19392
	VALUE ADDED TAX — zero-rating — domestic indoor swimming pools with electrically powered covers — swimming pools agreed to be zero-rated — whether cover installed at same time as pool also zero-rated — VATA 1994 Schedule 8 Group 5, Items 2 and 4, Note (22) — findings of fact made but final decision deferred pending outcome of reference to ECJ in Talacre Beach Caravan Sales Ltd

MANCHESTER TRIBUNAL CENTRE

 
 	
	LEISURE CONTRACTS LIMITED	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	Colin Bishopp (Chairman)
						John Lapthorne

Sitting in public in Birmingham on 19 July and 15 November 2005

David Clark, managing director, for the Appellant 

Sara Williams, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2005

DECISION

1.	The Appellant’s business is the supply and installation of swimming pools for domestic use.  It is common ground that the installation of an indoor swimming pool in the course of construction of a new dwelling house is zero-rated. The question we must determine is whether electrically powered covers supplied and installed at the same time as the swimming pool are likewise zero-rated, as the Appellant has treated them; or, as the Commissioners maintain, they are standard-rated.  We have to decide only the issue of principle.  In form, the appeal is against an assessment dated 14 March 2005 for tax of £3,419, relating to the Appellant’s accounting periods from 02/02 to 05/04.  A small part of the tax included in the assessment is attributable to other matters and is not in dispute.  
2.	The relevant law is to be found at items 2 and 4 of Group 5 of Schedule 8 to the Value Added Tax Act 1994, which applies zero-rating to:
“2.	The supply in the course of the construction of— … 
(a)	a building designed as a dwelling … 
of any services related to the construction other than the services of an architect, surveyor or any other person acting as consultant or in a supervisory capacity ...
4.	The supply of building materials to a person to whom the supplier is supplying services within item 2 or 3 of this Group which include the incorporation of the materials into the building (or its site) in question.”
Building materials are defined in Note (22):
“‘Building materials’, in relation to any description of building, means goods of a description ordinarily incorporated by builders in a building of that description (or its site) but does not include- …
(c) 	electrical or gas appliances, unless the appliance is an appliance which is—
(i)	designed to heat space or water (or both) or to provide ventilation, air cooling, air purification, or dust extraction; or 
(ii)	intended for use in a building designed as a number of dwellings and is a door-entry system, a waste disposal unit or a machine for compacting waste; or
(iii)	a burglar alarm, a fire alarm, or fire safety equipment or designed solely for the purpose of enabling aid to be summoned in an emergency; or 
(iv)	a lift or hoist …”
3.	The Commissioners accept that swimming pools are “ordinarily incorporated” in large, expensive houses and take no issue with the zero-rating of the materials used in the construction of the pool itself, nor with the similar treatment of the Appellant’s installation services: in other words, they accept that items 2 and 4 apply to those parts of the Appellant’s supplies.  In relation to the covers, however, they rely on Note (22) and its exclusion of electrical appliances, other than those specifically listed, from zero-rating.  As David Clark, the Appellant’s managing director who represented it at the hearing, accepted, electrically operated covers do not feature on the list, either expressly or by implication.
4.	Mr Clark’s evidence was that it is virtually obligatory to cover an indoor swimming pool when it is not in use.  The cover is designed to reduce heat loss and evaporation; without a cover, an indoor swimming pool would cause considerable condensation problems within the building and the heat loss would increase the owner’s heating bills substantially.  It is the Appellant’s invariable practice to install a cover; few, if any customers, would accept a pool without one and even if a customer decided to do so, it is likely that, as is now usual, the local authority, applying the building regulations, would insist upon one.  The pool is designed with an underwater chamber into which the cover is retracted when not in use.  It is not possible, without effectively rebuilding the pool, to install a cover after the pool is completed; the two must be installed as a single unit.  Such covers are invariably electrically powered and may have an electronic link to the heating and ventilation system of the house, so that they close automatically when appropriate.
5.	We accept that evidence, and are satisfied that, while the supply of an indoor swimming pool without a cover is possible, it is no more than a theoretical possibility.  For all practical purposes, a pool will always be supplied with a cover and we have concluded that those of the Appellant’s supplies with which we are concerned are to be regarded to as single supplies in the sense meant by the European Court of Justice in Card Protection Plan Limited v Customs and Excise Commissioners (Case C-349/96) [1999] STC 270.  It is, we think, obvious that of the two elements - the swimming pool and the cover – it is the pool which represents the principal supply and that the cover is a means of better enjoying it; a cover without a pool is, clearly, of no value.
6.	Note (22), however, takes no account of the distinction between single and multiple supplies.  If it is to be applied as it stands, and without reference to Card Protection Plan, it must follow from its clear provisions that electrically-operated covers are standard-rated, regardless of the treatment of the pool itself.  Mr Clark complained that he had relied on the Commissioners’ relevant public notice which did not make it clear that the cover had to be standard-rated even if supplied with the pool; he had followed what he took to be the indication of the notice when deciding to zero-rate the relevant supplies.  We do not agree that the public notice is misleading, or even unclear – we prefer the view that Mr Clark did not read the relevant parts closely enough - but even if there is a fault in the notice, the law (if one can take the provisions of Note (22) as they stand) is clear.  It is settled law that exemptions (of which zero-rating is a variant) must be construed narrowly and it is not open to us to apply a purposive approach so as to extend the scope of the exemption: thus, were we to apply the domestic law without regard to other considerations, it would be impossible for the Appellant to overcome Note (22) and the appeal would inevitably be dismissed.
7.	That is, however, not quite the end of the matter.  A similar question came before the tribunal in Talacre Beach Caravan Sales Limited v Customs and Excise Commissioners (2003): VAT Decision 18062.  The facts of the case – which related to supplies of caravans with other items - are dissimilar, but the tribunal determined that even though the trader made single supplies of the caravans with the other items, a similar provision (in that case Note (a) to Group 9 of Schedule 8) nevertheless dictated the tax treatment of the other items, which were to be standard-rated despite the fact that the supply of the caravans themselves was zero-rated.  If that conclusion is correct, this appeal would fail.  However, the Talacre Beach case reached the Court of Appeal which has referred the essential question (that is, whether the components of a single supply may attract differing tax treatments) to the Court of Justice (Case C-251/05).  The outcome of the reference will, in our view, almost certainly be determinative of the issue in this appeal: if its conclusion is that the Card Protection Plan principle, that single supplies are wholly to attract the tax treatment of the principal component of the supply, overrides any contrary legislative provision dictating the tax treatment of any subsidiary elements, the Appellant will succeed; but if the Court decides that a legislative provision such as Note (22) is to prevail, it will fail.
8.	Accordingly, and as the parties agreed at the renewed hearing of the appeal on 15 November 2005, we do not make a final decision but leave the appeal open for further argument, should that be necessary, following the release of the judgment of the Court of Justice on the reference in Talacre Beach.  Either party may apply to the Tribunal for a further hearing, such application to be made within three months after the release of the judgment.  Since the Appellant does not, but the Commissioners do, have ready access to such judgments, we further direct that the Commissioners shall send a copy of the judgment to the Appellant within one month after its release. 

COLIN BISHOPP 
CHAIRMAN
Release Date: 16 December 2005
MAN/05/0227
££Leisure Contracts Ltd v Her Majesty's Revenue and Customs [2005] UKVAT V19392 (16 December 2005)