EXEMPT SUPPLIES OF GOODS AND SERVICES – Schedule 1 of Group1 of VAT 1994 Act – Land – Exception to the Exemption – Item1 (d) of Schedule 1 Group 1 of 1994 Act – whether the provision was from a similar establishment to a hotel inn boarding house – Yes.

LONDON TRIBUNAL CENTRE

	B J GROUP 	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	MR MICHAEL TILDESLEY  (Chairman)
						MRS LYNNETH SALISBURY

Sitting in public in London on 29 May 2003

Gerard Hilman of Counsel, instructed by Mainprice & Co, for the Appellant

Jeremy Hyam of Counsel, for the Respondents

© CROWN COPYRIGHT 2003

DECISION

The Appeal

1.	B J Group Limited (The Appellant) appeals against an Assessment dated 15 July 2002 for Value Added Tax in the sum of £186,885.00.

2.	The Grounds of Appeal are as follows:

1.	The assessment is made on the basis that the relevant supplies do not fall within paragraph 9 (1) Schedule 6 Value Added Tax Act 1994 (hereinafter referred to as the 1994 Act) and this is denied by the Appellant.
2.	In the alternative, the Appellant contends that the supplies fall within Item 1 Group 1 Schedule 9 of the 1994 Act and not within the exceptions at paragraph (d) of Item 1 and are therefore exempt.
3.	The disputed assessment is calculated on an estimation that overstates the liability and is therefore excessive.
4.	The disputed assessment is in part time barred under the terms of sections 77(1) and 73(6) of the 1994 Act.
5.	The Respondents have not assessed the amount of Value Added Tax due to the best of their judgement, as required under section 73(1) of the 1994 Act.

3.	At the Appeal Hearing on 29 May 2003 the Appellant abandoned grounds 1, 3, 4, and 5 and relied solely on ground 2. 

The Legislation

4.	Article 13 of the EC Sixth Council Directive (77/388/EEC) requires Member States to exempt named supplies from Value Added Tax. Article 13B states that

“……. Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemption and of preventing any possible evasion, avoidance or abuse:

(a)…… (not relevant to the issue under the Appeal)
(b) 	the leasing or letting of immoveable property excluding:
1 the provisions of accommodation as defined in the laws of Member States, 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;
	2-4 not recited because they are not relevant to the issue under the Appeal;
	Member states may apply further exclusions to the scope of this exemption.

5.	Article 13 consists of two dimensions. First it defines which supplies shall be exempt from tax.  Second it then provides for exceptions to the exemption.  The European Community Law principles of construction require that exemptions to tax shall be interpreted strictly but exceptions to the exemption shall be broadly construed.

6.	Article 13B of the EC Sixth Council Directive (77/388/EEC) has been enacted in Schedule 9 of the 1994 Act. The relevant part of Schedule 9 is Group 1 – Land. Item No 1 of Group 1 provides that

“The grant of any interest in or right over land or of any licence to occupy land shall be an exempt  supply (my italics), other than

(a)	– (c)…… (not relevant to the issue under Appeal )
(d) 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”.

Note 9 to Group 1 Schedule 9 of the VAT Act defines “Similar Establishment” in Group 1 Item No 1(d) as:

“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”.

Where the supply falls within the definition of “grant of any interest in or right over land or of any licence to occupy land” it shall be exempt from Value Added Tax. If the supply falls within Group 1 Item No 1(d) Value Added Tax shall be charged at the standard rate.

7.	Paragraph 9 of Schedule 6 of the 1994 Act provides that

“……where a supply of services consists in the provision of accommodation falling within paragraph (d) of Item No 1 of Group 1 in Schedule 9 and –

(a)	that provision is made to an individual for a period exceeding 4 weeks; and 
(b)	throughout that period the accommodation is provided for the use of the individual either alone or together with one or more other persons who occupy the accommodation with him otherwise than at their own expense (whether  incurred directly or indirectly).

Where this paragraph applies –

(a)	the value of so much of the supply as is in excess of  4 weeks shall be taken to be reduced to such part thereof as is attributable to facilities other than the right to occupy the accommodation; and
(b)	that part shall be taken to be not less than 20 days”.

Paragraph 9 of Schedule 6 is a special rule which reduces to a minimum of 20% the value of the supply to an individual once a stay exceeds 28 days. Value Added Tax is charged at the standard rate on the reduced value of the supply, the outstanding value of up to 80% is outside the scope of Value Added Tax, not exempt. This special rule is known as the reduced value rule.

The Issue

8.	The Appeal related to a supply of services by the Appellant in relation to 14 rooms at Two Hyde Park Square, London.  The Respondent alleged that the Appellant had incorrectly accounted for Value Added Tax at the reduced value rate as set out in Paragraph 9 of Schedule 6 of the 1994 instead of the standard rate for the periods May 1999 to February 2002.

9.	The issue before the Tribunal was whether the supply of services in relation to 14 rooms at Two Hyde Park Square, London fell within the definition of  paragraph (d) of Item No 1 of Group 1 in Schedule 9 of the 1994 Act,  namely,  “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”. 

If Yes the supply would be charged at standard rate and the disputed assessment of  £186,885.00 would be upheld. If No the supply would be exempt within the meaning of Item No 1 Group 1 Schedule 9 of the 1994 Act and the assessment would be disallowed.

10.	The burden was on the Appellant to satisfy the Tribunal on the balance of probabilities that the supply of services from the 14 rooms at Two Hyde Park Square, London  was not  within the definition of  paragraph (d) of Item No 1 of Group 1 in Schedule 9 of the 1994 Act.

The Evidence

11.	The Appellant and the Respondent produced bundles of the evidence. The Appellant’s bundle consisted of one witness statement and a document added during the hearing. The Respondent’s contained 20 documents. Oral evidence was given on behalf of the Appellant by Robert John Davies, a Fellow of the Chartered Institute of Chartered Accountants, Associate of the Institute of Taxation and the Financial Director for Liberty Property Holdings, the ultimate holding company for the Appellant and its subsidiary company Codeclaim Ltd.  The Respondent called no witnesses.

The Facts

12.	We found the following facts from the evidence presented at the hearing.

13.	The Appellant was the representative member of a group of companies which has a single Value Added Tax registration (no. 477 6496 83).  This VAT group of companies consisted of the Appellant as the parent company with 33 subsidiary companies. The ultimate holding company for the Appellant was Liberty Property Holdings which was not part of the VAT group registered number 477 6496 83. Codeclaim Ltd was one of the 33 subsidiary companies.

14.	The Appellant was in the business of property investment. The subsidiaries were structured so that they dealt with specific aspects of the Appellant’s business. Some of the subsidiaries were set up to own and manage single properties.

15.	In 1990 the Appellant purchased a lease of 125 years for the property at Two Hyde Park Square, London from the Church Commissioners.  The terms of the lease restricted the use of  the property by the Appellant  to single self contained private residential flats with car parking. We did not see the lease to confirm the terms.  The Appellant set up a subsidiary company ,Codeclaim Ltd, to own and manage Two Hyde Park Square. Codeclaim Ltd has no other business interests.

16.	Codeclaim Ltd has its own management structure which includes a General Manager. The management team at Codeclaim was accountable to Mr Davies, the Financial Director of Liberty Property Holdings. He would meet with the management team at Codeclaim once a month. The day-to-day management of Two Hyde Park Square rested with the management team not with Mr Davies.

17.	Two Hyde Park Square consisted of  74 rooms. The Respondent’s analysis of these rooms in September 2001 revealed that there were four categories of users for payment with respect to the rooms. 

•	One room was subject to a statutory tenancy.
•	Six rooms were occupied by specific individuals for stays of more than 28 days.
•	15 rooms were allocated to corporate clients.
•	52 rooms were available to the market for short and long term occupation.

18.	The services provided by the Appellant were furnished accommodation with maid service to clean the apartments during the week and change the linen, and a laundry service . Each room had its own kitchen with a micro wave. No food was provided by the Appellants. There was no licensed bar at Two Hyde Park Square. Persons staying at Two Hyde Park Square had exclusive use of Hyde Park Square Gardens.

19.	Since the inception of its business the Appellant on the advice of its accountants, PWC, and the Respondents had been accounting for their supplies at Two Hyde Park Square at the standard rate of Value Added Tax except where individuals had stayed for more than 4 weeks. In the latter case the Appellants charged Value Added Tax at the reduced value rate in accordance with  Paragraph 9 of Schedule 6 of the 1994 Act.

20.	The charging arrangements for Value Added Tax in respect of Two Hyde Park Square were the subject of correspondence 28 March 1995 and 13 March 1996 between the Respondents and the Appellant including its professional advisers.  The Respondents’ letter of 28 March 1995 identified three charging regimes on the supplies provided by The Appellant:

•	Where formal tenancy agreements were in force, the income derived from corporate and protected tenancies may be treated as exempt from VAT.
•	All rental income derived from apartments which were not the subject of formal tenancy agreement would be standard rated but the reduced rate would apply for individuals staying for a continuous period in excess of 28 days.
•	In the case of individual stays in excess of the 28 days, apportionment of rental income to take account of the part payment for services and facilities provided may only be carried out if an inclusive charge was made for bed and board.
 
The Respondents’ letter of 12 April 1995 agreed a 20% apportionment for services and  facilities in respect of the single inclusive charge made the Appellant for individuals staying in excess of 28 days. The letter of 18 March 1996 made it clear that the reduced value rate of  Value Added Tax did not apply to a company except where an  individual person  had continuously occupied the corporate room for more than 28 days. Further payments made by companies for periods when their allocated rooms remained unoccupied were to be regarded as retaining fees. These fees were paid to reserve the accommodation for future use and generally subject to the standard rate of Value Added Tax.

21.	On 20 – 23 May 2002 an Officer of the Respondents visited the Appellant at its address at Beaufort House, Beaufort Road, Plasmarl, Swansea. The Officer inspected the room status reports at Two Hyde Park Square for the month  of September 2001. He found that the Appellants had incorrectly accounted for Value Added Tax in respect of rooms which have been booked by various companies. These rooms were shown to have been occupied by a succession of short term guests and should have been accounted for Value Added Tax at the standard rate rather than the reduced value rate. The incorrect accounting related to rooms 1, 4, 5, 9, 15, 19, 21, 22, 50, 53, 54, 63, 66 and 67. As a result of the purported incorrect accounting the Officer issued an assessment for Value Added Tax in the sum of £186,885.00 on the 15 July 2002 for the accounting periods from May 1999 to February 2002 inclusive. 

22.	We have accepted the room status reports and  the schedules of costs for the month of September 2001 were  representative of  the Appellant’s business activities throughout the period of the assessment. The Appellants did not challenge the room status reports. The reports showed that 22 rooms of the 74 rooms were charged at the reduced value rate of Value Added Tax. Of those 22 rooms, seven were occupied by private individuals for periods in excess of 28 days, the remaining 15 were occupied by companies (14 of which were  the subject of the assessment dated 15 July 2002).   Mr Davies gave evidence  that 45% of the accommodation  at Two Hyde Park for 2002 including the above 22 rooms were occupied by individuals or companies  for periods of 28 days or more. Thus of the remaining 52 rooms, 11rooms  were occupied by individuals  for periods of 28 days or more; 41 were for periods less than 28 days. Although Mr Davies’ evidence related  to  two months of the   assessment we have  accepted it as representative of the Appellant’s business throughout the periods covered by the assessment.

23.	Seven of the 15 corporate rooms  were reserved  by the Royal Holiday Club, Insurentes, Sur 1999, Colonia Guadalupe Inn, 01020, Mexico DF, Mexico which was the trading name of Holiday Club Management Company Ltd .  The eight  remaining rooms were allocated between four  companies: three rooms to Mitsui;  two to Global; two  to ABS and  one to GE Capital.

24.	The analysis of the occupancy of the corporate rooms for September 2001 excluding 4.9.01 –9.9.01 (the reports were missing for this period) showed that:

•	The period included 336 room days shared between 14 corporate rooms. Room 51 occupied by GE Capital was excluded from the assessment because it was occupied by the same individual throughout.
•	Of the 336 room days, 232 room days were allocated to named individuals. The remaining 104 room days named the company in the status report but not the individual.
•	72 individual named persons occupied the 14 rooms for the period of 232 room days.
•	Two individuals stayed for periods in excess of ten days, one for 11 days the other for 20 days.
•	The average length of occupancy rate for the remaining 70 individuals was 2.79  days.
•	Amongst the companies RHC had the highest turnover of 6 individuals per room, ABS 5 individuals per room, Global 4.5 per room and Mitsui 3 individuals per room.
•	No individual returned during the period analysed.

25.	There was a daily room rate and a daily company rate quoted  for each corporate room . The company rate for nine of the corporate rooms was lower than the daily room rate. The advance payment requests sent by the Appellant to their corporate clients were expressed in terms of the daily rate. Mr Davies stated that rates were quoted  by the Appellant on a weekly basis  in its advertising material. We were not  shown the advertising material and preferred  the evidence in the advance payment requests which were the Appellant’s own documents.

26.	Two of the Companies, ABS and Mitsui had been in continuous occupation of  Two Hyde Park Square from 1979 and 1975 respectively predating the purchase of the property by the Appellant in 1990. ABS was registered with the City of Westminster for the payment of council tax for 2003/04 in respect of Flat 1 at Two Hyde Park Square.

27.	Mr Davies gave evidence that the relationship between the Appellant and its corporate clients was governed by an assured shorthold tenancy agreement. According to Mr Davies this was the arrangement for all persons staying at Two Hyde Park Square. However, no copy of the agreement was produced to the Tribunal and no detailed description of the terms were given in evidence.  Without knowledge of the terms of the tenancy agreement we attached no weight to Mr Davies’ statement about shorthold tenancies.

28.	The Appellant produced to the Respondents a copy of the  Room Allotment agreement between Holiday Club Management Company Ltd (Royal Holiday Club) and CodeClaim Property Limited, in response to the Respondents’ requests for copies of the tenancy agreements. This agreement related to the period 1 May 2002 to 30 April 2003 which did not cover the periods included in the assessment (a recurring problem with some of  the documentary and oral evidence given at the hearing). However, we formed the view that the agreement was an accurate description of  the nature of the relationship between the Appellant and the Royal Holiday Club for the periods of the assessment because of the reference within the document to the lodging of deposits of money in 1997 and 1998  by the Royal Holiday  Club with the Appellant to guarantee the allotment of rooms. Under the terms of this agreement the Appellant allocated seven rooms at Two Hyde Park Square on a “run of the house basis” for the clients of Royal Holiday Club in return for a fixed payment expressed at a daily rate for room type. The Agreement dealt with the nuances of guaranteed and non guaranteed allotments, the procedures for payment and reservation, the times of check in and check out (4pm and 12 noon respectively) and the resolution of problems associated with the unavailability of rooms including overbooking. Mr Davies denied knowledge of the agreement and stated that there were tenancy agreements between the Appellant and their corporate clients for Two Hyde Park Square.

29.	We concluded that the Room Allotment Agreement was the Appellant’s document because it was signed by Martin Lawson ,Director of Sales at Two Hyde Park Square, and the Appellant produced  it in response to the request by the Respondents for documentary evidence of the tenancies. Mr Davies  admitted  he was not involved in the day-to-day management  of Two Hyde Park Square.  Further  we decided that the relationship described in the Room Allotment Agreement was typical of how the Appellant conducted its business at Two Hyde Park Square, particularly in relation to its corporate clients.    

The Authorities

30.	The following authorities were cited at the hearing

Skatteministeriet v Henriksen (Case 173/88) [1989] 5 BVC 140

	McGrath v Commissioners of Customs & Excise [1992] STC 371

	Blasi v Finanzami Munchen I (Case –346/95) [1998] STC 336

	J Amengual Far v M Amengual Far CJEC Case C –12/98 [2002] STC 382

31.	We were also referred to the case heard before the Value Added Tax Tribunals of  Brian Leonard Mills v The Commissioners of Customs & Excise (LON/84/91).  The Respondent produced the Customs and Excise Notice 709/3/02 on “Hotels and holiday accommodation”. It was noted that the Notice had replaced Notice 709/3/1993 which was the one operational at the time of the disputed assessment. However, we were advised that the relevant wording for this Appeal had not altered between the two Notices. Also the Notice was not authoritative about the interpretation of the statutory provisions. 

The Arguments for the Appellant

32.	Mr Hilman for  the Appellant submitted that the central issue for the Tribunal was to decide whether Two Hyde Park Square was an hotel or a similar establishment to an hotel in accordance with Item 1(d) of Group 1 of Schedule 9 of the 1994 Act. In Mr Hilman’s  view the correct approach for determining this issue was to look at the function and description of Two Hyde Park Square, which was the  approach endorsed by Macpherson J in McGrath v Commissioners of Customs & Excise [1992] STC 371. Mr Hilman further submitted that permanency of guests (McGrath  case) and the provision of services (Mills case)were not determinative factors in deciding whether a business was an hotel or similar establishment.  Mr Hilman considered that the facts of Brian Leonard Mills v The Commissioners of Customs & Excise (LON/84/91) were the virtually the  same as this Appeal. In the Mills case the Value Added Tax Tribunal had decided that

 “the provision of services did not in the ordinary use of the English language convert these flatlets into an hotel, inn, boarding house or similar establishment”.

33.	Based upon an analysis of Article 13 of the EC Sixth Council Directive (77/388/EEC) and the authorities cited in paragraph 30 above Mr Hilman developed his argument by identifying three fundamental principles which would clarify the position in relation to Two Hyde Park Square. They were:

•	establishments were to be treated as a whole for Value Added Tax purposes
•	all lettings of dwellings were to remain exempt for Value Added Tax purposes
•	tenancy agreements with corporate clients were exempt from Value Added Tax

According to Mr Hilman Two Hyde Park Square was run as one business and therefore the whole establishment has to be treated the same way for Value Add Tax purposes. It was not possible in his view for individual apartments to be considered separately. Article 13 ensured that lettings for residential purposes were exempt from Value Added Tax. Mr Hilman pointed out that the Respondents had conceded that there were a very small number of apartments in Two Hyde Park Square which were occupied as permanent places of residence. Thus if Two Hyde Park Square was one business and run as an hotel it would not have permanent places of residence. The reality in his opinion was that the vast majority of the apartments at Two Hyde Park Square were either permanent places of residence or subject to formal tenancy agreements. The function and description of Two Hyde Park Square was the provision of single self contained private residential flats which was an exempt supply within the  meaning  Item 1 Group 1 of Schedule 9 of the 1994 Act.

The Arguments for The Respondents

34.	For the Respondents Mr Hyam submitted that the weight of evidence supported the Respondent’s contention that Two Hyde Park Square was a similar establishment within Item 1(d) of Group 1 of Schedule 9. He referred to paragraph 20 of the decision in Blasi v Finanzami Munchen I (Case –346/95) [1998] STC 336 where the Court of Justice had ruled that

“sectors with a similar function to hotels(my italics) 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”

Thus similar establishment within Item I(d) should be given a wide meaning to ensure fiscal neutrality between similar businesses. The definition of similar establishment in note 9 to group 1 fitted exactly with  the business activities carried out at Two Hyde Park Square. The evidence showed that there was a succession of individuals staying in the corporate rooms for short periods of time. According to Mr Hyam they were not dwelling there, they were visitors and travellers using Two Hyde Park Square for the purposes of furnished sleeping accommodation. 

35.	Mr Hyam was of the view that the Mills case was fact specific and not identical with the facts presented in this Appeal.  The principal ruling in the McGrath case was that it was a question of fact whether a particular business was a similar establishment to a hotel. McGrath was also authority for suggesting that long term lets of rooms were not determinative factors for deciding that a particular business was being used for residential purposes. All the facts had to be considered in the round to answer the question about whether Two Hyde Park Square was a similar establishment to a hotel.

36. 	Both Mr Hilman and Mr Hyam addressed the Tribunal on the meaning of dwelling  referring to note 2 to Group 5 of Schedule 8 of the 1994 Act. However, it was agreed by both Counsel that the word dwelling was not the issue before the Tribunal. There were also representations about the significance of formal tenancy agreements. Mr Hyam clarified the position of the Respondents in that the existence of formal tenancy agreements may provide exemption from Value Added Tax. Mr Hilman pointed out that it was not necessary to have a formal tenancy agreement to establish that rooms were being used for private residential purposes.

Reasons for Our Decision

37.	The issue to be determined in this appeal was whether the supply of services in relation to 14 rooms at Two Hyde Park Square, London fell within the definition of similar establishment in  paragraph (d) of Item No 1 of Group 1 in Schedule 9 of the 1994 Act, namely, “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”. 

38.	The definition of  “similar establishment” is expanded upon in Note 9 to Group 1 Schedule 9:

“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”.

39.	Our approach to the issue identified was to the interpret the  wording of paragraph (d) of Item No 1 of Group 1 in Schedule 9 of the 1994 Act in the context of  Article 13B of the EC Sixth Council Directive (77/388/EEC) as constructed by the European Court of Justice. We then applied the facts found to that interpretation conscious that the burden of proof on the balance of probabilities rested with the Appellant. 

40.	We found the European Court of Justice decision in Blasi v Finanzami Munchen I (Case –346/95) [1998] STC 336 very helpful with the construction of Article 13 which in turn provided the interpretation of paragraph (d) of Item No 1 of Group 1 in Schedule 9 of the 1994 Act.

41.	In Blasi the European Court of Justice ruled that the exemption from Value Added Tax in Article 13B(b)  in respect of the  leasing or letting of immoveable property had to be construed strictly. However, the Article allows exceptions to the exemption, the relevant one for this Appeal was Article 13B(b)1, namely, “the provisions of accommodation, as defined in the laws of member states, 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”. According to Blasi this  exception “should be broadly construed since their purpose was to ensure that the provision of temporary accommodation similar to, and hence in potential conflict with, that in the hotel sector, was subject to tax”.

42.	The opinion of the Advocate General (F G Jacobs) in Blasi which was accepted by the Court explained  the rationale behind the exemption in Article 13B(b) and the exclusion in 13B(b)1. In respect of the exemption The Advocate General said at paragraph 15 of his opinion:

“under the directive the supply and leasing of immoveable property are in principle exempt from VAT. Those exemptions reflect the particular difficulties in applying VAT to such goods. Unlike ordinary goods, land is not the result of a production process, moreover, buildings, once constructed may change hands many times during their life, often without being subject to any further economic activity. Under the Sixth Directive the charge to VAT is therefore limited in principle to the supply of building land or of new buildings  and the land on which they stand ….. The preparation of land for development entails economic activity enhancing the value of the land; and the supply of a new building marks the end of a production process. Thereafter repeated taxation of immoveable property each time it is sold would not be justified. The same applies to the letting of such property, which is normally a comparatively passive activity not entailing significant added value (my italics)…..”  

Paragraphs 16 and 19 of his opinion dealt with the rationale for the exclusions to Article 13B(b):

“However, while generally exempting the leasing or letting of immoveable property, article 13(B)b also provides the exclusion of certain transactions from exemption. The common feature of those transactions is that they entail more active exploitation of the immoveable property (my italics) justifying  further taxation in addition to that levied upon its initial sale”.

“…..Nevertheless, there can be no doubt that a taxable person offering , for example, short term holiday lets of residential property  fulfils essentially the same function as  - and is in competitive relationship with a taxable person in the hotel sector. The essential distinction between such lettings and exempt lettings of residential property is the temporary nature of the accommodation. In any event short term lets are more likely to involve additional services …., moreover they involve more active exploitation of the property  than long term lets in so far as greater supervision and management is required”. 

43.	Thus the reason for the exception in paragraph (d) of Item No 1 of Group 1 in Schedule 9 of the 1994 Act is to ensure that establishments which are similar to and in potential competition with hotels are treated the same in respect of Value Added Tax.  Similar establishments to a hotel  will be characterised by a  more active exploitation of the property involving a level of supervision and management, a greater range of services, and a relatively rapid  turnover of occupiers. These characteristics add flesh to the “function and description” test applied in McGrath.

44.	Turning to Two Hyde Park Square the facts found showed that the premises and its operations were subject to a high degree of management and supervision. The Appellants had set up a specific company, Codeclaim Ltd, to own and manage the premises. That company had its own management team headed by a General Manager. The degree of supervision required was demonstrated by the need to keep detailed records of the name of occupants for the 15 rooms and an invoicing system calculated on daily rates. The agreement with Holiday Club Management Company Ltd placed significant obligations upon CodeClaim in terms of payment and reservation procedures, allocation of rooms and arrangements for checking in and out of rooms.

45.	 The services provided at Two Hyde Park Square were greater than what would be associated with a property providing residential lettings. The services included change of linen, laundry, the employment of a maid for five days in the week and arrangements for checking in and out of rooms. These services were in addition to the provision of furnished sleeping accommodation.

46.	The analysis of the September 2001 status reports for the rooms subject to the Appeal proved that 70 of the 72 stayed for short times, an average of 2.79 days.  The length of stay is a determinative feature which distinguishes hotels from the letting of dwelling accommodation. The European Court of Justice in Blasi v Finanzami Munchen I (Case –346/95) [1998] STC 336 at paragraph 23 stated that  

“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”

The stay of the overwhelming majority of the guests in the corporate rooms at Two Hyde Park Square was short. This was also the picture for the other rooms outside the appeal , 41 out of 60 (68%) had been occupied in 2002 for stays of less than 28 days. A business focussing on short term stays would require a relatively high level of supervision and management. 

47.	There were also other features of the operations at Two Hyde Park Square which were aligned with the hotel business rather than lettings of dwelling accommodation. The charging arrangements at Two Hyde Park Square were based on a daily rate. There was also a discounted rate for some of the corporate clients. The agreement with Holiday Club Management Company Ltd demonstrated that the business ran at Two Hyde Park Square was similar and in competition with the hotel trade in London.

48.	We found the following facts  in support of the Appellant’s submission that Two Hyde Park Square was providing lettings of residential accommodation: 

•	The lease granted by the Church Commissioners restricted the use to single contained private flats (the Tribunal did not see a copy of the lease).
•	Two Hyde Park Square did not describe itself as a hotel.
•	The services provided did not include meals or the provision of a licensed bar.
•	A small number of rooms was occupied by persons for long periods of time which included a singe statutory tenancy.
•	ABS was registered for council tax for Flat 1, Two Hyde Park Square.

In our view these facts found were insignificant when weighed against the facts found in support of the Respondents’ submission that Two Hyde Park Square was a similar establishment to a hotel. The Appellant has not discharged the burden of proof based on the balance of probabilities in respect of his appeal.

49.	We have decided that the evidence in relation to the management and supervision, the services provided, the profile of occupancy lengths and the organisation of  business at Two Hyde Park Square inevitably leads to the conclusion that the provision at Two Hyde Park Square was from a similar establishment of sleeping accommodation or of accommodation in rooms which are provided in conjunction with sleeping accommodation within the meaning of paragraph (d) of Item No 1 of Group 1 in Schedule 9 of the 1994 Act.
   
50.	We, therefore, dismiss the appeal and uphold the assessment of Assessment dated 15 July 2002 for Value Added Tax in the sum of £186,885.00. There is no order for costs.

51.	In view of our decision it is not necessary to deal with the Appellant’s submission that establishments were to be treated as a whole for Value Added Tax purposes because our decision means that the supplies at Two Hyde Park Square continue to be at the standard rate of Value Added Tax except those supplies falling within Paragraph 9 of Schedule 6 of the 1994 Act.  This has been the position since the Appellant commenced business at Two Hyde Park Square. 

MICHAEL TILDESLEY
CHAIRMAN

RELEASED:
LON/02/246