[2010] UKFTT 284 (TC)

TC00573
Appeal reference: MAN/2008/0761

VAT – exemption – supply by the Appellant of license extensions to existing chalet owners – was this an exempt supply of a license to occupy land or a standard-rated supply of a seasonal pitch – standard-rated supply – appeal dismissed

FIRST-TIER TRIBUNAL
TAX

 	
					TICKLOCK LTD	Appellant

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	Lady Mitting (Judge)

Sitting in public in Birmingham on 27 April 2010

Anthony Trotman, VAT consultant, for the Appellant

Jonathan Cannan, counsel, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2010
DECISION

1.	The Appellant appeals against an assessment to VAT in the sum of £16,718, the assessment being dated 6 May 2008 and covering the period 1 October 2005 to 31 December 2007.
2.	The Appellant trades as Silver Bay Holiday Park (“Silver Bay”).  In 2006 and 2007, in the circumstances described below, Silver Bay granted extensions to the licenses of five existing chalet owners, two of whom paid £18,000 and three of whom paid £20,000 for the grants.  The grants had always been treated by Silver Bay as exempt but the Respondents, taking the view that they were standard-rated, raised the assessment under appeal.  Various arguments had been put forward on behalf of Silver Bay (before the involvement of Mr. Trotman) but by the time of the hearing, the issue had narrowed to the single contention on behalf of Silver Bay that the grant was an exempt supply of a license to occupy land pursuant to schedule 9 VATA 1994, group 1, item 1.  The Respondents’ contention was that the license extension fell within the exclusion from exemption contained in item 1(f) “the provision of seasonal pitches for caravans and the grant of facilities at caravan parks to persons for whom such pitches are provided”.  It was accepted by both parties that the chalets fell within the definition of a caravan (Caravan Sites and Control of Development Act 1960).  Note 14(b) defines a seasonal pitch as one which is “provided for a year or a period longer than a year but which the person to whom it is provided is prevented by the terms of any covenant, statutory planning consent or similar permission from occupying by living in a caravan at all times throughout the period for which the pitch is provided”.
3.	We heard oral evidence from Mr. Stephen Knight, the general manager of Silver Bay.  His evidence was not contentious and we find the facts to be as follows.  Silver Bay has been established since 1959 and it describes itself as the Silver Bay Holiday Village.  It houses a mixture of touring and static caravans as well as timber-built lodges, totalling 154 units.  It provides facilities for its occupants including a club house, licensed bar, restaurant and a boat park.  Silver Bay caters principally for families taking holidays in touring or static caravans.  The static caravans and the pitches for the touring caravans are available throughout the year although during January when occupancy rates are low, club facilities are closed for staff holidays and general maintenance. There are currently some six or seven couples living in Silver Bay as permanent residents having acquired rights under Mobile Homes Act agreements.  This arrangement was described by Mr. Knight as undesirable and will be phased out at the end of the agreements.  In addition to the lodges which are occupied by the permanent residents there are 33 other lodges which are used by their owners as second homes.  The lodges are wooden structures and are purchased by their owners (current prices ranging from £99,000 to £200,000).  Included in the purchase price of the lodge is the license to occupy the site upon which the lodge stands.  Currently the trade norm is that the occupants get 50 year licenses but historically the licenses offered were only for 30 years and to bring these older licenses into line, those owners were given the option of purchasing 20 year extensions to their agreements.  The offer was taken up by five owners, these extensions being the subject of the appeal.
4.	When an owner purchases a chalet they are purchasing, under the purchasing documentation, none of which I saw, the chalet, its contents and the right to occupy the site.  The chalet and the right of occupation has always been treated as exempt with the contents being treated as standard-rated and the tax liability is worked out by formula.  The purchaser pays one single sum, there being no distinction made within the price paid between the chalet and the right to occupy the site.  Alongside the purchase documentation, the owner signs a “License Agreement for a Holiday Lodge Pitch”.  Under the Agreement, Silver Bay “grants a license to the owner to station a chalet on Silver Bay Holiday Park…” for a given period of years.  Clause 6 of the Agreement provides, “Under no circumstances shall the chalet be used as a main residence but shall only be occupied for holiday and recreational purposes”.  The purpose behind this restriction was explained by Mr. Knight as being that the planning consent for Silver Bay was as a holiday park only and they were not therefore, under the terms of this consent, able to let people use the park as their main residence.  Mr. Knight described the lodges as in the main being the second homes of their owners.  There was no restriction whatsoever on the owners’ entry onto site and into their lodges as the park remained open and accessible throughout the year.  Most of the owners were very frequent visitors, coming most weekends and during holiday periods but they were not allowed to live there permanently and, as Mr. Knight said, they would soon find out if they were doing.  This was reinforced by the fact that all correspondence to the owners went to their home address not to their site address.
5.	The mechanics of the license extensions were very simple in that on payment of the sum due, the lodge owner would surrender his existing 30-year License Agreement and be given a 50-year agreement with an obvious amendment to the duration to take into account the period already served under the existing shorter license.
6.	The owner, under the terms of the License Agreement pays an annual fee, described by Mr. Knight as a pitch fee, and this covers the annual costs of running the site / gardening club facilities, wi-fi etc.  If the lodge is sold the new owner will take over the license for the remainder of the period.  It was confirmed by Mr. Knight that the planning permission does not itself express any excluded period of residency.
7.	It was Mr. Trotman’s contention that the new license served only to extend the existing license to occupy.  At no stage had it ever been argued by the Commissioners that those original licenses should have been taxable and the practice within the industry was for such licenses to be treated as exempt.  By granting the 20-year extension to the licenses, Silver Bay was not changing the nature of the supply under the original license.  It was his view therefore that the extension had to follow the exempt rating which applied to the original grant.  Mr. Trotman contended that there was no distinction between the occupation of one of these lodges by its owner and the occupancy by any person of their second home.  There was no physical or legal restriction on the owner’s right to enter the site or occupy his lodge.  There was no period of closure.  Further, the Commissioners normally applied the seasonal pitch restriction to pitches which had compulsory and defined periods of closure.
8.	Mr. Cannan submitted that what was being supplied was a seasonal pitch for the reason quite simply that the owners were prevented by their License Agreement from occupying the lodge on a permanent basis.  If an owner lived in their chalet throughout the year they would be in breach of clause 6 of the License Agreement because they would be using it as a main residence and not, “only… for holiday and recreational purposes”.
9.	I accept that it is open to an owner to enter his lodge at any time throughout the year.  There is no period of closure and no physical restriction on him so doing but there mere fact that he can visit at any time does not mean that he can reside there all the time.  The question to be asked in relation to note 14 is whether the owner “is prevented by the terms of any covenant, statutory planning consent or similar permission from occupying… at all times throughout the period for which the pitch is provided”.  The answer to that is quite simply, yes.  Clause 6 clearly provides that the chalet shall only be occupied for holiday and recreational purposes.  It cannot be used as a main residence.  Further, Mr. Knight, in both evidence in chief and in cross-examination stated that an owner was not permitted to live there permanently.  The owner is not able to occupy the chalet at all time throughout the currency of the agreement.  The effect of clause 6, which is itself included because of the wording of the planning permissions, clearly restricts permanent occupancy.  In response to Mr. Trotman’s argument that it would be, in effect, illogical to treat the extension of the license differently from the original grant, I accept Mr. Cannan’s response that here we are considering a quite distinct and individual supply of an extended period of occupancy.  Given the contractual restriction on occupancy, I find that the supply was one of a seasonal pitch within item 1(f) and is therefore excluded from exemption.  The supply was a standard-rated supply.  There was no argument on quantum and I dismiss the appeal.  Mr. Cannan made no application for costs and I make no order.
The Appellant has a right to apply for permission to appeal against this decision in accordance with rule 39 of the Rules.  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.

LADY MITTING
JUDGE
Release Date: 22 June 2010