18955

Zero-rated Building Work – VATA 1994, Schedule 8, Group 5, Note 20 – provision, including erection and dismantling, of scaffolding for new building work – whether “transfer of possession” of scaffolding to builders.

EDINBURGH TRIBUNAL CENTRE

	R & M SCAFFOLDING LTD	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	       Respondents

			Tribunal:	 (Chairman):  Mr Kenneth Mure, QC

Sitting in Edinburgh on Friday 28 January 2005

for the Appellant	Mr A N Ferrington, Senior VAT Consultant, 
Abbey Tax Protection

for the Respondents	Mr R MacLeod, Solicitor, Shepherd & Wedderburn WS

© CROWN COPYRIGHT 2005.

DECISION

Introduction
In this Appeal the Appellant was represented by Mr A N Ferrington, of Abbey Tax Protection.  The Respondents were represented by Mr R MacLeod, Solicitor, of Messrs Shepherd & Wedderburn WS.  I heard evidence from Robert G Whiteside, a director of the Appellant company.  The evidence of William Dixon, an officer of the Respondents, was the subject of a Joint Statement of Admitted Evidence.

The Appellant is a limited company which supplies scaffolding to the building industry, including erecting and dismantling it, and undertaking certain safety checks.  The issue for determination is whether this activity in relation to new building work is excluded from zero-rating because “possession” of the scaffolding passes to the customer for the purposes of the relevant statutory provisions.  

The disputed assessment relates to the taxable periods from 05/01 – 05/03 (Document 3), the total of which has been revised now to £4,983.

The Legislation
VATA 1994, Section 30(2) provides for the zero-rating of activities falling within Schedule 8.  Group 5 thereof, Item 2(a) applies zero-rating to the construction of dwelling houses.

However, Note 20 excludes from zero-rating “… the supply of services described in paragraph 1(1) … of Schedule 4.”  Paragraph 1(1) thereof provides:

“(1)  any transfer of the whole property in goods is a supply of goods; but, subject to sub-paragraph (2) below, the transfer – 

(a)	of any undivided share of the property, or 
(b)	of the possession of goods,
is a supply of services.”

Reliance was placed by the Appellant and Respondents on respectively the somewhat contrasting Tribunal decisions of –

GT Scaffolding Limited (LON/02/1103) and 
Peter J Guntert, The Abingdon Scaffolding Co (LON/92/2183)

Finally, the terms of Section 19(4) VATA may be noted:-

“Where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply shall be deemed to be for such part of the consideration as is properly attributable to it”.

The Facts
Although he was somewhat unclear about his manner of estimating charges Mr Whiteside’s evidence was not controversial.  On the basis of it I make the following findings-of-fact viz:-

(i)	Mr Whiteside and his wife are the two directors of the Appellant company.  He calculates the company’s charges for scaffolding work.  He visits the customer’s site and calculates the area required.
(ii)	Mr Whiteside’s practice in relation to the construction of new buildings was to calculate a price for an initial period.  He would not add VAT to this initial amount.  However, if the period of hire continued thereafter, standard rate VAT would be added to the subsequent weekly charge.
(iii)	The Appellant would erect the scaffolding on the customer’s site, and on completion issue the necessary safety completion certificate to the customer.  Thereafter the Appellant would carry out a weekly safety check for purposes of Health and Safety requirements, recording the safe condition of the scaffolding on a “tag” attached to the scaffolding.  When the scaffolding was no longer required the Appellant would dismantle it and remove it.  
(iv)	The Appellant would advise its customers that they, their workmen and sub-contractors should not interfere with the state of the scaffolding.  Any problems should be referred to the Appellant.  However, the Appellant would not have a representative at the site of the scaffolding between the visits for purposes of erection, safety checking, and removal.
(v)	The Appellant maintained public liability and product liability insurance in respect of the scaffolding.
(vi)	During the periods when the Appellant was not represented on the site, the scaffolding would be occupied by the customer, his staff and sub-contractors.  The Appellant would have no means of preventing them from making unauthorised alterations to it.  Frequently these were made to facilitate access.
(vii)	The initial invoices submitted by the Appellant to its customer would be in respect of “supplying and erecting” scaffolding (see Document 7).  On the Invoices which give rise to this assessment VAT has not been charged. 
(viii)	Mr Whiteside had been advised by the Respondents’ telephone helpline that while the erection and dismantling of scaffolding was zero-rated for new building work, the hire of scaffolding was subject to the standard rate charge.

The evidence of Mr Dixon, the officer of the Respondents who investigated the Appellant’s records, was the subject of agreement, as follows:

1.	An officer of Customs & Excise, William Dixon (“the officer”), visited the Appellant on 9 March 2004 for the purposes of an assurance visit.
2.	The officer noted that during the periods 1 March 2001 to 31 May 2003, the Appellant had rendered invoices for the supply of erecting (and dismantling) and hiring scaffolding to customers.  There had been no apportionment of these supplies in the Appellant’s invoices which were rendered at the zero rate of VAT.
3.	The officer considered that the Appellant had engaged in two distinct supplies; (a) the supply of erecting (and dismantling) scaffolding; and (b) the supply of hiring scaffolding.
4.	The officer considered that VAT Notice 708 (Buildings & Construction) (particularly, paragraphs 3.4.2 and 3.5.2) was relevant to the Appellant’s supplies.  The officer considered that said Notice 708 determined the supply of erecting (and dismantling) scaffolding to be zero rated and the supply of hiring scaffolding to be standard rated.
5.	As the officer considered that there were supplies of services at different rates of VAT, and in the absence of any apportionment, the officer determined to issue an assessment of tax providing for VAT at the standard rate.
6.	An assessment was issued to the Appellant on 13 April 2004 (which was subsequently reduced to the sum of £4,983.00).  Said assessment was based on the officer’s belief that the hire of scaffolding was standard rated.  Said belief was based on the said Notice 708.
7.	The said assessment was issued by the officer to the best of his judgement.

Submissions for Respondents
Mr MacLeod invited me to refuse the Appeal.  He submitted that the scaffolding was supplied for hire, with possession passing to the customer.  There was no apportionment between hiring and the erecting and dismantling.  Zero-rating was not appropriate given the terms of Schedule 4, Paragraph 1(1) VATA.  He referred also to the Respondents’ Notice 708 para 3.4.2 and 3.5.2 as being consistent with and illustrative of the statutory provisions.  He noted that in his evidence Mr Whiteside had referred to a “hire” period.  In terms of Scots Law, Mr MacLeod argued, possession would pass to the hirer.  He referred to two passages in the Stair Encyclopaedia, viz “Acquisition of Possession” vol 18 para 117 and “Leasing and Hire of Moveables” para 44 et seq.  (Re-issue).  Significantly, once the scaffolding was erected and declared safe the customer had exclusive use.  As the Appellant’s representatives would be off the site, there was then no physical impediment to the customer altering the scaffolding e.g. to ease access for construction work.  Mr Whiteside had been advised by the Respondents to apportion between the charge for erecting and dismantling, being zero-rated, and that for the duration of the hire, being standard rated.  He had  not done so.  

Mr MacLeod founded on the decision in Peter J Guntert, The Abingdon Scaffolding Co in support of his submissions.  He urged me not to follow the decision in GT Scaffolding Ltd.  In particular, he suggested, the decision there seemed to depend on aspects of English Law, quite distinct from considerations of “hire” and “possession” in Scots Law.

Submissions for Appellant
Mr Ferrington urged me to find in favour of the Appellant.  He submitted that the circumstances of the present case corresponded with those in GT Scaffolding Ltd in which the Tribunal held that “possession” had not passed to the customer for the purposes of the relevant provisions.  “Possession”, he argued, continued with the Appellant in as much as only its staff could alter or repair the scaffolding and also were required to check it weekly.  These requirements imposed by Health and Safety provisions (in particular the Construction (Health, Safety & Welfare) Regulations 1996) supported that view.  The insurance maintained by the Appellant lent further support to this argument.

Mr Ferrington had lodged earlier a helpful summary of this argument, the terms of which he adopted.  The decision in GT Scaffolding Ltd was apt to the present case in that it emphasised safety regulations and the continuing duties of maintenance and service incumbent on the scaffolding company.  “Control” was critical to possession in that Tribunal’s view, and “possession” meant exclusive possession.  That factor, there as in the present case, Mr Ferrington argued, continued with the scaffolding company.

Finally, Mr Ferrington confirmed that on the information available there could, if necessary, be an apportionment of the consideration between the erection and dismantling of the scaffolding and, on the other hand, the period of its use by the customer.

Decision
I consider that once the scaffolding had been erected and certified as safe by the Appellant “possession” passed to its customer for the purposes of the relevant charging provisions, in particular Paragraph 1(1) of Schedule 4, VATA 1994.  Accordingly there should be an apportionment of the price between the erection and dismantling on the one hand, and the use by the customer on the other.  

There is no special statutory definition of “possession” in this context.  Accordingly in my view the dictionary meaning and its sense in other legal contexts is relevant.  Professor Reid’s commentary in the Stair Encyclopaedia (“Possession” para 117) stresses the twin factors of intention and some physical act consequent on that.  The exclusive nature of possession is noted too (para 118).

Unfortunately the Appellant did not produce copies of the documentation which may have been given to a customer and which set out the terms of contracting.  (This aspect was, of course, stressed in GT Scaffolding Ltd).  Mr Whiteside’s evidence (which I accepted) was basically that the customer was directed not to alter or modify the scaffolding.  However, the Appellant could not ensure this as it was not represented on site.  Apparently workmen, to facilitate access for constructional purposes, would remove poles and boards almost as a matter of routine.  As a matter of fact the customer, his staff and sub-contractors had exclusive use and de facto control over the installation once erected.  This is all consistent with the passing of possession as explained supra.  In GT Scaffolding Ltd it seems that the customer was not liable for items of scaffolding going missing.  That aspect was not explored in the present case.

Significantly Mr Whiteside spoke to the “hire” of the scaffolding in evidence.  “Hire” imposes an obligation on the lessor to deliver the subject to the lessee to enable his use and enjoyment of it.  A transaction of this kind is again indicative of a transfer of “possession”.  (See Stair: Encyclopaedia “Leasing and Hire of Moveables” para 39 et seq – referred to also by Mr MacLeod).

There were, apparently, weekly safety checks made by the Appellant.  However, I do not consider that that factor disturbed the passing of possession to the customer or resulted in the Appellant’s retaining possession throughout.  The need for these checks for Health and Safety reasons was imposed by a third party, rather than regulated voluntarily by the Appellant and its customer.  Moreover, the benefit of these checks in a practical sense was for the customer’s employees.

I consider that the approach taken in Peter J Guntert, The Abingdon Scaffolding Co to be persuasive and appropriate in relation to the circumstances of the present case.

Accordingly I allow the Appeal against the present assessment and that for the purpose of the necessary apportionment to be made.

Expenses
Mr Ferrington indicated that he would not seek expenses in the event of the Tribunal directing that an apportionment be made.  Mr MacLeod indicated that the Respondents did not seek expenses in any event.  Accordingly no award is made.

Finally I would express my thanks to both Mr Ferrington and Mr MacLeod for the helpful and detailed manner in which they presented their arguments.

MR KENNETH MURE, QC

CHAIRMAN

RELEASE:  

EDN/04/89