19573

Item 1(d) Group 1 Schedule 9 VATA 1994 - Article 13B(b)(1) of the Sixth Directive - whether accommodation was provided in a hotel inn or boarding house in the hotel sector or in a similar establishment or a sector with a similar function - appeal against cancellation of VAT registration on grounds that accommodation provided to lodgers did not fall within Item 1(d)

LONDON TRIBUNAL CENTRE

	GEOFFREY  ROSS HOLDING AND JUNE MONICA HOLDING	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	CHARLES HELLIER (Chairman)
						CYRIL SHAW FCA

Sitting in public in London on 20 February 2006

Mr and Mrs Holding in person 

E Mitrophanous of Counsel, instructed by the Acting Solicitor for HMRC, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

Background

1	Item 1 of Group 1 of Schedule 9 VATA 1994 provides that the grant of any interest in or right over land, or of any licence to occupy land is an exempt supply unless, among other things, it is:

“(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.”

2	Mr and Mrs Holding live at Birchwood House. In the grounds of Birchwood House there is a bungalow, Birchwood Lodge, which had originally been constructed with the intention that it be occupied by Mr Holding’s mother. Mr and Mrs Holding make available accommodation to persons who stay at Birchwood Lodge and Birchwood House. We have termed those persons “guests” in this decision and refer to Birchwood House and Birchwood Lodge together as “Birchwood” where appropriate. The Appellants make a charge for the provision of that accommodation. It is therefore a supply for VAT purposes.

3	The act of permitting a person to use land will constitute the granting an interest in, or the right over land, or the granting of a licence over the land. Therefore the supply made by the Appellants will be exempt unless it falls within paragraph (d) quoted above.

4	On 18 November 2004 the Appellants applied for voluntary VAT registration under the trading name Birchwood Lodge as partnership carrying on the business of the “letting of serviced accommodation” (or as they describe it in their notice of appeal the “supply of furnished sleeping accommodation”). The Appellants submitted a VAT return for their first VAT period which ended on 31 December 2004 claiming a repayment of £2445.28. In a decision dated 8 March 2004 the Respondents opined that the supplies made by the Appellants did not fall within paragraph (d) and accordingly that (i) their supplies were exempt; (ii) the input tax claimed by the Appellants related to inputs used to make exempt supplies and so was not recoverable; and (iii) that because the Appellants did not make taxable supplies they were neither required nor eligible to be registered for VAT and that their registration would therefore be cancelled.

5	The Appellants appealed against this decision on the basis that their supplies fell within paragraph (d).

6	Therefore the question for the tribunal in this case was whether the supplies fell within paragraph (d).

The Application to Adjourn

7	At the outset of the hearing Mr Holding made an application that it be adjourned. He submitted that in paragraph 26 of the Respondent’s skeleton argument the Respondents’ case was summarised as being that the accommodation was best characterised as a family home with lodgers and was therefore in a sector which did not compete with the hotel sector and thus not within Item 1(d), whereas in paragraph 8 of their statement of case the Respondents had put their argument differently: in that in paragraph 7.4, after having identified in paragraph 7.23, 18 characteristics they maintain are different from those of the hotel sector, they say “the nature of the establishment differs substantially from that of a hotel, inn or boarding home such that it differs in kind. The establishment is more akin to that associated with the leasing of land than that associated with the supply of sleeping accommodation in an establishment similar to a hotel, inn or boarding house.”

8	We refused the application and directed that the hearing should continue. It was clear to us that Mr Holding was well acquainted with the relevant legislation and case law and understood the case he had to make. Given his ability and understanding and his close acquaintance with the facts we did not consider that the Appellants’ case would be prejudiced by any shift in the focus of the Respondent’s contentions.

9	At the end of the oral hearing we directed that closing submissions should be made in writing with the Respondents to make their submissions first. This enabled Mr Holding time to take account of any change in the Respondents’ approach. Issues relating to the family concept were fully addressed in Mrs Holding’s oral evidence.

The Evidence

10	We heard oral evidence from Mr Holding and from Mrs Holding, and from two of the Respondents’ officers, Ian Duncan and Jennifer Mary Young. Mr Duncan gave evidence as to his handling of a repayment claim made by Mr and Mrs Holding and of a telephone conversation with Mr Holding. Mrs Young gave evidence of a visit she made to Birchwood House and Birchwood Lodge on 2 March 2005 and of her conversations with Mr and Mrs Holding on that visit.

11	We had before us a bundle of documents which included Mrs Young’s typed report of her visit, a note prepared by Mrs Holding for guests in the Lodge, a certificate of lawful use given by Horsham District Council together with some related notes, and counsel’s submissions and the appeal decision in Mr and Mrs Holdings’ appeal against enforcement notices given by Horsham District Council.

12	We also admitted Mrs Young’s manuscript notes of her visit to the properties on 2 March 2005.

Findings of Fact

13	From the evidence before us we make the following findings of fact in relation to the relevant period in addition to any set out in the introduction above:

(i)	Birchwood House is set within 3 acres of grounds in Sussex. In the grounds, approximately 60 yards from the house, is the bungalow, Birchwood Lodge;

(ii)	Birchwood House has five bedrooms, a living room, a dining room, a kitchen, a walk in larder, a utility room and a bathroom. Three bedrooms are available within Birchwood House for use by guests; a double bedroom, a child’s room, and a nursery with a cot. Birchwood Lodge has two bedrooms, a living room, a sunroom, a kitchen, a utility area and a shower/w.c. In the Lodge there are two double bedrooms which are available for guests who are also permitted the use of the other rooms in the Lodge;

(iii)	Bed and bathroom linen and towels  were provided once a week, fresh kitchen cloths twice a week;

(iv)	the accommodation was cleaned twice a week. Mrs Holding employed a cleaning lady who came twice a week and did the rest of the cleaning herself. A second set of cleaning equipment was kept at the Lodge which the guests were free to use if they wished;

(v)	there is a broadband internet connection available at the House for use by guests;

(vi)	there were telephones at the House and the Lodge. Guests could use them. The phone bills were paid by Mr and Mrs Holding without recharge to the guests unless the phone was used by the guests for particularly expensive calls;

(vii)	water, electricity, fuel and other heating bills were paid for by Mr and Mrs Holding. Repairs were carried out by the Appellants at their own expense

(viii)	guests were permitted to use the gardens and grounds. These included an area of children’s equipment, a walled off trampoline, a pool with a table and chairs and a swimming pool. There was parking for 7 or 8 cars but guests at the bungalow were asked to limit the parking at the bungalow to 2 cars at any one time;

(ix)	there was a small fitness gym which guests were permitted to use. This had four pieces of equipment: a treadmill, an elliptical trainer, a cycling machine and an “abs machine”;

(x)	guests were charged at the rate of about £15 per day or about £400 per month. A reduced rate applied after the first month’s stay. A deposit of £500 was required. The deposit was not required to be paid in one lump sum but could be paid over a period. Formal invoices were not generally issued. With permission from the Appellants, guests were permitted to have friends to stay overnight generally without additional charge.

(xi)	Longer term guests’ stay was subject to one month’s notice to be given by either the guest or Mr and Mrs Holding;

(xii)	Mrs Holding was clear and careful in her dealings with guests to ensure that they did not acquire the rights of lessees or tenants of the accommodation they occupied. She had, and made it clear to guests (particularly in the case of guests at the lodge) that she had, unrestricted rights of access;

(xiii)	Mrs Holding treated the guests like her own family (other than financially). Mr and Mrs Holding would socialise, and on occasions eat, with the guests. Guests have mowed lawns, house and pet-sat, helped in the garden and cleaned cars for the Appellants;

(xiv)	the Lodge had its own kitchen, a communal area and shower, and was complete with TV, washing machine, tumble drier, fridge and freezer, but guests staying in the Lodge could also make use of the facilities at the House (which include a bath);

(xv)	the guests in the Lodge used the kitchen to make snacks and hot drinks. If they wished eat something more elaborate they used the kitchen in the House. There is an American style fridge in the House and the guests can keep items in that fridge;

(xvi)	the properties were situated at the end of a fairly long drive away from the road. There was no sign at the road indicating that accommodation might be available. There was no tariff board displayed in the premises;

(xvii)	Mr and Mrs Holding have keys to the Lodge and enter it at will. Guests sleeping in the Lodge have access to the House and make use of its facilities;

(xviii)	when the Appellants have guests staying in the Lodge, but other guests also come to stay  who would be easier to accommodate, or better accommodated in the Lodge they may require the guests normally resident in the Lodge to move into the main house. Mrs Holding has treated the two properties as one 7 bedroom house to manage and organise as she saw fit;

(xix)	At the planning inquiry held on 5 and 6 January 2005, the inspector found that on the balance of probabilities the Lodge had been used as primary self-contained residential accommodation ancillary to the use of the House and not as a separate dwelling house. She found that its use constituted an integral part of the use of the main planning unit as a dwelling house (taking Lodge and House together) in single household occupation.

(xx)	The gardens were maintained at the expense of Mr and Mrs Holding;

(xxi)	Neither the House nor the Lodge were subject to business rates; instead council tax applied;

(xxii)	Mr and Mrs Holding have 35 years of experience of supplying short term residential accommodation. Mrs Holding regards herself as a good landlady;

(xxiii)	The Appellants have advertised the accommodation in the West Sussex County Times indicating that accommodation was available to let in a country property or rural bungalow.

Findings related to the number of guests

14	We find that in the period 1 January 2004 to October 2005 the following had been guests:

(i)	Zoe Ireland was a guest from 22 October 2004 until October 2005, a period of about 12 months. She had come to Sussex where she had taken a job to be nearer her sister. She needed accommodation to start her job. At the end of her time as a guest she had moved to Findon. (Mrs Holding described it as a “more permanent arrangement” in Findon).

(ii)	Jo Walker was a guest from 1 January 2004 until October 2005, a period of about 22 months. Jo had become a guest after she had been made redundant from a job which carried with it tied accommodation. She had moved to a commune at the end of her period as a guest.

(iii)	Andreas Kruse was a guest for a short time in September 2004. He had also stayed for a short spell on another occasion. On one of those occasions he had brought some German students with him, on the other he had come with his children.

(iv)	The parents of a German student had stayed for a weekend since November 2004.

15	Mr Holding also referred to a Mr Eggar as having been a guest for a short period on a number of occasions but there was no evidence as to when he had stayed.

16	There was no coherent evidence of guests other than those referred to above in that period, and we find that there were none.

Evidence relating to the food provided for guests

17	Mrs Holding told us that the extent to which she provided meals for their guests depended upon their needs and preferences of the guests. For some, such as parties of students, she provided three meals a day. Others prepared their own meals, others heated up food from the freezer, and others took meals in a mixture of these ways. It depended upon what the guests required. Zoe Ireland and Jo Walker made their own breakfast at the Lodge. They both worked so did not have lunch at Birchwood. On occasion they had evening meals with the Appellants (see below).

18	Mrs Holding told us that she provided, at the Appellants’ expense, basic foodstuffs such as rice, spaghetti, onions, chicken, potatoes for use by guests who wish to cook for themselves. If the guests run out of basic foods they would leave a note and she would shop for them. She also left home-cooked casseroles and pasta sauces in the garage freezer for them to eat.

19	We accept this evidence.

20	Mrs Holding’s evidence on the frequency with which she and Mr Holding would eat an evening meal with their guests was not clear: she said it was “not often” but that “when they were there they would eat with us about 2 or 3 times a week”. We conclude that Jo Walker and Zoe Ireland ate evening meals with the Appellants infrequently and probably less than once a week on average, although they could have made use of the prepared food and other basic provisions provided by the Appellants.

The Legislation and the Case Law

21	Article 13B(b)(1) of the Sixth Directive provides that:

“Without prejudice to other Community provisions, 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 exemptions and of preventing any possible evasions…

(b) the leasing or letting of immoveable property excluding:

1.	the provision of accommodation, as defined in the laws - of the 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.

2.	the letting of premises… for parking vehicles.

3.	lettings of permanently installed equipment and machinery.

4.	hire of safes.

Member States may apply further exclusions to the scope of this exemption.”

Paragraphs 2 - 4 clearly have no relevance, but we discuss the final sentence below.

22	We note four points:

(i)	the exemption for leasing property is to be construed narrowly and therefore the exclusion is not to be narrowly construed;

(ii)	the “hotel sector” is specified as are sectors with a similar “function”. We note the emphasis on “function”;

(iii)	the hotel sector is linked with holiday camps and camping sites. There is by association some hint that accommodation of a shorter term nature is the main target of the exclusion; and

(iv)	Member States may apply further exclusions. Thus although Member States must standard rate anything within items 1 - 4 they may extend that standard rating to supplies either not within those categories or which are extensions of those  categories.

23	The provisions of Article 13B(b)(1) were considered by the ECJ is Blasi v Finanzamt München 1 (Case C - 346/95) 1998 STC 336.  Mrs Blasi provided accommodation to immigrants whose average length of stay was 14.4 months. She was assessed to VAT. The German legislation made the provision of such accommodation taxable if the supplier intended to make it available for short term accommodation. Germany argued that Article 13B(b)(1) permitted it to tax the supply of such accommodation. It did not seek to justify its legislation on the basis of the last sentence of Article 13B(b): “Member States may apply further exclusions to the scope of this exemption”, although as the Advocate General pointed out, it might have been possible for it to do so. The Court indicated that:

(i)	that the phrase “the provision of accommodation… in the hotel sector or sectors with a similar function” must not be interpreted strictly;

(ii)	“sectors with a similar function” should be given a broad construction since the purpose of those words was to ensure that the provision of temporary accommodation similar to, and in potential competition with, the hotel sector was subject to tax;

(iii)	member states are permitted a margin of discretion in the definition they adopt under Article 13B(b)(1) but that discretion was circumscribed by the purpose of the exclusion namely distinguishing hotel sector type accommodation from the leasing of property. We note that the effect of that discretion might be to broaden or to narrow the category of taxable transactions; and

(iv)	the “essential function performed by a hotel [is] the provisions of temporary accommodation on a short term basis.”

24	The Court then held that making the distinction on the basis of whether the intention was to let the accommodation short term (being 6 months) or longer term was not precluded by the Directive so long as regard was had to the parties’ true intentions.

25	We also note the Advocate General’s distinction between the active exploitation of property by the hotel sector and the more passive exploitation of land in other sectors, and in this connection his comment that: 

“In any event short term lets are more likely to involve additional services such as the provision of linen and cleaning…; moreover they involve more active exploitation of the property than long term lets insofar as greater supervision and management is required.”

26	The UK VAT Act does not adopt the definition used by the German legislature. Instead it contains the following provisions in Item 1 of Schedule 9 as the exclusion from the exemption for the supply of interest in land:

“(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;

(e)	the grant of any interest in, right over, or licence to occupy holiday accommodation;”.

27	We note that this language parallels that in the Directive: the “accommodation” of the Directive required to be defined by the Member States is defined as “sleeping accommodation” or accommodation provided with it or as accommodation for the purpose of catering supplies; the “hotel sector” becomes an hotel, inn or boarding house; and “sectors with a similar function” become, broadly, “similar establishments”. Holiday accommodation is dealt with separately in (e) and would include camping sites and holiday camps, although (d) and (e) might overlap to some extent.

28	From this we conclude that the provisions of Item 1(d) are intended to enact Article 13B(b)(1) and not to take advantage of the permission given by the final sentence of Article 13B(b) to extend the scope of the exclusion. As a result the approach to, and purpose and intent of Article 13B(b)(1) as explained by the ECJ will affect the proper construction of the words of Item 1(d).

29	(The Directive applies to the “hotel sector” and “sectors with a similar function”. It is theoretically possible (given the pan-European meaning which must be afforded to the “hotel sector”) that there are establishments other than “an hotel, inn or boarding house” which are in the hotel sector; and therefore potentially possible that there are establishments which are not “similar establishments” to hotels, inns or boarding houses which are nevertheless in a sector with similar functions to the hotel sector. However if the ECJ’s guidance on the functions of the hotel sector is applied to construe “similar establishments”, anything which could theoretically have fallen into the EU meaning of “hotel sector” but outwith “hotel inn or boarding house”, should be encompassed within “similar establishment”).

30	Note (9) to Group 1 was introduced in 1986. It provides that:

“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.”

31	In relation to this Note, we make the following points:

(i)	in our view the words of Note (9) extend rather than define the meaning of “similar establishment”. “Includes” is used rather than “means”. If it defined rather than extended the meaning then, because of its limitation to sleeping accommodation, accommodation provided for the purpose of catering would be taxable only if provided at a hotel inn or boarding home, and not if provided at a similar establishment. That would be absurd and would not comply with the Directive;

(ii)	this extension relates particularly and expressly to visitors or travellers. If accommodation is not held out for their use or used by them then it does not fall within Note (9). However there is no such restriction to visitors or travellers expressly imported into other meanings which “similar establishment” could have. Thus accommodation not so used or held out could potentially full within Item 1(d);

(iii)	the Note does not appear to be part of the enactment of Article 13B(b)(1) but rather a further exclusion to the scope of the exemption as permitted by the final sentence of Article 13B. That in particular because it extends the meaning of “similar establishment” whereas the latitude permitted in definition by the Directive relates to the definition of accommodation.
 
‘Similar Establishment’ -  the Case Law

32	In relation to the meaning of “similar establishment” we were taken to the tribunal decisions listed at the end of this decision.  We found these decisions helpful and instructive. Rather than refer to each decision separately, we attempt under the headings which follow to use the insights  those decisions afford to develop the principles in the Directive as illuminated by the judgment of the ECJ and the opinion of the Advocate General in Blasi. Because there is a single question: “does the establishment have a similar function?”, any attempt to put the relevant considerations into the separate headings runs some risk of overlap but we hope has the advantage that it will reflect the priorities in the thinking of the ECJ.
	
33	It is clear that whether or not an establishment is similar to a hotel, inn or boarding house is principally one of fact (see McGrath v C&E Comms 1992 STC 371) and therefore one of impression (see Lord Mayor and Citizens of Westminster (VTD 3367) and Dinaro Ltd (VTD 17148)). Being matters of fact and impression, it is possible that different tribunals might in borderline cases make different decisions on the same facts.

34	Consistently with the approach adopted to the use of the word “similar” in CCE v Clarks Cereal Products 1969 1 QB 775 the tribunals before which this issue has come have approached the issue by considering what functions or characteristics hotels, inns and boarding houses have, and do not have, and comparing those functions (or characteristics) with those possessed by the establishment in question. That approach is consistent with the ECJ’s judgment in Blasi in seeking criteria which draw a distinction between supplies in the hotel sector and the exempted transactions of leasing or letting insofar as the characteristics they compare are “functions” performed by the relevant establishments. The characteristics identified by the tribunals have however almost always been functions and in our discussion below we record the functions so identified by those tribunals.

35	The functions of the hotel sector may usefully be grouped by reference to the distinctions drawn first by the ECJ and then the Advocate General in Blasi in distinguishing between “dwelling accommodation” and taxable accommodation,

1.	“the essential function performed by a hotel, namely the provision of temporary accommodation on a commercial basis” (Judgment para 24)

36	This echoes the Advocate General’s emphasis on the period of the letting:

“The essential difference between such letting and exempt lettings of residential property is the temporary nature of the accommodation.” (paragraph 19).

(i)	Temporary: in the hotel sector accommodation is generally provided for shorter stay customers, usually for persons who are for varying periods away from their home or who, for the time being, have no home. It is accommodation for a transient or floating class of resident, accommodation taken with a view to moving on in due course. It is the general profile of the types of stay rather than individual cases which is relevant.

(ii)	On a Commercial Basis: the tribunals have noted that the hotel sector is concerned with the business of providing accommodation. Generally this will be with a view to profit, but a commercial approach is a salient feature.

2.	“[T]he common feature [of the supplies excluded from exemption] is that they entail more active exploitation of the immovable property” (para 16) “short term lets are more likely to involve additional services … greater supervision and management is required” (para 19) (Advocate General in Blasi)
The tribunals (and the Advocate General) have noted that bed linen and cleaning are generally provided in the hotel sector, whereas they would not be for example in a bed-sit. Generally a supply of catering will be made or available - whether simply bed and breakfast or larger meals. Laundry facilities of some nature may be provided. The standard of the facilities provided tends to be higher in the hotel sector.

A greater degree of management is exercised  in the hotel sector - checking in and our procedures, provision of accounts, etc.

3.	Other aspects of the function of the establishment

The tribunals have noted that a characteristic of the hotel sector is that its main function is the commercial exploitation of the property through supplying accommodation. An establishment whose function is to imprison or to educate or to improve international relations will not  have the same main function. (Tribunals have often used the word “purpose” rather than “function” in their discussions but it seems to us that there would have been no practical difference in the tribunal decisions had they used “function” instead).

In pursuant of this purpose an establishment in the hotel sector will generally offer overnight accommodation to any acceptable customer who turns up and who can pay; a selective approach by the supplier - offering accommodation only to the mentally ill for example - points to a main function other than the commercial exploitation of the property by supplying accommodation.

The provision of supervision and care to residents is indicative of an activity with a different purpose or function. The promotion of a family concept to build up mental health and strength may indicate a main purpose, or function, of providing care and support rather than the commercial exploitation of property.

The way an establishment is advertised or promoted can be evidence of a function of the hotel sector or alternatively of a sector not in competition with it or of the longer term dwelling accommodation sector.

The appearance and extent of the accommodation provided can be evidence of the function of the establishment in which it is provided. A bar and communal rooms are generally provided in the hotel sector and such provision suggests a similar function.

The imposition of rules of conduct upon those using the accommodation may be relevant. More restrictive rules will generally be evidence of an establishment in the hotel sector where the function of the sector is to afford temporary use of the accommodation to paying customers.

When to ask the question?

37	The Respondents submitted that the question of the nature of the establishment at Birchwood be determined by reference to the period commencing with the application for registration (18 November 2005). Accordingly they argued that it was only facts after that date which were relevant to the nature of the establishment.

38	It is clear to us that the question of whether the Appellants were liable or entitled to be registered depends upon whether they would make taxable supplies in the period after registration (since there was no suggestion that they were liable to be registered by reason of taxable supplies made in any period of one year prior to that date exceeding the registration threshold). Thus our enquiry is limited to whether supplies of accommodation made after that date were taxable.

39	Whether or not a supply made after that date would be taxable depends upon the nature of the establishment at the time the supply is made. Again, the test is to be performed at the date  of the relevant supply. However, the nature of an establishment at a particular time is not in our view determined by the features it exhibits and the activities it conducts at that time, but is properly to be judged over a reasonable tract of time embracing that particular time. (For example, it seems clear that if, on a particular day, an establishment having 70 rooms which was similar to an hotel was temporarily mainly closed  and had all its rooms unoccupied, save for one long stay tenant and a single one-night guest, the establishment should not be treated as ceasing to be a similar establishment for that single day, and the supply of accommodation on that day to the single one-night guest be exempt merely because of that day’s lack of activity).  

40	Thus it seems to us that we should consider not only the activities after 18 November 2005 but those in a reasonable period before that time. In that context it seems to us that evidence of activities from more than 12 months before that time will generally be of little relevance to the nature of the establishment at that time, and in relation to the nature of the establishment at dates falling after 18 November 2005 will gradually assume less relevance as time progresses. It would only be in exceptional circumstances that activities more than 12 months before, or after, the date of the relevant use of the accommodation would be material in determining the nature of the establishment at which the related supply was made.

Applying the legislation to the Facts

41	In the following sections we have asked ourselves these questions:

1.	Was the accommodation provided in a hotel, inn or boarding house?

2.	Was the accommodation provided in a “similar establishment” in the sense of the extension of the meaning of that phrase in Note (9)?

3.	Was the accommodation provided in a “similar establishment” in the sense of those words outside the meaning in Note (9)?

1.	Was the accommodation provided in a hotel, inn or boarding house?

42	The Appellants did not suggest that Birchwood House or Birchwood Lodge or the two together were a hotel or inn, but submitted that they ran a boarding house comprising Birchwood House and Birchwood Lodge.

43	The Appellants pointed to the definition of a boarding house in the Shorter Oxford English Dictionary as a house “in which persons board”, and the meaning given to “board” in the sense as “to provide with daily meals; now generally to provide with both food and lodging at a fixed rate; to live with a family as one of its members for a stipulated charge.”

44	It seems to us however that the natural meaning of board involves the daily provision of meals to the boarder. It suggests the sitting at a table and being fed for at least one meal a day. This is not the way in which we have found that the Appellants’ business was normally run. Whilst over the years some guests were provided with daily meals or bed and breakfast that was not the general pattern in the relevant period. Mrs Holding could not say that guests ate with them more than 2 or 3 times a week in general. Jo and Zoe were at board infrequently. In a boarding house dining in rather than eating out or making your own dinner (even if from materials provided by the owner) is the general rule.

45	We conclude that the accommodation was not provided in a hotel, inn, or boarding house.

2.	Was the accommodation provided in a similar establishment in the sense of the extension of that meaning in Note (9)?

46	We have noted above the emphasis in Note (9) on accommodation provided to visitors or travellers.

47	In ISH, Fairway Lodge, and Acorn Management Services, the Tribunal considered the meaning of visitors and of travellers. We agree that “visitor” means a person who pays a visit, or who visits a place, or person, and does not include a resident; and that a “traveller” is a person who is travelling, or journeying, or going from place to place.

48	There was no evidence that Birchwood was held out as being suitable for use by visitors or travellers: advertisement was by word of mouth and by advertisement in a local paper of a room to let. That does not seem to us to be holding out as being suitable for use by visitors or travellers.

49	We do not think that Zoe and Joe could be called visitors or travellers. Andreas Kruse and some other guests did however stay for a short period, and could be described as visitors or travellers. However in our view the words “used by” in Note (9) import some continuity or regularity of use. The use on only a few occasions in a year by a visitor or traveller when there is continuous use by persons who are not visitors or travellers is in our view insufficient to qualify premises as falling within Note (9). There was no evidence of more frequent use by visitors or travellers.

50	Accordingly, even taking a period of one year before registration as the period during the question of the nature of the establishment falls to be determined,  it does not seem to us that accommodation at Birchwood House and Lodge was provided in a similar establishment within the meaning of Note (9).

3.	Was the accommodation provided in a “similar establishment” in the sense of those words outside the meaning in Note (9)?
51	We consider the facts as we have found them by reference to the headings in the section “Similar Establishment - the Case Law” above. In doing this we consider the nature of the business or establishment run by Mr and Mrs Holding and not each individual supply they made.

1.	The provision of temporary accommodation on a commercial basis

52	There seems no doubt that throughout the relevant period Mr and Mrs Holding operated on a commercial basis and with a view to profit. Mrs Holding was quite clear that she sought the best way to make use of Birchwood as a business alongside its occupation as their home. They were exploiting the property and turning their “Talents” to account.

53	We have set out in paragraph 14 above the evidence before us as to the guests in the period since, and in the period before, 18 November 2004. It seems to us that in the period January 2004 to October 2005 the principal activity of Mr and Mrs Holding’s establishment was dominated by the supply of accommodation to the Zoe Ireland and Jo Walker. The supplies to other persons were occasional extras. Thus in evaluating the nature of the provision made by the establishment at that time we should have regard principally to the arrangements with Jo Walker and Zoe Ireland.

54	Whether or not Birchwood could have accommodated more guests in the period seems relevant to the nature of the establishment only if Mr and Mrs Holding were active in seeking additional guests to stay. There was no evidence before us of any special degree of activity which would have made the availability of additional accommodation relevant to the nature of the establishment.

55	We do not regard the actual length of Jo Walker’s or Zoe Ireland’s stay as being  short term.

56	Although Mr Holding pressed us to conclude that Jo Walker’s and Zoe Ireland’s stays were transient and taken with a view to moving on in due course, we were not convinced that this was the best description of their stay. For each of them Birchwood appears to have been a home albeit a temporary one. Whilst the period of the stay was determined when in due course they found other accommodation, the description of the two of them by Mrs Holding did not leave us with the impression that they were floating or particularly temporary guests. Overall we view them as not occupying temporary accommodation. 

57	The terms of these two guests’ tenure did not indicate clearly that their accommodation was temporary. We accept that Mrs Holding made it clear that they were licensees and not tenants, and that as licensees, their tenure was more like that provided in the hotel sector than in the provision of longer term dwelling accommodation. On the other hand the fact that they paid their “rent” (as it was described in Mr Holding’s schedule) monthly and that their stay was renewed on a monthly basis, was not indicative of temporary occupation. The fact that the monthly rent was reduced after the first month’s occupation was also an indication of a less then temporary arrangement. This was not a case of an establishment with predominantly short stay guests and one or two longer term guests: it was the reverse.

58	This first heading seems to us in the light of Blasi to be the most important distinguishing feature of activities in the hotel sector. Although it is not a clear picture, we are of the view that, although accommodation was provided on a commercial basis, it was not temporary accommodation.

2.	The more active exploitation of the immoveable property

59	It is clear that the Appellants did not simply let their guests into the rooms and then let them get on with it. The following factors support a conclusion that the Appellants were more actively involved in the exploitation of the property than would a landlord have been in a typical longer term letting of  “dwelling accommodation”:

(i)	the provision and laundering of bed linen, towels, dusters and dishcloths;

(ii)	the weekly change of bed linen;

(iii)	the cleaning of the bedrooms and the common areas;

(iv)	the availability of televisions with satellite programmes;

60	On the other hand the following factors seem neutral; also being explicable as facilities or part of the property maintained for the Appellants’ personal benefit (and shared with the guests because it was there) or as akin to the common parts in a block of flats rather than an extra activity undertaken specifically in the course of the exploitation of the property:

(i)	the availability of the maintained gardens;

(ii)	the availability of the swimming pool;

(iii)	parking places;

(iv)	the availability of internet access at Birchwood House;

(v)	the availability of the fitness suite at Birchwood House.

61	The provision of meals is not discussed above. Overall it seems to us that the fact that some meals and food were provided weighs the scales towards active exploitation rather than passive receipt of property income. The more regular and organised the provision of catering is, the more clearly it can be said that the activity was more like that in the hotel sector. In this case, looking at the two principal guests neither breakfast nor lunch were taken and on occasions (perhaps twice a week) dinner was provided, but food for the guests own cooking and consumption was also provided.

62	Overall, we thought that the factors relevant to the active exploitation and the property do weigh somewhat towards a conclusion that this was more like an establishment in the hotel sector than a business of renting dwelling accommodation.

3.	The function or purpose of the establishment

63	So far as the purpose of the activities of the Appellants at Birchwood goes Mrs Holding’s evidence was that she considered the property (as a whole) to have two equal main function or purposes: (i) to serve as a family home, and (ii) to serve as a business premise taking in lodgers. The Respondents submit that this means that the main purpose was not that of an establishment in the hotel sector - which would be free from the function in (i).

64	When other Tribunals have considered the purpose test relevant they have done so by considering the purpose in pursuit of which the establishment made the supplies rather than the purpose of the buildings in which it was made. The purpose of the establishment in this sense relates to the overall purposes directing (or function of) the economic activity. 

65	In the instant case in the use of Birchwood as a family home is irrelevant to the description of the economic activity (or function) which must characterise the establishment. The family home purpose for Birchwood (or for the parts of it not occupied by the guests) does not mean that the function performed by the Appellants was for a purpose different from the commercial exploitation of property in the hotel sector.  (The family nature of the property may be relevant to other issues but not to this one). There may be many family run hotels, boarding houses and B & B establishments where the accommodation is also used for family purposes but where the function of the economic activity is already that of an hotel or boarding house.

66	The “family” concept may be relevant to the purpose of the establishment where it is part of what is offered or supplied to the consumers in order to give them something other than mere accommodation and as part of a supply of rehabilitation or support. Offering a family flavour to a hotel stay or to “B & B” accommodation merely distinguishes the type or style of temporary accommodation offered, and a consumer may wish for that type or style just as he or she may wish for a view over the harbour. Therefore we do not find the question of whether or not the Appellants treated guests as part of the family as relevant to the nature of the establishment they ran: they were not so treating their guests as part of any treatment or therapy with a function different from the mere provision of accommodation.

67	We also noted the following:

(i)	the infrequency of very short term guests and passing trade at Birchwood contrasts with the function actually served by an establishment in the hotel sector which will be open to, and which does in practice accommodate, customers who turn up and pay;

(ii)	the promotion of Birchwood by word of mouth and by the advertising of rooms to let is different from an establishment with a “B & B” notice, or a clearly signed or it is well advertised hotel whose promotion in each case advertises the function it is generally expected to fulfil - the accommodation of short term guests;

(iii)	on the other hand the longer term letting of dwelling accommodation generally confers no right on the landlord to move the occupant or to prevent guests residing overnight or to decorate the walls with pictures. The function fulfilled in this respect by Birchwood was more akin to that fulfilled by the hotel sector.

68	Overall we found that these other factors relevant to function did not point clearly to a hotel sector function as the function actually performed by the establishment at Birchwood in the relevant period.

Balancing

69	Taking all these together our overall impression is that in the relevant period the Appellants did not compete with the hotel sector in their provision of accommodation and that the function of their business establishment in the relevant period was the provision of longer term accommodation, a function closer to that of the letting of a dwelling accommodation than to the business in the hotel sector. We conclude that Birchwood was not a similar establishment.

Decision

70	We therefore conclude that the supplies made by the Appellants did not fall within them 1(d). We therefore dismiss the appeal.

Legitimate Expectation

71	In their written submissions the Appellants submit that the Respondents’ contentions in the instant case are at variance with their published interpretation in HMRC Notice 709/3. The Appellants point out that para 2.1 of that notice contains no indication of some of the restrictions advanced by the Respondents in this appeal and in particular that contention that an establishment providing long stay accommodation might not be within the scope of standard rating.

72	The Appellants say that they placed reliance upon that published guidance and that accordingly they have a legitimate expectation that the Respondents would not resile from their published practice.

73	The jurisdiction of this tribunal is given to it by the VAT Act 1994 to hear appeals in respect of the matters listed in the Act. We do not have any jurisdiction to review the actions of the Respondents in carrying out their statutory function of the collection and management of revenue. If the Appellants wish to raise the issue of their legitimate expectations they must do so by seeking judicial review of the Respondents action in the High Court - and that without delay.

74	We note however that the copy of the Notice 709/3 in the hearing bundle describes hotels and similar establishments in a manner which makes no reference to the touchstone of temporary accommodation which figured so prominently in the ECJ’s judgement in Blasi (although in relation to serviced flats it does contain an exclusion in respect of flats for use by guests as a permanent place of residence.)

Costs

75	The Respondents made no application for costs. We are not minded to award costs to the Respondents.

76	Our decisions in this appeal were unanimous.

CHARLES HELLIER
CHAIRMAN
RELEASED:  19 May 2006

LON/05/0341	

Appendix

Tribunal Decisions considered

77	We were referred to and considered the following tribunal cases:

Acorn Management Services Ltd (VTD 17338)
Look Ahead Housing and Care Ltd (VTD 17613)
North East Direct Access Ltd (VTD 18267)
BJ Group (VTD 18234)
Dinaro Ltd t/a Fairway Lodge (VTD 17148)
International Student House (VTD 1420) (“ISH”)
Soka Gakkai International UK (VTD 14175)
Name Court Limited (VTD 1560)
The Lord Mayor and Citizens of Westminster (VYD 3369)

££Geoffrey Ross Holding and June Monica Holding v  Revenue & Customs [2006] UKVAT V19573 (19 May 2006)