VAT and the land supply question
Neil Warren explains the circumstances in which VAT must be charged on the supply, and when the transaction is exempt from VAT, as getting it wrong can be an expensive mistake.
A land supply is usually exempt from VAT within VATA 1994, Sch 9, Group 1, Item 1 as being relevant to “the grant of an interest in or right over land or of any other licence to occupy land”. An important feature of a rental or land arrangement is “exclusivity” – the user of the land must have exclusive use otherwise it is not a land supply.
Example: If I hire a room at my local cricket club to host a VAT seminar, and I have to share the facility with the local brass band rehearsing in the same room, then I do not have exclusive use of the facility, so the land test has failed.
Exceptions in legislation
The above analysis seems simple – it is not!
The next stage is to consider the exceptions to the exemption, which are all listed in Items 1(a) to (n) of VATA 1994, Sch 9, Group 1, and include the following supplies, among others:
- Self-storage supplies
- Accommodation in a hotel or similar
- Land used to park a vehicle
- Theatre and sporting tickets eg hiring a box
- Camping and caravan sites
- Hairdresser chair rental arrangements.
Be careful when dealing with exempt supplies of non-residential property, as they become standard rated for VAT if the supplier has opted to tax the land or building in question.
It is important to consider the tenant’s perception of what they are paying for. Are they paying to use an area of land or is he also receiving other non-land benefits?
For example, when an exhibitor pays for a pitch at a trade fair, the commercial reality is that they have usually paid for non-land benefits such as the right to trade at a properly organised fair, associated security, advertising, and supervision at the venue.
This was the conclusion reached by the upper tribunal in the case of Kati Zombory-Moldovan t/a Craft Carnival  UKUT433.
There have been a number of cases concerning wedding venues – for example, the case of Blue Chip Hotels where the upper tribunal decided that the hire of the ceremony room had to be standard rated. It is worth noting the tribunal's comment about the difference between adding "significant value to the supply" of a room, compared to a "passive letting of land".
This became a key issue in another case from nearly ten years ago: Best Images Ltd (TC0480), which specialised in Indian weddings. It charged an exempt rental fee for the hire of the room where the ceremonies and receptions were held.
An alert HMRC officer was surprised how expensive the rooms were for the happy couples, and when he investigated, he discovered that the guests also received entertainment, a waiting service and refreshments on arrival, as well as the room. The tribunal agreed with HMRC that the company was providing the service of organising a wedding (standard rated) rather than an exempt supply of land.
To avoid a problem with HMRC, here are my three VAT tips for land supplies:
- Commercial reality is the key issue
Many advisers think (incorrectly) that the solution to land dilemmas is to simply describe a sales invoice as “rent”, and not mention the other benefits that the tenant might receive. However, the commercial reality of a supply always overrides the wording of a sales invoice.
- Be careful with wording in HMRC notices
The penultimate bullet point of VAT Notice 742, para 2.6 gives an example of an exempt land supply as “granting traders a pitch in a market or at a car boot sale”.
This example seems to contradict the case of Craft Carnival considered above but HMRC would argue that the example assumes that the hirer only gets the land and no other benefits. It shows that caution is needed when reading the guidance.
- Consider if there has been a mixed or single supply
This article was inspired by a subscriber who asked about the VAT liability of room hire where catering was also provided by the venue.
It comes down to the usual approach for any mixed supply situation: is there one supply of land (exempt room hire) with catering supplies being ancillary to the land? Eg jugs of water provided in the room or a cup of tea supplied on arrival.
Or is there a separate supply of standard rated catering, clearly expected by the hirer and a key part of his payment, eg a full buffet supplied by the venue during the lunch interval of a conference, so output tax apportionment is needed?