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Gateshead Talmudical College v HMRC

Upper Tribunal Finance and Tax Chamber 2011 UKUT 131 (TCC) 

This is an appeal by Gateshead College against the decision of the First-tier Tribunal.

The Upper Tribunal concluded that Capital Goods Scheme (CGS) adjustments were required when rental payments and VAT accounting stopped less than two years into a lease and leaseback arrangement.

CGS is a mechanism for regulating deductibility over the “VAT-life” of a capital good.   For VATpurposes a capital good is a developed property.  The scheme operates by ensuring that the deductibility for a property reflects the use to which the property is put over the VAT-life (adjustment period) of the property.

Facts

The main activity of Gateshead College is the provision of education.   The background to this matter is the building of an extension by Gateshead College.  Gateshead College leased these premises to a property company called Starburst Properties Ltd.   Starburst on the same day granted a sublease over the same premises to Gateshead College.   Gateshead College had registered for VAT two months earlier and had described its business as that of “property letting”.   Both Gateshead College and Starburst elected to waive the VAT exemption over these premises.

Gateshead College then took credit for the input tax on its construction costs relating to these premises and this led to a VAT repayment for Gateshead College.   However, after an initial period of less than two years the lease payments and the VAT accounting stopped.   In addition, Starburst was dissolved and struck off the company register.  Gateshead College took no action to forfeit the lease the benefit of which became vested in the Crown as bona vacantia.

HMRC assessed Gateshead College for failure to make adjustments under the CGS and Gateshead College appealed to the First-tier tax Tribunal.

At the First-tier Tribunal HMRC successfully argued that the making of taxable supplies had been reduced to nil once Starburst had been dissolved (as it could not be the recipient of any supplies).  In addition the ceasing in the making of taxable supplies had given rise to the requirement to make a CGS adjustment.   Gateshead College unsuccessfully argued that the continued existence in law of the lease meant that taxable supplies continued to be made after the initial period.

The arguments  

Gateshead College appealed to the Upper Tribunal on the basis that the First-tier Tribunal had erred in law.

Gateshead College made two arguments.  Firstly, it argued that the First-tier Tribunal had been wrong to include that no supplies were being made under the lease because the parties has stopped abiding by its terms and one of the parties had ceased to exist.   Gateshead College contended that it had continued to make supplies despite its failure to seek payment of rent.

Gateshead College also argued that that the First-tier Tribunal had wrongly concluded that an adjustment under the CGS should have been made because of a decrease in the making of taxable supplies.  Gateshead College argued that CGS adjustments are triggered not by the reduction in the value of taxable supplies but by a change in the extent of the use of the capital item for making taxable, as distinct from exempt supplies.

The decision

The Upper Tribunal dismissed Gateshead College’s first argument.   The Upper Tribunal accepted the lease existed as an item bona vacantia but that did not alter the fact that no rent was paid and accounted for after a period of less than two years.   A supply, i.e. rent, was therefore not being made once Starburst was struck off.

With regard to the “change of use” argument.   The Upper Tribunal stated, as had the First-tier Tribunal, that it was “completely untenable” to maintain this argument.  The parties had stopped abiding by the lease and the payment of rent had been abandoned completely.  Gateshead College’s argument that the premises were used exclusively for leasing supplies, despite there being no actual rental charges or payment nor any intention of any being made, could not be sustained.

Changes are being made to the SDLT IT system.  This means online returns cannot be submitted from midnight on Friday 24 June until 7.00am on Monday 4 July.  The reason for this is that HMRC is shutting down the system whilst the changes are made and tested.

The latest information from HMRC is available here.

Scotland’s largest airports have joined together to demand that the UK Government devolves its Air Passenger Duty (APD) to the Scottish Government as part of the Scotland Bill.

The Calman Commission recommended the devolution of APD as part of the Scotland Bill and the Scottish Government has supported this.   However as the UK Government is consulting on changes to aviation duty it has not yet been included in the Scotland Bill.

The press release from BAA Edinburgh can be found here.

Golding v HMRC May 2011  

The First-Tier Tax Tribunal recently ruled that a farmhouse is entitled to full agricultural property relief (APR)  from inheritance tax even though the aged occupant only sold a few eggs to a handful of customers.

HMRC accepted the claim for APR on the land and other buildings but they did not accept that the 3 bedroom farmhouse, which was in a poor state of repair, was eligible for the relief.  The deceased had farmed a 16-acre smallholding in Staffordshire since 1965.

HMRC argued that the three-bedroom farmhouse was not eligible for APR because it was not of a “character appropriate” for APR purposes.  A Notice of Determination that the farmhouse did not qualify for APR was subsequently issued by HMRC.

The Tribunal heard that the level of activity on the smallholding had decreased over the years and, in the period leading up to his death, Mr Golding had grown vegetables mainly for his own consumption and sold a few eggs to some 15-20 customers.  Whilst the level of profits was below the National Minimum Wage, it was concluded that the deceased was still working his holding, as a farm, when he died.

On the main issue of whether the farmhouse was or was not of a “character appropriate” for APR the Tribunal concluded that on the basis of the historical facts of the holding, the type of property, as well as the taxpayers’ intentions and actions, the house should qualify for APR.

The Tribunal also stated that it would be unreasonable to expect the activities of an 80-year old to be extensive in nature. It was also clear from the taxpayer’s actions that he intended to carry on farming. This was shown by the purchase of new equipment by Mr Golding shortly before his death.

HMRC have until mid-July to appeal this decision.

The UK Government has announced that it will amend the Scotland Bill to give the Scottish Parliament increased financial powers.

This u-turn by the UK Government will allow the Scottish Parliament to issue bonds to access cash from the capital markets.

The press release issued by the Scotland Office is available here.

HM Treasury has now published its consultation document on the new 36 per cent rate of inheritance tax where at least one-tenth of an estate is left to charity.

The consultation closes on 31 August.  The legislation is not likely to come into effect until the 2012-13 tax year.

The consultation paper is available here.

The Sunday Herald reported yeserday that Erskine’s Edinburgh care home had received a critical report from Social Care and Social Work Improvement Scotland (SCSWIS).  It was also reported that the Chief Executive Officer of Erskine, Major Jim Panton has resigned.   A spokesman for the care home stated that the resignation was not connected to the critical report.

The inspection report found prescription drugs had not been administered properly, and fluid and food intakes had not been recorded.

The article is available here.

Visitors to Parisian cemeteries will soon be greeted by touchscreens helping them to find the graves or tombs of relatives and notable residents.   Given the increase in burial charges at a number of Scottish Councils over the last few months it would be nice to see our Councils coming forward with their own forward thinking proposals.

The Scottish Government yesterday announced proposals to limit increases in the taxation of North Sea oil and gas.   

The proposal is in response to the recent changes to the taxation of North Sea oil and gas announced by UK Chancellor George Osborne in his recent Budget.  George Osborne raised the “supplementary tax” on North Sea oil production from 20% to 32%.  This is expected to raise £2bn and is to be used to fund a cut in fuel duty.

The trade body Oil and Gas UK said it could cost the industry £50bn over 10 years.

Scotland’s First Minister, Alex Salmond said companies should be allowed a minimum rate of return, before the tax is levied.   Iain Gray, leader of the Labour group of MSPs, endorsed the proposed reforms.