Land & Property Liaison Group (VAT) meeting – 17th May 2019, held at 10 South Colonnade, E14

4PU.

This document is purely intended to reflect the discussions that took place at this meeting. Any

comments made by HMRC (in particular if they relate to a potential/likely change of HMRC policy)

do not constitute HMRC policy or practice unless and until they are supported by published

material (for example HMRC Notices, Revenue & Custom Briefs (RCBs) or Manuals)

Introductions/Housekeeping

1. Attending the meeting were representatives from:

a. Association of British Insurers

b. Association of Taxation Technicians

c. British Property Federation

d. Chartered Institute of Housing

e. Chartered Institute of Public Finance and Accountancy

f. Chartered Institute of Taxation

g. Country Land and Business Association

h. Institute of Chartered Accountants in England and Wales

i. Law Society of England and Wales

j. Law Society of Scotland

k. National Housing Federation

l. Royal Institution of Chartered Surveyors

m. VAT Practitioners’ Group

n. HMRC

Matters arising from previous meeting (24th January 2019)

2. Authorised signatories – OTT notification: HMRC had revisited its published list of

authorised signatories in VAT Notice 742A – Option to tax, adding three new categories:

a. Corporate bodies acting as Directors, Company Secretary or trustees

b. Overseas entities (e.g. Luxembourg Sarl)

c. Power of attorney

3. A related question arose regarding authorised signatories and members of a VAT Group

exercising an OTT, which would effectively bind other VAT group members to the OTT.

HMRC stated that while any member of a VAT group (including its representative member)

could exercise an OTT, the option would have no effect unless an authorised signatory of

the VAT group member making the OTT notification had signed the notification.

4. Industry representatives pointed out that there was no legal requirement for any entity

exercising and notifying an OTT to have an interest in the land. Furthermore, the application

of the relevant associate rules meant that an OTT exercised by one member of a VAT group

would be binding on all other members of the group at any time a VAT Group member

owned the property after the OTT notification had been made.

5. It had previously been understood by industry representatives that HMRC were concerned

that allowing the representative member to opt on behalf of other companies could unduly

facilitate revocation of that option. If this concern remained, industry representatives

considered that it should be clarified by way of an example. HMRC agreed to revisit this

issue.

ACTION POINT 1 - HMRC to reconsider application of relevant associate rules in the context of OTT

notifications. (Subsequent response published in attached annex – see Annex 1, Section 1 below)

6. VAT on remedial works to cladding: Referring to discussion at the last LPLG meeting, HMRC

were still to confirm whether ‘person constructing’ status is transferred under statutory

transfer [of social housing or other local authority asset] between local authorities.

ACTION POINT 2: HMRC to confirm whether ‘person constructing’ status is transferred in the

context of statutory transfers of assets between local authorities. (Subsequent response published

in attached annex- Annex 1, Section 2 below).

Notice 742: HMRC confirmed that an updated version of Notice 742 had not yet been published. This

was expected in the near term but the need to publish a large volume of higher-priority Brexit-

related material was delaying publication.

7. DIY claims unit: addressed in a separate agenda item below

8. “Jenkins v Brown” land pooling arrangements: Country Land and Business Association still to

arrange meeting with HMRC to discuss.

DIY scheme claims

9. HMRC updated the LPLG on work being carried out to update the DIY scheme claim forms

and related guidance. There has been close collaboration between policy and operational

teams to ensure HMRC takes a consistent approach to determining when a building has

been completed.

10. HMRC confirmed that, although there had been no change of policy on when work was

complete, there had been a change of approach on what constituted a reasonable excuse

for late submission of a claim, and that they were working to address this.

11. The revised DIY scheme claim forms would be available in both PDF and iform formats, the

intention being for there to be an explanatory blog on the webpage hosting the forms and

guidance notes to be included within the iform for ease of reference in completing them.

These would also be displayed in the PDF version.

12. Once the revised form was ready, HMRC would look to industry representatives to help

advertise and raise awareness among taxpayers.

Update on energy saving materials

13. HMRC highlighted a recently closed consultation on draft legislation implementing changes

the UK was required to make to the VAT treatment of energy saving materials (ESM) as a

result of EU case law. HMRC had consulted on such changes in 2015 but proposals were put

on hold as a result of opposition. The UK government had since been in discussion with the

European Commission with the aim of retaining as favourable a VAT treatment as possible

for ESM while being compliant with EU law.

14. Comments from industry representatives included:

a. Legislation provided an opportunity to rectify current reference to ESM being “in”

residential property, accepted in guidance as meaning ‘serving’ the property

b. Application of the rules to social housing providers not required to register as such.

c. Legislation provided an opportunity to restore original intention that larger projects

could be apportioned – draft only envisaged apportionment in limited

circumstances between ESM and their installation

Sale and leaseback

15. The BPF had submitted a query regarding the potential impact of the recent CJEU decision

in Mydibel. HMRC were aware of the decision and were considering their position. In the

meantime, HMRC’s view was that the present rules for adjustment in respect of the sale of

a capital item in accordance with Regulation 115 of the VAT Regulations 1995, continued to

apply.

16. Industry representatives asked HMRC to consider the potential impact of Mydibel on

Balhousie.

ACTION POINT 3: HMRC to circulate written response to BPF query on Sale and leaseback and

“Mydibel”. (Subsequent response published in attached Annex 1, Section 3)

In respect of the recent CJEU decision Mydibel SA, which looked at a sale and leaseback. The court

decided that the particular circumstances of the transaction in that case did not require an

adjustment for the purposes of the Capital Goods Scheme. Deductions and Financial services VAT

Policy team are aware of the decision and are considering it. At the moment our view is that the

present rules for adjustment in respect of the sale of a capital item in accordance with regulation

115 of the VAT regulations 1995, continue to apply

Forfeit deposits

17. The BPF had submitted a query regarding how HMRC’s Revenue & Customs Brief 13 (2018)

should be interpreted in the context of deposits paid to secure a property acquisition but

then forfeited.

18. In its response (see Annex 1), HMRC confirmed that the charge to tax [of a deposit

payment] is not determined on the basis of how the parties choose to describe a payment

on account, whether that be, in their view, compensatory or not. What matters for VAT

purposes is that a charge to VAT arises when there is a taxable supply for consideration,

and, in cases where there is a payment on account for a taxable supply before it is made, a

charge to tax also arises to the extent of the amount so paid.

ACTION POINT 4: HMRC to circulate written response to BPF query . (Subsequent response

published in attached annex – Annex 1 Section 4)

ACTION Point 5: Law Society to consider HMRC response and provide examples of situations in

which forfeit deposits may arise

Litigation update -

19. HMRC noted a series of recent case law affecting land and property VAT:

a. Hanuman: in which the First Tier Tribunal held that, in the circumstances of the

case, the novation of a contract did not represent a supply of land by the original

buyer. The taxpayer had confirmed they would not appeal the decision.

b. Melbourne Property Holdings: The Tribunal held that the recharge of buildings

insurance by a landlord to an occupier was part of a single supply of land. Because

the property in question was opted, all payments related to the property (including

the insurance premium recharge) were to be treated as taxable.

ACTION POINT 6: HMRC to circulate Melbourne decision [Copy attached - Annex 2 )

Meo: in which the CJEU determined that early termination payments should be

regarded as consideration for services.

c. Mailat: The CJEU considered that an arrangement whereby a building and certain

fixed assets within it were leased by the landlord to a company who operated the

premises as a restaurant was an exempt supply, and did not constitute a TOGC on

the basis that the operator did not take a valuable interest in, but rather leased, the

fixed assets.

d. Mesquita: Another CJEU case, in which the Court found that the transfer of a

vineyard to an operator on a rolling one-year contract was exempt, and not a TOGC.

e. Fortyseven Park Street: in which it was determined that a fractional interest

conferring certain rights to use a property in certain circumstances did not amount

to an interest in land. The Court noted that even if that analysis was not

appropriate, the fractional interest was to be treated as the supply of hotel or

similar accommodation.

AOB

20. OTT revocations: It was noted that HMRC had discretion to approve the revocation of OTTs

under the 20-year rule in circumstances where the criteria for automatic revocation (one of

which being that there were no outstanding CGS adjustments) were not met. Industry

representatives referred to cases where the opted property was due to be sold shortly,

noting that the reference in Sch 10 para 25(8) of the VAT Act, to an ‘event’ was designed to

allow revocation at the moment of sale, and were interested in whether there were other

situations in which HMRC would be minded to approve OTT revocations.

21. HMRC noted that such approvals had to be considered on a case-by-case basis lest they

provide a windfall for the taxpayer. HMRC were often comfortable approving revocations

where a sale was about to happen because no such windfall was available.

22. HMRC indicated that they may feel comfortable approving an OTT revocation where an

outstanding CGS adjustment exists if the taxpayer were to ‘buy out’ the value of that

adjustment, thereby eliminating any windfall that would otherwise arise.

23. Industry representatives argued that entering into a new lease might also not result in a

windfall, as the CGS adjustment still needs to be made, albeit over a different period. HMRC

indicated that (again, subject to individual facts) it was possible for no windfall to arise in

such situations.

24. CGS on deregistration/zero-rated lease grant: HMRC indicated that they were still

considering the issue (raised at the December 2017 LPLG meeting) of whether a CGS

adjustment arises on deregistration following a zero-rated lease grant. This issue would be

addressed as part of a review of VAT Notice 706/2 Capital Goods Scheme.

25. HMRC policy team update: It was noted that Helen Ramsden would be retiring from HMRC

at the end of June 2019. The LPLG expressed its thanks for her support and best wishes for

her retirement.

Date of next meeting:

Subject to external circumstances, the revised meeting will take place on Friday 15

November at 10.00.

The next regular meeting will take place on Tuesday 21 January 2020 at 10.00.

Annex 1

1. RESPONSE: HMRC to reconsider application of relevant associate rules in the context

of OTT notifications. (See ACTION POINT 1 above).

Response - HMRC are not seeking to change or apply relevant associate rules in a different manner

to what they already have. The point at issue relates to authorised signatories. Irrespective of

whether the representative member of a VAT Group or a VAT group member notified an option to

tax, it still needs to be signed by an authorised signatory of the entity actually notifying the OTT.

What was not acceptable was for a VAT group representative member to sign a notification of an

OTT made by a different VAT Group member and who was not an authorised signatory of the VAT

Group member who was notifying the option to tax.

2. RESPONSE - VAT treatment of repair works to bring buildings into compliance with new

fire safety regulations following Grenfell Tower tragedy, whether ‘person constructing’

status is transferred in the context of statutory transfers of assets between local

authorities. (See ACTION POINT 2 above).

Who can carry out the work: The original contractor does not need to carry out the replacement cladding. Any contractor carry out the re-cladding, provided that the person who requests the cladding has person constructing status. This is to ensure that the works fall within the closely related work of the construction of a qualifying zero-rated new build. Remedial work must be connected to the original build: HMRC has not changed their position, for zero-rating to apply, the works must be closely linked to the construction of a new build as this is the only time zero-rate applies to the construction. Remedial works are fixing works that have been found as faulty. However, that being said if a property has been signed off as complete, this has been agreed that it has been completed to the appropriate standard and is no-longer in the state of construction, this would mean that any works found to be faulty at a later date cannot be seen as in the course of constructing a building as the building has been signed off. There is no link for the works to be in the course of construction to satisfy being zero-rated or reduced rated keeping within the legislation. In these instance HMRC will accept that following the sign-off, if there is a term in the sign-off agreement to carry out remedial work/faulty work then we can tie this work back to the original construction of building to comply with the relevant legislation. Repair and maintenance has always been standard rated and we cannot extend the VAT Relief to works to properties that are not in the course of construction. Definition of remedial: works to repair a property that is faulty, to ensure the work complies with the original planning consent. Recovering the costs by the developer: This was just really advising that normal practises should be made for the recover costs on repairing building. This does not have an impact on whether the conditions of zero-rating are met. Unfortunately I am unable to answer final question raised regarding the Government Scheme

3. HMRC to circulate written response to BPF query on “Mydibel”. (See ACTION POINT 3

above).

In respect of the recent CJEU decision Mydibel SA, which looked at a sale and leaseback. The court

decided that the particular circumstances of the transaction in that case did not require an

adjustment for the purposes of the Capital Goods Scheme. Deductions and Financial services VAT

Policy team are aware of the decision and are considering it. At the moment our view is that the

present rules for adjustment in respect of the sale of a capital item in accordance with regulation

115 of the VAT regulations 1995, continue to apply

4. HMRC response to BPF query regarding the impact of Revenue & Customs Brief 13

(2018) on property-related deposits paid and then forfeited. (See ACTION POINT 4

above).

If a charge to VAT arises when a payment on account is received before the supply is made (which

will be the case if the payment on account is for a taxable transaction) then VAT will be due on the

amount of the payment at the appropriate rate (zero, reduced or standard) when the payment is

made. If the intended supply is unfulfilled that does not disturb the VAT treatment of the payment

on account. So, a zero rated charge in relation to a payment on account for an anticipated zero rated

supply remains zero rated and a standard rated charge in relation to a payment on account for an

anticipated standard rated supply remains standard rated.

When a payment on account is received for an exempt supply, no taxable supply is envisaged so no

VAT becomes chargeable. That position does not change if the supply is unfulfilled since there is no

payment on account for a taxable supply and, in the final outcome, no taxable supply ever takes

place. Similarly for a TOGC, a payment on account for an intended supply which is to be disregarded

for VAT does not give rise to any VAT charge. And, in due course, if the TOGC does not go ahead,

that position does not change.

The charge to tax is not determined on the basis of how the parties choose to describe a payment on

account, whether that be, in their view, compensatory or not. What matters for VAT purposes is that

a charge to VAT arises when there is a taxable supply for consideration, and, in cases where there is

a payment on account for a taxable supply before it is made, a charge to tax also arises to the extent

of the amount so paid.

Annex 2

[See Action Point 6 above]

Appeal number: TC/2016/7146

TYPE OF TAX – VAT - supply of goods or services- supply of property subject to VAT – whether supply of insurance and insurance rent is a separate supply or part of a single supply – held to be a composite supply – appeal dismissed

FIRST-TIER TRIBUNAL TAX CHAMBER

MELBOURNE HOLDINGS LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S Respondents REVENUE & CUSTOMS

TRIBUNAL: JUDGE IAN HUDDLESTON

Sitting in public at Taylor House, London on 4 April 2018

Miss Giselle McGowan BL for the Appellant

Miss Isabel McArdle BL, instructed by the General Counsel and Solicitor to HM

Revenue and Customs, for the Respondents

DECISION

Appeal

1. This is an appeal by Melbourne Holdings Limited (the Appellant) against a decision upon

review dated 25 August 2016 to uphold an initial assessment made against the Appellant for

undeclared output tax in the sum of £29,166 – that sum being referable to insurance rents

which the Appellant had collected from its Tenants but upon which it had failed to charge or

account for VAT.

2. The Appellant operates a business as a landlord of commercial properties. It has elected to

waive the exemption to Value Added Tax (VAT) in relation to those properties and so VAT,

therefore, is chargeable upon the rents which it demands for their use and enjoyment.

3. The assessment of VAT under appeal is based on the fact that the insurance rent which the

Appellant charged to its tenants is alleged by HMRC to be part of a single supply which is

referable to occupancy of those properties and, therefore, HMRC’s position is that VAT should

have been charged on that insurance rent in the same way as on the “ordinary” occupancy

rent.

4. The Appellant’s case (in summary) is that the insurance (and therefore the insurance rent

which arises) is a separate supply and falls under the insurance exemption in Item

1 of Group 2 of Schedule 1 to the Value Added Tax Act 1994 (“VATA”) and so is not subject

to VAT.

The Facts

5. The facts themselves are not particularly in dispute. Following a VAT inspection of the

Appellant’s business on 22 February 2016 HMRC determined that the Appellant had failed to

charge VAT on the insurance rents which it had charged to its Tenants and that:-

a. as this service “followed” the main supply of property rental; and

b. was solely for the benefit of the Appellant;

that the insurance recharge therefore should be treated as a taxable supply. On that basis it

made the following assessments:-

2012/12 £6,228

2012/13 £7,207

2012/14 £7,896

2012/15 £7,835

resulting in a total assessment of £29,166 which is the sum now under appeal.

6. The review letter (in upholding that assessment) concluded that “[the] charges [did] not

represent a supply of insurance to the customer because no insurance is passing to the

customer…[and] the charge is simply part of the consideration charged by the business

for its main supply and follows the same liability [to VAT]…”

7. At this point it is possibly useful to refer to the leases under which this issue has arisen. The

leases adopted by Melbourne Holdings Limited are in a fairly standard form for commercial

lettings of the buildings which they owned and let. Each lease (in various ways) reserved an

“annual sum for insuring and keeping insured the Business Estate against such risks as the

Landlord considers reasonable…” with, then, a corresponding carveout from the Tenant’s

repairing obligations (unless that insurance cover was vitiated by an act or default on the part

of the Tenant).

8. Each of the four leases were of demises of entire buildings or units as distinct to areas within

shared occupancy or multi-let buildings.

9. Each of the leases are also expressed to be liable to forfeiture in the event of nonpayment of

those sums which are reserved as rent – which for the purposes of this appeal included both

the occupational and the insurance rents.

The Appellant’s Case

10. The Appellant has argued for the exempt supply of the insurance rent presenting

(variously) each of the following contentions:-

a. that where a supply of insurance is for both the Landlord and Tenant the supply is not

actually referable to the supply of the “property service” and therefore does not or

should not follow the VAT treatment of that “property service”;

b. alternatively that where the supply is predominantly for the benefit of the Tenant the

charges are exempt – as distinct from the property supply which, on that analysis,

would obviously be subject to VAT (in the case of an elected property); and

c. alternatively where neither argument finds favour there should be an apportionment

between the exempt and non exempt supplies.

11. Whilst accepting that supplies which form a single service from an economic viewpoint should

not be artificially split (as per the guidance in the seminal case of Credit Card Protection

Limited v CCE (case C-349/96)[1999] STC at [29] (“the CPP case”)) the Appellant’s Counsel did,

however, then seek to distinguish the facts of the present case on the basis that there were

two separate supplies – i.e. the insurance and the property supply:-

a. she firstly argued that the insurance services supplied were an end in themselves in

so far as they positively reduced the repairing obligations that otherwise would be

faced by the Tenant (namely the 'carve out' to the standard repair provision) referring

to the case of BGZ Leasing sp z.o.o v Dyrector Skarbowej Warszawie (case C-

224/11)[2013] as authority for the proposition that the leasing and insurance could

constitute separate supplies. That was indeed the rationale of that case but on the

facts related to business equipment held under an HP contract where the insurance

itself was entirely optional;

b. and further that the two individual services were not on the facts so closely aligned

that they formed an “objectively a single, indivisible economic supply which would be

artificial to split…” and so could be separately enjoyed (and charged for) – adopting

(but again distinguishing) the case of Levob Verzekeringen BV v Staatssecretaris van

Financiën Case C-41/04 [2006] STC 766 (where the Court did distinguish between the

supply of basic software and thereafter its separate customisation).

12. Counsel also referred to the leading case Middle Temple v HMRC [2013] STC 1998 - which

found that the supply of water and accommodation to the tenants of let properties were on

the facts so inextricably linked as to be a single supply when objectively viewed by each

occupier/consumer. Counsel argued that, applying that approach to the present facts, from

the view point of the typical Tenant, it enjoyed two separate services for which it paid two

separate amounts that the supplies could, therefore, objectively be seen as being “divisible”

and “separable” from each other and so on that basis distinguishable from the ultimate

approach in both CPP and Middle Temple.

13. To further that approach the Appellant’s Counsel argued that even though, in practical terms

under the lease structure which related to the buildings in question, the Tenant did not have

a practicable alternative nonetheless the insurance supply was a separate and independent

exempt supply for the purposes of VATA. In advancing this argument the Appellant relied

upon the case of Field Fisher Waterhouse LLP v HMRC Case C392 [2013] STC 136 to argue that

services (in that case service charge and rent) could be seen as divisible even if both were

expressly included in the Lease and in further support of that argument contended that the

fact that there was a separate charging provision for the two supplies (ie a rent and an

insurance rent) bolstered that analysis. To support that contention we were also referred to

BGZ Leasing (as above) - which had dicta to the effect that although the manner of invoicing

was not of itself decisive as to the question as to whether there was a single composite or a

variety of separate services where there was composite invoicing it might be suggestive of a

single or unified supply.

14. In short, the Appellant argued that the insurance itself was not essential for occupation of the

premises and that therefore the decision in Middle Temple (and the principles which are

commented on further below which arose from it) was distinguishable.

15. For all of those reasons the Appellant argued that the insurance rent was, therefore, a

separate standalone supply and, on the basis of the insurance exemption in Item 1 of Group

2 of Schedule 1 the VATA, exempt.

HMRC’s Case

16. HMRC, as will have been apparent from what I have said above, took the exact opposite

approach. They argued for a more direct interpretation of the CPP case. Based on that

approach, the Tribunal was invited to look at the “essential features” of the case from an

objective economic view point to assess whether it was a single supply or (alternatively) a

composite supply which should not be artificially split or (to the extent that it could be split)

one service was ancillary to the other. In support of that analysis we were invited to consider

the principles set out at para [60] of the judgement in Middle

Temple in detail. Those (in summary) are as follows:-

a. every supply must normally be regarded as distinct and independent, although a

supply which comprises a single transaction from an economic view point should not

be artificially split;

b. the essential features or characteristic elements of the transaction must be examined

in order to determine whether, from the point of view of a typical customer, the

supply constitutes several distinct principal supplies or a single economic supply;

c. there is no absolute rule and all the circumstances must be considered in every

transaction;

d. formally distinct services, which could be supplied separately, must be considered to

be a single transaction if they are not independent;

e. there is a single supply where two or more elements are so closely linked that they

form a single, indivisible economic supply which it would artificial to split; f. in order

for different elements to form a single economic supply which it would be artificial to

split, they must, from the view of a typical consumer, be equally separable and

indispensable;

g. the fact that, in other circumstances, the different elements can be or are separately

supplied by a third party is irrelevant;

h. there is also a single supply where one or more elements are to be regarded as

constituting the principal services, while one or more elements are to be regarded as

ancillary services which share the tax treatment of the principal element;

i. a service must be regarded as ancillary if it does not constitute for the consumer an

aim in itself but is a means of better enjoying the principal service supplied;

j. the ability of the consumer to choose whether or not to be supplied with an element

is an important factor in determining whether there is a single supply or several

independent supplies, although it is not decisive and there must be a genuine freedom

to choose which reflects the economic reality of the arrangement between the

parties;

k. separate invoicing and pricing, if it reflects the interest of the parties, support the view

that the elements are independent supplies, without being decisive; and l. a single

supply consisting of several elements is not automatically similar to the supply of

those elements separately and so different tax treatment does not necessary offend

the principal of fiscal neutrality.

In analysing these principles HMRC indicated that it considered that it was a highly

significant factor (as in the Middle Temple case) that the Tenants in this case had no

choice but to both enjoy and pay for the insurance – in much the same way as the

tenants in Middle Temple were obliged to be provided and pay for water. Further HMRC

contended that applying CPP, and taking a helicopter view, in asking what the essential

feature of the scheme was, anyone objectively would determine that it was the use and

occupation of the property in its entirety which automatically imported with it the

insurance provisions which were contained in the standard leases and, therefore,

integral to the demise (in that form).

17. In short, therefore, HMRC’s position was:-

a. that the essential features of the leasing transaction from the Tenant’s perspective

demonstrated that there was a single indivisible supply which it would be artificial to

split;

b. that if not a composite single supply, the principal supply was the letting of the

property which the Appellant had opted to tax and that the tax treatment of the

insurance rent as ancillary to it must follow the principal supply; and

c. the insurance services did not constitute an aim or goal in themselves but were simply

a means of better enjoying the principal service.

Decision

18. As I said above, the facts are really not in dispute in relation to this case. What is in dispute is

the question of interpretation of whether there was a single composite supply or two separate

supplies. To answer that question (and applying the principles set out in CPP as set out above)

I agree that it is absolutely imperative to look at the “essential features or characteristics” and

apply them to the facts. When one does that in this case then one obviously has to look at

the nature of the leasing transaction which was undertaken. When one does so there are

certain immutable facts:-

• The leases themselves were largely in standard form, and, as such, therefore, one can

assume little or no negotiating power was available to the Tenant during their

negotiation. The Landlord clearly had determined (across its portfolio) the deals which it

would strike with Tenants namely to provide accommodation but only where it reserved

the right to insure and, on the basis of the copy leases made available to us, it was

consistent in that approach;

• That being the case in each of the standard form leases the insurance charge was

reserved as rent – in exactly the same way as the annual occupational rents were even if

the timing of the demands differed;

• As a result of that approach and the insurance provisions within the leases (taken as a

whole) the Landlord had the benefit of knowing that it had an insurance pot from which

to discharge the cost of any insured damage and, as a corollary, the Tenant had the

benefit of knowing that providing it contributed its insurance rent (and did not vitiate the

cover in place) that its repair covenants were suitably qualified. To that extent both

benefitted from the approach;

• That where there was a failure to pay any of the rents (including the insurance rent) the

leases themselves were potentially liable to forfeiture at the suit of the Landlord.

19. Fundamentally a lease, in property law terms, is the documentation of a bundle of rights and

obligations as between the Landlord and Tenant but by which, fundamentally, occupancy

rights are granted to the Tenant in exchange for certain payments and undertakings on the

Tenant’s part.

20. That, to the Tribunal’s mind, is the “essential characteristic” of the leasing transaction and

from that view point we find that objectively the provision of occupancy rights based on the

insurance provisions contained in these leases with the consequent reservation of an

insurance rents were in reality one service and that it would be entirely artificial to separate

it in to a “property service” and the separate provision of "insurance" of the type to which the

exemption in Item 1 of Group 2 of Schedule 1 would apply. Indeed to do so (and to use the

language of CPP) would be an “overzealous" dissection of the services enjoyed by tenants

under the leases in just such a way as CPP counsels us against.

21. In the context of such a leasing business (on standardised terms) both the Landlord and the

Tenant, we would suggest, looked at the arrangement as a composite deal. If the Landlord

was to separate out the insurance provisions (thereby giving the Tenant an option as to

whether it would insure or not) that may (one would imagine) impact upon the pricing regime

which he would adopt. The view the Landlord might then take is that the risk to his property

is correspondingly higher and the rent which he might charge should equally be at an

increased level. Although it predated CPP, we were referred to and nonetheless agree with

the Tribunal in Globe Security Ltd v CCE [1995] V and DR 472 which held the same view. On

the facts of the present case the Landlord did insist on a scheme where it effected insurance

and billed the cost to Tenants as an integral part of their enjoyment of the premises they

occupied.

22. Taking that as our position, when we then look at the principles set out in Middle Temple, we

find, in fact, that when applied to this case the answers to those principles point entirely to

there being a single and composite supply.

23. The Appellant’s argument that the insurance services are a separate supply and, therefore,

exempt was always likely to be an ambitious one -based on the authorities (and the principles

laid out in Middle Temple). Applying those we come to the following conclusions:-

a. On the facts as we have said the Tenant had little or no choice as to the type or

quantum of insurance which was taken out – those rights and the ability to take out

insurance with third party insurers were matters clearly reserved to the Landlord and

under the leases adopted within his letting business he had retained a wide discretion

in that regard;

b. Whilst the Tenant undeniably has the benefit of the insurance (we disagree with the

HMRC view that the Tenant had no benefit whatsoever) that benefit and the rights

enjoyed pursuant to it are we find were integral to the property service supplied

under the standard lease(s) or, if not that, were certainly ancillary to the principal

rights and enjoyment of the property and inextricably bound to it. It is the Landlord

who would, in the first instance, make a claim and use the proceeds to repair insured

damage. The principal benefit falls to the Landlord in that he then knows there is a

pot of money to repair damage. The benefit to the Tenant is ancillary in the sense

that its repairing covenants are – as a direct result - suitably qualified. In that light

we do not agree with the Appellant’s main contention that the insurance was an end

in itself. It plainly wasn’t – it arose only as part of the deal with the Landlord/Appellant

to take its property and such positive consequences as flowed from that were

secondary or ancillary to the right to enjoy the property. We do not, therefore, agree

with the

Appellant’s suggestion that the insurance was an end in itself. Simply put, without

the enjoyment of the property, the insurance cover would not have been required.

c. Although not strictly in point in the present case that would be even more obvious in

the case of a common occupancy property where the Tenant would not, per se,

normally have had an insurable interest in the building itself to insure but merely an

occupancy right in the internal space which is then demised to it.

Those common occupancy buildings exemplify even more clearly why insurance and

property enjoyment are so very often inextricably linked.

d. As the comments in Middle Temple confirmed whilst we accept the Appellant's

contention that the rent and insurance rent may be separately charged under the

terms of the lease that, of itself (as the authorities confirm), is not decisive in terms of

analysing whether or not there is a single composite supply. It can assist in the

analysis but does not, we find, provide a solution for the Appellant in this case as the

rents were all reserved as a composite liability under the lease (even if chargeable

separately) and failure to pay any of one or more of them would have constituted

grounds for forfeiture – and thus an end of the “property service”.

e. For the sake of completeness the nature of insurance in this case is distinguishable

from the Lindsay car case Lindsay Cars Ltd [2005] Lexis Citation 563 to which we

referred by the Appellant's Counsel as to the point of the severability of insurance

provision into a separate supply. In that case customers who bought cars received, as

part of the transaction, both a car and two years insurance. That, it was found,

constituted two separate (although parallel) transactions - not least because there

were parallel contracts - one with the car supplier and one with the insurance

provider. In the present instance the Tribunal, however, takes the view that the

insurance component is so inextricably linked as to be indistinguishable from the

occupancy rights which a tenant gets when granted a lease and goes into occupation.

That we find is a composite provision of a fully serviced and insured building and the

“services” are enjoyable as an indivisible whole. To argue otherwise is, we would

suggest, to argue for an artificial split of the type which CPP was against.

24. For all of those reasons, therefore we conclude that there was a single indivisible supply or, in

the alternative, that the insurance provisions were ancillary to the main supply of enjoyment

of the property. Either way we conclude that the Appellant’s argument fails and that the

appeal, therefore, be dismissed.

25. No order as to costs.

26. This document contains full finds of fact and reasons for the decision. Any party dissatisfied

with this decision has a right to apply for permission to appeal against it pursuant to Rule 39

of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must

be received by this Tribunal not later than 56 days after this decision is sent to that party. The

parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax

Chamber)” which accompanies and forms part of this decision notice.

IAN HUDDLESTON

TRIBUNAL JUDGE

RELEASE DATE: 18 December 2018