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First-tier Tribunal (Tax)

You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Sussex Police Authority v Revenue & Customs [2009] UKFTT 188 (TC) (30 July 2009)
URL: http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00143.html
Cite as: [2009] UKFTT 188 (TC)
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Sussex Police Authority v Revenue & Customs [2009] UKFTT 188 (TC) (30 July 2009)
VAT - SUPPLY
Other
    [2009] UKFTT 188 (TC)

    TC00143
    Appeal number LON/2008/0800
    VAT - whether personnel working for police charities are employees of police authority - yes - whether services supplied by police authority to charity are a taxable supply - yes -appeal dismissed
    FIRST-TIER TRIBUNAL

    TAX
    SUSSEX POLICE AUTHORITY Appellant
    - and -


    THE COMMISSIONERS FOR HER MAJESTY'S
    REVENUE AND CUSTOMS (VAT) Respondents



    TRIBUNAL: Nicholas Aleksander (Tribunal Judge)
    Mrs E R Adams
    Sitting in public in London on 13 July 2009
    Simon Levine of VAT Advice Line Limited for the Appellant
    Richard Smith of Counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents
    © CROWN COPYRIGHT 2009

     
    DECISION
  1. This appeal relates to the relationship between two charities and the Sussex Police Authority. The Appellant, the Sussex Police Authority ("Sussex Police") appeals against an assessment to VAT which was made on the basis that the Authority made taxable supplies of its employees to two charities, the Sussex Police Welfare Fund and the Sussex Police Staff Welfare Fund ("the Funds").

  2. Mr Simon Levine of VAT Advice Line Limited represented the Authority. Mr Richard Smith of counsel represented the Respondents ("HMRC"). We heard evidence from Paul Curtis and from John Town. Mr Curtis was a police officer with the Sussex Police from 1971 until 2005 when he retired as a police officer with the rank of Chief Superintendent. From 2005 until May 2009 (when he retired) Mr Curtis was Head of Human Resources at Sussex Police. Mr Curtis has had long involvement with the Funds, ultimately as chair of the trustees of both of the Funds. He retired as a trustee in January 2009. Mr Town is a qualified accountant and was appointed as treasurer of the Funds in April 2000. In addition to the evidence of Mr Curtis and Mr Town, there was an agreed bundle of documents.

    3. Background Fact
  3. The Funds provide assistance and support for police and other employees and former employees of Sussex Police. The principal activities of the Funds is to provide grants and loans to their beneficiaries. The issues arising in this Appeal arise following the receipt by the Funds of a legacy of £1.8 million in 1998. Until that time, administrative support for the Funds was given by the welfare department of Sussex Police free of charge, and cases were presented to the trustees by Sussex Police welfare officers. The fact that these services were provided by Sussex Police staff in addition to their normal duties meant that the services could be erratic (particularly bookkeeping) and not always timely. The legacy allowed the Funds to move onto a more professional footing, and expand the services that they provide to their beneficiaries.

  4. A decision was made to recruit two members of staff to provide a service to police pensioners and to engage a professional treasurer on a part-time basis. Subsequently these staff were augmented by a full-time finance and administrative officer and a part-time welfare advisor.

  5. Sussex Police continue to provide support to the Funds free of charge, in particular office facilities, accounting software and IT support generally. The Fund's staff are employed in the name of Sussex Police, but all the employment costs are reimbursed by the Funds on a monthly basis.

    6. Contentions of the parties
  6. HMRC contend that the staff are employees of Sussex Police, and Sussex Police make a supply of staff to the Funds in the course of business for consideration. That consideration is the reimbursement of the employment costs. HMRC say that this payment is subject to VAT.

  7. Sussex Police contend that the staff are employed by them as agents for the Funds, and that there is therefore no supply of services made by Sussex Police to the Funds. Alternatively they say that the supply of staff by Sussex Police to the Funds is a purely domestic arrangement, does not amount to a supply in the course of business, and is therefore not liable to VAT.

    8. Agency
  8. We have no hesitation in finding that the staff were employees of Sussex Police and not employees of the Funds.

  9. Our finding is based upon the following evidence before us:

    10. (1) The statements supplied to the various individuals under section 1, Employment Rights Act 1996 (and countersigned by them) all state that their employer is "Sussex Police Authority" (the Employment Rights Act requires employers to provide employees with a written statement setting out various particulars of their employment, including the name of the employer). If Sussex Police engaged the individuals as agent on behalf of the Funds, the Employment Rights Act statements would need to state this, which they do not.
    (2) Mr Town, at the time he was appointed, expressed a preference to be engaged as treasurer on the basis of a self-employed consultancy arrangement, or alternatively as an employee of the Funds. This was turned down by Christine MacFie, the then head of the Welfare Department of Sussex Police, and who was also a trustee and Secretary to the Funds. This is because the individuals need, as part of their work, access to various confidential and sensitive electronic databases maintained by Sussex Police. In order to maintain appropriate controls over the use of the information in the databases, it was considered inappropriate for persons who were not employees of Sussex Police to have access to them.
    (3) Mr Curtis in his evidence told us that disciplinary and grievance matters were dealt with by Sussex Police, without the intervention of the Funds (unless the issue impacted directly on the Funds' beneficiaries). So, for example, an issue arising in respect of inappropriate e-mails being sent by an individual was resolved without the involvement of the trustees of the Funds. The fact that disciplinary issues are addressed without the involvement of the trustees of the Funds suggests that the individuals are employees of the Sussex Police and not of the Funds.
    (4) The individuals are members of the Sussex Police's pension funds, which are not open to persons who are not employees of Sussex Police.
    (5) In 2001, Ms Castle was engaged as a full time finance and administration officer. She was previously employed by Sussex Police in another capacity. Her statement under the Employment Rights Act states that her period of continuous service for statutory employment rights dates from 1999, when she was originally engaged by Sussex Police. If she was employed by the Funds (which, as a separate charitable trust, is not an associate of Sussex Police for employment law purposes), her continuous employment would only have commenced in 2001.
    (6) There is no agreement or other document recording that Sussex Police acted as agent of the Funds in employing the various individuals. To the contrary, a memorandum dated 7 September 2001 from Ms MacFie (in her capacity as trustee and Secretary to the Funds) to Ms Hendley in the Finance Department of Sussex Police expressly records that the various posts will be funded by the Funds, but that the individuals are all Sussex Police employees in receipt of permanent contracts of employment. We note the evidence of Mr Town and Mr Curtis that it was agreed between Sussex Police and the Funds that the financial costs and risks relating to the employment of the individuals would fall upon the Funds, but this is consistent with the individuals being employed by Sussex Police, and their services being supplied by Sussex Police to the Funds (see, for example, Customs & Excise v Tarmac Roadstone Holdings Ltd [1987] STC 610, which we consider in more detail below).
    (7) We note that the decision to engage staff was taken by the trustees of the Funds, and that the trustees drafted the job descriptions for the various posts. However, Sussex Police then evaluated the job descriptions in accordance with Sussex Police methodologies, and established a pay grade on Sussex Police's pay scale for the position. Mr Curtis told us that Sussex Police would not have tolerated the staff being paid "out of grade". Appraisals were conducted using Sussex Police appraisal systems by Sussex Police management. These factors are all consistent with the individuals being employees of Sussex Police and their services then being supplied to the Funds.
  10. There was only limited evidence that the individuals might have been employed by the Funds. The first is the evidence of Mr Town, who stated in his oral evidence that he considered that he was employed by the Funds. But this is inconsistent with other evidence given by him - that when he was initially appointed he asked to be engaged either on a self-employed consultancy basis, or as an employee of the Funds - and both of these requests were turned down by Ms MacFie. The other is statements by both Mr Curtis and Mr Town that in the event that Sussex Police were to become insolvent, then the Funds would be under an obligation to continue to pay the relevant staff. We consider that the likelihood of Sussex Police - a statutory police authority - becoming insolvent is so remote as to be fanciful - it is far more likely that the Funds might become insolvent. None of these statements is supported by any of the documentary evidence, and we do not place any great weight upon them.

  11. We find that the various individuals were employees of Sussex Police, and that their services were supplied to the Funds. The Funds agreed to meet the full employment costs incurred by Sussex Police (including, for example, employers' NICs), and that these payments represented the consideration for the supply. This is analogous to the circumstances in the case of Tarmac Roadstone Holdings mentioned above, a decision of the Court of Appeal.

    12. Supplies in the course of a business
  12. If the supply of the staff by Sussex Police to the Funds is not in the course of business, but is a purely domestic arrangement, then the supply is not a taxable supply for the purposes of VAT.

  13. Mr Levine referred us to the cases of Customs and Excise Commissioners v Lord Fisher [1981] STC 238 and Processed Vegetable Growers Association (1973) VTD 25 in support of his submission that any supply of staff to the Funds by Sussex Police amounted to a domestic arrangement, and were not a taxable supply. We find neither persuasive. The Lord Fisher case concerned Lord Fisher's pheasant shoot (which was run as a hobby and not a commercial enterprise), and the contributions his guests made towards the costs of the shoot. The arrangements in Lord Fisher's case were clearly a private arrangement between friends for sharing the costs of a sporting hobby (albeit an expensive hobby), and have no bearing on this appeal.

  14. The facts in the Processed Vegetable Growers Association are analogous to the facts in this appeal. The staff of the Association were employed by the National Farmers Union, and supplied by the NFU to the Association. The Association reimbursed the NFU for the relevant employments costs. The VAT tribunal held that the arrangements did not amount to a business, and the supply of staff was therefore not liable to VAT. However the decision of the tribunal is a very old one, and was based on its view (at the time) that a "business" for VAT purposes connotes an occupation carried on as a commercial activity, following the approach adopted by the courts for the purposes of profits tax. However this interpretation of "business" for VAT purposes was overruled by the Inner House of the Court of Session in Customs and Excise v Morrison's Academy Boarding House Association [1978] STC 1. The Inner House of the Court of Session held that for an activity to amount to a business for VAT purposes, it had to be carried on in a businesslike way, but it did not have to be carried on a commercial basis with the objective of making a profit.

  15. The Tarmac Roadstone Holdings case is a much more recent decision and its facts are very similar to the ones in this case. Markfield was a wholly owned subsidiary of Tarmac. The managing director of Markfield made all the administrative arrangements for advertising and engaging its staff, including the conditions of service. However the contracts of employment were all in Tarmac's name. Markfield reimbursed Tarmac (through their inter-company account) for the costs of employment. The Court of Appeal held that these arrangements amounted to a taxable supply of staff by Tarmac to Markfield for consideration, the consideration being the amount reimbursed.

  16. We find that the activities of Sussex Police were and are carried on with reasonable continuity and in a businesslike manner, and that therefore the supplies of staff were made by Sussex Police to the Funds in the course of business and so are taxable supplies.

  17. We note that Sussex Police is a public authority, and that many of the supplies that it makes in its role as a public authority are outside the scope of VAT. Although one of the original grounds of the appeal was that the supplies made to the Funds were outside the scope of VAT as they were made by a public authority, this ground was withdrawn before the hearing of this Appeal.

  18. For completeness we mention also the case of Durham Aged Mineworkers Homes Association v Customs and Excise [1994] STC 553, which concerned an informal arrangement made between two closely associated organisations for the sharing of office accommodation and staff, and for one of the organisations to act as "paymaster" for the other - on which there was uncontradicted evidence. Those are not the facts of this case, there is no question of the Funds and Sussex Police sharing facilities (as opposed to Sussex Police supplying staff and facilities to the Funds) and having a pragmatic arrangement by which one pays for the whole of the administrative costs and bills the other for its share - we find that Sussex Police did not act as paymaster or as agent for the Funds.

    19. Conclusions
  19. We find that Sussex Police employed the relevant members of staff, and in employing such staff did not act as agent for the Funds. We find that the staff were supplied to the Funds in the course of business for consideration. As such the supply of staff is a taxable supply, and the assessment made by HMRC was properly made.

  20. We therefore dismiss the appeal.

    21. Nicholas Aleksander
    TRIBUNAL JUDGE
    RELEASE DATE: 30 July 2009

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