[2011] UKFTT 216 (TC)

TC01081

Appeal number TC/2009/13968

VAT – Item 1 of Group 1, Sch 9 Value Added Tax Act 1994 – licence of land – storage facilities - predominant supply.

FIRST-TIER TRIBUNAL

TAX 

	David Finnamore t/a Hanbridge Storage Services	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

				TRIBUNAL: Geraint Jones Q.C.		
                                                                         Andrew Perrin.

Sitting in public at 45 Bedford Square, London WC1 on 20 January 2011.

Mrs Hamilton, counsel, for the Appellant
Mr Joliffe, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011
1.	This is an appeal where there are no facts in issue. The outcome of this appeal turns upon an application of undisputed facts to the relevant law. Upon the appellant's case it also involves considering whether implementing United Kingdom legislation has faithfully followed the European Directive to which it gives, or is supposed to give, effect.
2.	The issue in this appeal turns upon a mixed question of fact and law. In a nutshell, the issue is whether a business that provides storage facilities for property belonging to third parties, provides a supply of services that is subject to value added tax or whether the supply falls within Item 1 of Group 1, Schedule 9 to the Value Added Tax Act 1994, in which event the supply will not be subject to value added tax. We were told that there are differing views taken by Her Majesty’s Revenue and Customs (“HMRC”) in different parts of the country. We say no more than that because the outcome of this appeal does not turn purely upon a true and proper interpretation of a legal provision or statute; it necessarily turns upon an application of the facts to the applicable legal framework.
3.	Mr David Finnamore trades as Hanbridge Storage Services from a site at Hanbridge Marina, Littlehampton, West Sussex. He gave evidence in accordance with his witness statement dated the 20 September 2010, which stood as his evidence in chief. He struck us as a truthful, candid and careful witness. We accept the evidence that he gave. Evidence was also given to us by Mrs Watkins on behalf of HMRC in accordance with her witness statement dated 22 September 2010. In our judgement, she equally gave truthful and accurate evidence. There is no conflict between the factual evidence given by the appellant and that given by Mrs Watkins.
4.	The appellant's evidence is that he provides self storage facilities by providing containers which are located upon open land which he owns. The containers are of a type with which most of us will be familiar, being large metal containers which are regularly seen on lorries and being transported on ships, in bulk. By their nature they are movable although, we accept, specialist lifting gear is required to move them from place to place or onto a lorry or ship. We have been provided with photographs illustrating the containers. They are of metal construction and at one end there are metal doors that can be opened but, when closed, can be secured with a semi-concealed padlock. The appellant has approximately 184 containers located on his land as illustrated on the site plan which appears at page 52 in the bundle of documents. They are arranged in such a way as to allow vehicular access to each container so that goods may be loaded into or taken from any container with comparative ease.
5.	The entire site is surrounded by a fence. Access to the site is through a single pair of matching security gates which are locked at night. People who hire or rent a storage facility can have unrestricted access during normal working hours but outside such hours, can secure access by arrangement with the appellant's on site security team. We should add that the appellant or a company in which he has a substantial interest owns adjacent land and the security arrangements are common in respect of the subject land and the other land owned by the appellant or a company substantially under his control. The security arrangements are not discrete to the appellant’s land used for the business that we are considering.
6.	The appellant advertises the service and facilities offered at his site, as a self storage facility. Many of us will be familiar with companies that offer such facilities, often within buildings. The appellant's yard is open to the elements and any stored goods are protected from the elements only by the metal container within which they are secured. It was explained to us that each container has venting to allow a flow of air. The appellant told us that he advertises the storage facilities in the local press, telephone directories and on a web site. He readily acknowledges that such advertisements appear in the “storage” section of such advertising material. Upon a simplistic view of this appeal it might be thought instructive to enquire into what the ordinary man in the street would think that he is obtaining when he enters into a storage facility agreement with the appellant. There can be little doubt that the man in the street would say that he has simply rented storage space. Indeed, that is what he has done. However, the man in the street will not have undertaken an analysis of the nature of the legal rights that he has acquired by entering into the storage agreement. Indeed, the nature and extent of those legal rights are likely to turn upon the true and proper construction to be given to the written agreement that is entered into with each customer in respect of each storage facility that is rented. The evidence before us is that there is a minimum period of storage, being two weeks, with many storage units being rented on a much longer term basis.
7.	A standard form rental agreement appears at tab 9 in the documents bundle. It describes itself, accurately in our view, as a “Licence Agreement.” The name of the customer is inserted prior to a particular unit being identified by its number and its size. The start date for the hire is specified and the storage charge rate is also inserted. The agreement then contains standard form “Terms and Conditions “, the most relevant of which appear in clauses 2 and 11. Clause 2 provides that provided that the appellant's fees are paid, the customer is licensed to use the identified unit for the storage of goods in accordance with the agreement. It further provides that the customer may have access to the unit at any time during access hours (which are defined) only for the purpose of depositing, removing, substituting or inspecting the goods. ”Unit” is defined in clause 1 as “the storage unit specified overleaf or any alternative storage unit we may specify under condition 11.” 
8.	It is also relevant to note the content of clause 11 of the Agreement which reads as follows : “During the course of this agreement with us you will have use of (a) the numbered storage container occupying the area of land coloured in red on the attached plan and (b) the land coloured red on the attached plan”. Thus, it is argued on the part of the appellant, this agreement when seen in its factual context, comes within article 135 of the European Community Directive 2006/112, which is reflected in domestic law as Item 1 of Group 1 of Schedule 9 to the Value Added Tax Act 1994 (as amended).  
9.	Article 135 of the Directive, so far as relevant, is in the following terms : “Member States shall exempt the following transactions - the leasing or letting of immovable property.”
10.	Item 1 of Group 1 of Schedule 9 to the 1994 Act, so far as relevant, reads as follows: “the grant of any interest in all right overland or any licence to occupy land, or, in relation to land in Scotland, any personal right call for or be granted any such interest alright, other than ……..”. 
11.	Some of the argument in the appeal before us was directed to the issue of whether or not the appellant was involved in the leasing or letting of immovable property. During that argument the issue was said to be whether the storage units were, of themselves, to be regarded as immovable property. We do not accept that that is a significant or relevant issue in this appeal. Although an exact reading across is not permissible and would not be entirely accurate, for present purposes it is sufficient to equate the term “immovable property ” in the Directive with the domestic distinction between real and personal property. Literally speaking the storage units can be moved but usually rest upon the ground relying upon their own weight to keep them firmly upon it.
12.	We are satisfied that the true issue in this case is whether, as a matter of law, the overall nature of the transaction entered into with a customer is that of granting a licence to occupy land or simply providing storage facilities or whether the overall transaction involves each element so that the predominant element must be ascertained before the overall nature of the transaction can be properly characterised, so as to allow it to be determined whether the value added tax exemption does or does not apply.
13.	It was argued before us that insofar as the Directive may be more widely drawn them the domestic legislation, the former should prevail. In our judgement that issue does not arise in this appeal because, on one view of it, the domestic legislation might be said to be more widely drawn than the Directive given that it specifically refers to ”any licence to occupy land”. 
14.	It suffices for us to say, on the basis of the evidence given by Mrs Watkins, that the view taken by HMRC was that the facilities provided at the appellant's yard involved the supply of storage containers or facilities with the goods being stored in containers that could not properly be described as immovable property. There was then correspondence between HMRC and the appellant in which the contentions of each side were set out. The appellant has included documents in the bundle which demonstrate that differing views have been taken by HMRC offices in different parts of the country. The appellant's position seemed to be that he was not especially concerned about whether his supply did or did not attract value added tax; his concern was that there should be a level playing field for those involved in the storage facility industry so that either all suppliers levied value added tax or none levied value-added tax. It is apparent to us that the facts of an individual case might justify departure from the overall conclusion at which we have arrived but we would venture the view that the applicable facts would need to be substantially different, because it is probable that in most storage facility arrangements, at the very least, there will be a licence to occupy a defined area of land. One circumstance in which the outcome might be different is where the area of land to be occupied for storage purposes is not defined or where the goods may, at the election of the person providing the service, be stored at a location A, location B or location C from time to time as in many bailment situations.
15.	 During his submissions on behalf of HMRC, Mr Joliffe correctly submitted that we must objectively view and consider the relevant facts rather than apply what might be thought to be the subjective intention of either the appellant or his customers (assuming them to have a common subjective intention). He also submitted that we must construe the exemptions, referred to above, strictly. He referred us to the decision of the Tribunal in The University of Kent v The Commissioners of Customs and Excise (2004) WL 3327960  in support of the proposition that the supply made by the appellant could not be an exempt supply because it did not involve immovable property. We need not go into that decision because we are entirely satisfied that our decision does not turn, nor should it turn, upon whether the storage units are properly to be described as movable or immovable property. We are satisfied that our ultimate decision terms upon whether the predominant or overall nature of the transaction is properly to be described as involving a licence to occupy land.
16.	During the argument before us and it was submitted by each counsel that it would be an unsatisfactory outcome for it to be determined that the fee for the supply of the container should be subject to value-added tax whereas the portion of the fee paid for the licence to occupy the land upon which the container sits, is not subject to value added tax. We were urged to the view that the issue to be determined by us is whether the contractual arrangements entered into between the appellant and his customers, on the basis of the written agreement to which we have referred above, is primarily a licence to occupy land or primarily a contract for the storage of goods within a metal container.
17.	Mr Joliffe argued that in determining the overall issue we should have regard to the content of the appellant's website, illustrated at tab six in the document bundle; the terms of the written agreement (referred to above); the appellant’s pricing structure; the characteristics of the metal container; and to what part of the price, if any, was preferable to the provision of security.
18.	We agree that the various matters referred to by Mr Joliffe are each relevant, but they are not matters to which equal weight should necessarily be given.
19.	 We have not yet referred to the evidence relating to the fee paid for the storage facility. In addition to the containers that can be rented by customers wishing to leave their goods in storage, the appellant also has several different containers which can be rented by people wishing to take a container away from the appellant's site so as to store goods within it at some other location. In our judgement it is important to note the Self Storage rates, as at the 1 October 2010, advertised by the appellant. By way of example we refer to the rates applicable to an 80 ft.² unit. The weekly cost of such a unit is given as £28.58 when the unit is located on the appellant's land. In respect of a similar size unit which a person takes to his own land, the rental figure is about one quarter of that sum. Thus, argues Mrs Hamilton, it can readily be appreciated that the greater part of the licence fee is for the occupation of the land upon which the storage unit rests, rather than for the provision of the metal storage unit itself. We appreciate that if that was the sole criterion by which this issue was to be judged, it might be open to manipulation by those who sought to fix their rates in such a way as to make it seem that the greater part of the fee was payable for the licence to occupy a defined area of land. We make it clear that we are satisfied that in this case the appellant has not sought to manipulate anything. We accept that the differential rates demonstrated to us are genuine commercial rates which reflect the nature of the facility or service being provided, or each component of it.
20.	Mrs Hamilton submitted to us that the United Kingdom was obliged to implement the Directive. In our judgement the United Kingdom has not failed to implement the Directive but, on one view of the matter, might just possibly have gone slightly further in the domestic legislation than may have been required by the Directive. If so, the appellant is plainly entitled to rely upon the domestic legislation. Mrs Hamilton also urged us to regard the overall transaction as a single supply and submitted that if we considered that each component of the supply was of equal importance, then we must ask ourselves the question: What is the essential nature of the supply? 
21.	We agree that the supply is to be seen as a single supply. That accords with common sense. Then, submitted Mrs Hamilton, we should examine who does what, where, for whom and to what extent. She urged us to look at the split of the monetary consideration and to have particular regard to the written contract. By reference to the decision of the Court Justice of the European Communities (First Chamber) in Belgium v Temco Europe SA (2005) STC 1451 she submitted, correctly in our judgement, that the essential enquiry is into the underlying purpose of the single supply or transaction. She also relied upon that authority for the proposition that European law concepts have to be given their own interpretation. In our judgement although that submission may be correct, the outcome of this appeal does not turn upon the application of any such principle.
22.	We were also referred to paragraph 68 in the speech of Lord Scott in Customs and Excise Commissioners v Sinclair Collins Ltd (2001) STC 989 where he said :
“In my own opinion, in order for an agreement to confer a licence to occupy for VAT exemption purposes, the relationship between the licensee and the land must be such as to fall within the concept of occupation. Occupation may, of course, have different meanings in different contexts. For present purposes, however, if the occupation is to attract VAT, it needs a quality that allows it to constitute a leasing or letting of the land within the meaning of those words in the Sixth Directive. The characteristics of leasing or letting must be present.”
23.	He then went on to refer to the decision in E U Commission v U. K. (2000) STC 777 at 804  where the court held that the terms "leasing" and "letting" do not imply a right of exclusive occupation or a fixed duration for the right to use the goods in question. The court went on to hold that prima facie the letting of sites for parking vehicles amounts to leasing or letting within the meaning of the provision that was then being considered. The court emphasised that such a contract does not imply exclusive use of the car park or even of a particular space in the car park.
24.	Thus, when we return to Group 1 of Schedule 9 to the Value Added Tax Act 1994 (as amended), we find what is, in our judgement, a clear indication from Parliament on this very issue. The effect of Item 1 in Group 1 is to exempt from value added tax a transaction in which a person is granted any interest in or any right over land or any licence to occupy land. Realising the breadth of that provision Parliament then set out various exceptions to the general rule. The exceptions that appear in items 1(e), (f), (g), (h) and (k) seem to us to provide substantial assistance in the enquiry that we have to undertake. That assistance derives from the fact that Parliament, by setting out these various exceptions, has done so because, on any objective view of the matter, it recognised that it could properly be argued that the grant of a licence to occupy holiday accommodation would, without more, not attract value added tax given the general wording of Item 1. The same applies in respect of the provision of a licence to park a vehicle. This is a matter upon which Mrs Hamilton relied heavily; in our view, entirely correctly.
25.	From the perspective of a property lawyer, there can be no doubt that the contract between the appellant and a customer involves the appellant granting a right to occupy a defined parcel of land. It carries with it implied rights to gain access to and egress from that defined parcel of land. We accept Mrs Hamilton's submission that the function of the metal container which rests upon the land licensed for occupation by the customer, is to provide storage space. Indeed, that will be why most customers have entered into the arrangement. We must avoid looking at the subjective purpose because, to do so, would be to characterise the nature of the transaction by reference to that perception. However, the view of the reasonable man in the street must be that of the reasonable man well versed in the applicable legal concepts. 
26.	Our approach is as follows. When we ask who is doing what, the answer we give is that the appellant is undoubtedly, as a matter of law, granting a contractual license to a customer to occupy a defined parcel of land. In our judgement the agreement entered into on the facts relevant in this appeal, would not amount to a lease, in the strict sense. This is not a case where the appellant can store or place the customer's goods from time to time, in such location as he sees fit,. The agreement, we acknowledge, contains a suitable provision to apply in emergency situations only. We do not consider that to be of any real significance in the overall outcome of this appeal.
27.	That is not the end of the matter. The next issue is where the provision of the facility takes place. Undoubtedly, that is on land owned by the appellant, with the customer only having a right to enter into or onto that land by reason of the contract that he has entered into with the appellant.
28.	When we look at what service or facility is provided for the money consideration paid, we accept and find that by far the greater proportion of the money consideration is paid for the facility of occupying the defined area of land with the smaller portion of the payment being for the use of the metal container itself.
29.	Next, we consider that whilst the customer might procure some benefit from the licence to occupy the land absent a metal container being upon it, for example, by being able to store goods upon it which can properly be stored in open conditions, the same cannot realistically be said of a customer who simply rented the metal container with nowhere to put it upon the appellant's land. We appreciate that we have referred to the small number of transactions where the appellant rents out containers to those who wish to put them on their own land; but that carries with it the substantial expense involved in transporting the container to and from the hirer’s own land and is an expense that would be totally disproportionate unless the hire period was of substantial duration. It would not be commercially sensible for comparatively short storage periods.
30.	We have arrived at the conclusion that each customer does have exclusive use of a defined space or parcel of land within the curtilage of the appellant's yard, pursuant to a contractual license. Without that licence no storage could take place on the appellant's land. With that licence storage may take place on the appellant's land although it need not necessarily do so. Thus, although at first blush the facts of this case might have suggested that the overall service being provided was that of storage facilities, a more detailed and necessary consideration of the facts and the legal analysis applicable to those facts leads us to conclude that the overall submission made by Mrs Hamilton is correct. The overall submission was that the transactions entered into by the appellant, by way of renting out storage facilities, amount to a single supply or facility, the predominant nature of that supply being the provision of a licence to occupy a defined parcel of land which, once the customer is entitled to occupy it, can be used, or not used, as the customer then sees fit (subject only to certain well-defined contractual limitations) for storage purposes. To put the matter another way, the storage is parasitic upon the customer's ability to occupy the land, whereas it could not properly be said that any right to occupy any land arises parasitically from a contract for storage, because such a storage contract may well amount to bailment rather than necessitating or involving the occupation of any defined parcel of land.
31.	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.

Decision.
Appeal allowed.
By reason of Item 1, Group 1 of Schedule 9 of the Value Added Tax Act 1994 (as amended) the storage facilities provided by the appellant are an exempt supply.

Geraint Jones Q.C.
Judge of the First Tier Tribunal.
02 February 2011.