeping and other services.  All such features are present when accommodation is provided by an hotel, boarding house, inn and allied trades.  They were not present in the premises as supplied by Asington to TCP.  All such features are generally present or should be present when furnished sleeping accommodation is provided for use by visitors or travellers.  The nature of the use by visitors or travellers is transient; they seek only temporary accommodation; the turnover of visitors requires that the furnished sleeping accommodation be kept clean and thus made suitable for use by a succession of travellers or visitors.  Unless some element of service is provided the supply is unlikely to be in potential competition with the hotel and allied sectors of trade, and may not be capable of being provided at all.”
39.	Mr Fisher suggested that the Appellant hires out the whole house leaving hirers free to do what they want with the accommodation, including not using it as sleeping accommodation.  This, however, seems to deny the reality of what is one of the main facilities that the Appellant offers hirers for their weekend hire.  It is not just a venue for wedding receptions or parties.  It is a venue that offers sleeping accommodation as part of the package and, indeed, an important part of the package.  We heard no evidence to suggest that hirers routinely hired Huntsham Court but accommodated themselves at neighbouring hotels or other local establishments.  The fact that the attraction of the Property was that it facilitated daytime or evening activities and that no one would hire it without some daytime or evening activity in mind does not deny that it also functioned to provide sleeping accommodation for the hirer and his guests.
40.	Mr Fisher relied upon De Voil for the proposition that—
“The exception from exclusion applies to the provision of accommodation in a relevant establishment; it follows that the supply of the establishment itself is not excluded from exemption, unless the option to tax, if available, has been exercised.”
41.	We imagine that the author had in mind the letting or sale of an hotel or similar establishment, as in Asington.  The fact that the Appellant grants an exclusive licence for the weekend of the whole Property (or the whole Property excluding the Russian Suite) does not dictate that the supply is an exempt supply, any more than TCP’s letting of a self-contained serviced flat was exempt.  The fact that the Appellant’s property is a large country house and that in Asington was a small self-contained flat in the centre of Edinburgh does not make the difference between an exempt and a taxable supply.  Sleeping accommodation is still provided in a similar establishment to an hotel where what is supplied is the establishment in which the sleeping accommodation is situated, provided the nature of the supply – essentially transient for visitors or travellers with some form of appropriate services, as in this case – identifies it as having a similar function to the functions that an hotel, inn or boarding house ordinarily serve.
42.	Turning to Geoffrey Ross Holding and Hune Monica Holding VAT Decision 19573, here the Tribunal reached the conclusion that the supply of accommodation was exempt.  The case concerned a large five bedroomed house set in three acres of grounds and with a separate bungalow approximately 60 yards from the house.  Mr and Mrs Holding made the accommodation in the properties available to a number of ‘lodgers’ or ‘guests’ and supplied a variety of associated services to them.  There appear to have been two long term ‘lodgers’ and a small number of more transient ‘guests’.  The Tribunal’s conclusion was that—
“Taking all these together our overall impression is that in the relevant period the Appellants did not compete with the hotel sector in their provision of accommodation and that the function of their business establishment in the relevant period was the provision of longer term accommodation, a function closer to that of the letting of a dwelling accommodation than to the business in the hotel sector. We conclude that Birchwood was not a similar establishment.”
43.	This illustrates that the outcome in these cases depends essentially upon the Tribunal’s view of the facts.  On the face of it Mr and Mrs Holding appear to have been doing everything that would be expected to make taxable supplies.  But either the paucity of their guests or the nature of their lodgers’ occupation meant that the Tribunal was not persuaded.  It is true that the Appellant in the present case restricts the number of weekend lettings to ensure that the Property retains its domestic rating rather than becoming liable to be rated as a commercial property.  But the Appellant nevertheless hires out the Property on a regular and fully commercial basis and its circumstances bear no relationship to the circumstances of Mr and Mrs Holding.
44.	We derive little assistance from Chewton Glen Hotels Limited VAT Decision 20686.  This case concerned an hotel that provided facilities for weddings but which had incorrectly treated hire of a room for the ceremony or reception as exempt when the hotel was asked to provide limited other services.  Referring to the VAT Directive the Tribunal cited Belgian State v Temco Europe SA [2005] STC 1451 for the proposition that the concept of letting immovable property (an exempt supply) comprises the essentially passive activity of a landlord conferring on a tenant the exclusive right to occupy property from an agreed period for an agreed payment.  This is contrasted with other activities of an industrial or commercial nature or having as their subject matter something that is best understood as a service, such as the right to use a golf course or the right to use a bridge or to install a vending machine.  The Tribunal observed that the “letting” of a room is not a passive activity and in the circumstances was best understood as the provision of a service and a commercial transaction even in those cases in which the room was let without much, if anything, additional by way of specific services.  As the Tribunal noted, the hire of the room offered the opportunity to use the grounds for photography, the use of some reception services, parking and the use of the common areas of the hotel.  There were therefore no cases where literally nothing other than the use of the room was provided.
45.	Finally, we refer to Blasi v Finanzampt München I [1998] STC 336.  This concerns German provisions under which lettings ‘for short-term accommodation of guests’ were excluded from exemption.  In this respect the case concerned domestic German legislation that differed significantly from the UK domestic legislation that we have to consider here.  But they share the common provision of what was at that time Article 13B(b)(1) of the EC Council Directive 77/388.  The case is authority for the proposition that the exemptions provided for in Article 13B (i.e. the exemption at issue in the Appellant’s case) are to be interpreted strictly but the exceptions from them (i.e. the exception on which the Respondents rely) are not.  The Advocate General in that case said in particular of the exception for the hotel and similar sectors that—
“17. it may be noted, first, that its terms, in particular the phrases ‘accommodation, as defined in the laws of the Member States’ and ‘sectors with a similar function’, are somewhat imprecise. It seems to me that the intention was to leave the member states some latitude in defining the precise limits of the exclusion.
18. Secondly, as already noted, art 13B(b)(1) lays down an exclusion from the exemption and therefore does not fall to be construed strictly. Indeed it seems to me that the words ‘sectors with a similar function’ should be given a broad construction since their purpose is to ensure that the provision of temporary accommodation similar to, and hence in potential competition with, that provided in the hotel sector is subject to tax.”
46.	The Court laid down the relevant principles to be adopted as follows—
“18. It must first be noted that the court has consistently held that the terms used to specify the exemptions provided for by art 13 of the Sixth Directive are to be interpreted strictly, since they constitute exceptions to the general principle that turnover tax is to be levied on all services supplied for consideration by a taxable person (see Stichting Uitvoering Financiële Acties v Staatssecretaris van Financiële (Case 348/87) [1989] ECR 1737 at 1753, para 13, and Bulthuis-Griffioen v Inspector der Omzetbelasting (Case C-453/93) [1995] STC 954 at 962, [1995] ECR I-2341 at 2359, para 19).
19. The phrase ‘excluding … the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function’ in art 13B(b)(1) of the Sixth Directive introduces an exception to the exemption which art 13B provides for the leasing or letting of immovable property. It thus subjects the transactions to which it refers to the general rule laid down in the directive, namely that VAT is to be charged on all taxable transactions, except in the case of derogations expressly provided for. That phrase cannot therefore be interpreted strictly.
20. It should be added that, as the Advocate General (Jacobs) has noted at para 18 of his opinion, the words ‘sectors with a similar function’ should be given a broad construction since their purpose is to ensure that the provision of temporary accommodation similar to, and hence in potential competition with, that provided in the hotel sector is subject to tax.

23. Where accommodation in the hotel sector (as a taxable transaction) is distinguished from the letting of dwelling accommodation (as an exempted transaction) on the basis of its duration, that constitutes an appropriate criterion of distinction, since one of the ways in which hotel accommodation specifically differs from the letting of dwelling accommodation is the duration of the stay. In general, a stay in a hotel tends to be rather short and that in a rented flat fairly long.
24. In this connection, as the Advocate General (Jacobs) has stated at para 20 of his opinion, the use of the criterion of the provision of short-term accommodation, being defined as less than six months, appears to be a reasonable means by which to ensure that the transactions of taxable persons whose business is similar to the essential function performed by a hotel, namely the provision of temporary accommodation on a commercial basis, are subject to tax.”
47.	The UK exception parallels the provisions of the VAT Directive, albeit referring to “sleeping accommodation” and referring to “similar establishments” rather than “sectors with similar functions”.  In Holding the Tribunal concluded that the provisions of Item 1(d) of Group 1 were intended to enact Article 13B(b)(1).  In Chewton Glen Hotels the Tribunal thought that the UK language might have implemented the exception in a slightly more restricted way than intended by referring just to sleeping accommodation rather than accommodation in the hotel sector generally.  That was because the Tribunal in Chewton Glen Hotels was dealing with room hire without any sleeping accommodation but that did not prevent the Tribunal concluding that the room hire was taxable.  Similarly, in the Appellant’s case the fact that it supplied the whole Property which could then be put to a variety of uses, including sleeping, rather than supplying sleeping accommodation as such, does not prevent the supply being a taxable and not an exempt supply, especially when the sleeping accommodation is an essential part of the package.  In so far as the majority of the Appellant’s business comprised wedding events, and all of it comprised short-term weekend hires, it was clearly providing services of a type ordinarily provided by the hotel sector.
48.	Our conclusion that the Property is a similar establishment within Item 1(d) of Group 9 and that the Appellant’s supplies are therefore taxable makes it unnecessary for us to consider whether the Appellant’s supply of the Property fall within Item 1(e).  The Property may be larger than most ordinary holiday accommodation.  However, holiday accommodation is an obvious example of property that is hired in its entirety, fully equipped and on a self-catering basis, with the principal service being the cleaning between lets and the provision of clean linen and towels to new occupants.  Had we not concluded that the supplies fell within Item 1(d), we would have concluded that they comprised the supply of accommodation in a building which is advertised or held out as suitable for holiday or leisure use.
49.	We would note that there are a large number of other cases dealing with the exception in Item 1(d) to which we were not referred by either party but which we have reviewed before arriving at our decision.  These are listed at the end of our Decision.  One reason for undertaking this review was to ensure that we were not overlooking anything that might have been said in support of the Appellant’s case.  The majority of the cases, however, are dealing with different situations – in particular accommodation that might be regarded either as part of social care or as part of educational provision.  They have also considered the meaning of “visitor’ and “traveller” in this context.  There is nothing that we have seen in those decisions to suggest that our view of the facts of this case or our application of European principles and the construction of the associated UK legislation is wrong.
50.	We were nevertheless concerned by the fact that the Appellant in this case has acted on the basis of the Respondents’ advice (the Respondents do not deny that they gave advice) and is now faced with a large assessment for having categorised his supplies incorrectly on what it believed was the advice it had received.  There was, of course, a dispute as to what Mr Macbeth was told when he telephoned the National Advice Line.  On this we express no conclusion.  We accept that the Appellant acted on what it honestly believed Mr Macbeth had been told.  The question is whether the Respondents correctly recorded everything they were told about the Property and the supplies or whether Mr Macbeth’s recollection of what he said is more accurate.  On this we express no conclusion.  As Mr Manknell reminded us, it is not an issue on which we have any jurisdiction and the Appellant’s remedy, if it can substantiate its claim to have been misled, lies in judicial review.  It would be wrong for us, without havinf heard fully from the Respondents on the matter, to express a view.  It is open to us, however, to wonder whether, in an area of such fine distinctions as this, the Respondents should be offering telephone advice or whether taxpayers should be told to put the matter in writing.  As the Appellant will now appreciate, it is always important to confirm matters in a form that can be more easily verified some years after the event.
51.	We have no doubt, however, that based on Mr Macbeth’s telephone call the Appellant was acting entirely honestly in accordance with the advice that it had received from the Respondents following what it believed to have been a proper description of the services being provided.  In such circumstances we think that the Respondents’ demand for a serious misdeclaration penalty adds salt to the wound.  The Appellant clearly has a reasonable excuse for its actions and we therefore allow its appeal against the penalty.
Conclusion
52.	Accordingly, we dismiss the Appellant’s appeal against the assessment but allow its appeal against the serious misdeclaration penalty.  We make no order as to costs.

MALCOLM GAMMIE
TRIBUNAL JUDGE
RELEASE DATE: 1 September 2009

Other Court and Tribunal Decisions reviewed

Mrs R I McGrath v C & E Commissioners [1992] STC 371
International Student House (VTD 1420)
Namecourt Limited (VTD 1560)
The Lord Mayor and Citizens of Westminster (VTD 3369)
Soka Gakkai International UK (VTD 14175)
Derby YMCA (VTD 16914)
Dinaro Ltd t/a Fairway Lodge (VTD 17148)
Acorn Management Services Ltd (VTD 17338)
Look Ahead Housing and Care Ltd (VTD 17613)
St Dunstan’s (VTD 17896)
B J Group (VTD 18234)
North East Direct Access Ltd (VTD 18267)