Marie Stein reviews a decision about the VAT liability of the letting of prefabricated classrooms. The case hinged on whether the structures were movable or not.
As a starting point, VAT applies to all supplies by a business that is VAT registered or is liable to be VAT registered, unless an exemption applies, or the transaction is outside the scope of VAT.
The UK legislation states that exemption applies to “the grant of any interest in or right over land or of any licence to occupy land”. For these purposes, the word “land” means both land and/or buildings.
The issue in the Upper Tribunal case of HMRC vs Sibcas Limited ( UKUT 0298) was whether the structure was “immovable property”, but as the UK legislation doesn't define the term, the tax tribunals had to rely on EC legislation and case law.
The 2006 EC VAT Directive states that exemption should apply to “the leasing or letting of immovable property”, and also states that “building” shall mean any structure fixed to or in the ground. But what do these terms actually mean?
Sibcas Limited let a number of prefabricated temporary classrooms to a school. The classrooms comprised 66 individual units arranged as a single structure which was affixed to mains power and water. It also included toilets, a lift and stairs at each end of the structure. It functioned as (and was treated as) a single building. It rested on stone foundations laid into trenches dug into the ground. Above the foundations, but still below ground level, the building rested on levelling beams, on which were laid 36 friction clamps. The structure was not, and didn't need to be, fixed to the beams, but the building rested on the beams and was held firmly in position by its mass and weight.
The structure was prefabricated and was both intended and able to be moved after use. It would take 98-man days to deconstruct and remove the units from the site.
The VAT liability of supplies of land and property is one of the most complex and contentious areas of VAT. The original decision of the FTT was based on a somewhat unusual interpretation of the law that could have been taken as a precedent, so it's not surprising that HMRC appealed the decision.
The FTT 's ruling considered decisions from the European Court of Justice (ECJ) and UK courts and tribunals. Most important was Rudolf Maierhofer v Finanzamt Augsburg-Land (2003) (Maiefhofer), which has long been regarded as one of the most important cases in respect of immovable property. The ECJ in Maierhofter based its judgment on two issues, the first being particularly relevant to this case:
“Does the term ‘letting of immovable property’ in Article 13B(b) of Directive 77/388/EEC cover the provision for consideration of a building constructed from prefabricated components which is to be removed following the termination of the contract and may be reused on another site?”.
The FTT decided that the structure was movable property and that Sibcas' supply was taxable. This decision was based on two factors that the FTT said should be applied in sequence: first, whether the structure was “fixed to or in the ground” and second, how easily could the units be dismantled and removed.
The FTT decided that the structure wasn't fixed to, or in the ground, because the units weren't attached to the levelling beams, only resting on the beams. The time taken to dismantle and remove the units was not excessive given the scope of the structure and the number of individual units.
Upper Tribunal disagreed
The UT reversed this decision and ruled in favour of HMRC, that the structure constituted immovable property. This was based on a number of factors: the structure had substantial foundations, which were used to support the structure's heavy weight; it was connected to utility services, and it could not be easily moved without being dismantled.
The UT ruled that the FTT's approach based on the application of two specific tests was wrong in law. Decisions in such cases should be based on all of the factors and the features of the individual property concerned.