First-tier Tribunal (Tax)

[2010] UKFTT 66 (TC)

TC00378

Appeal number: LON/08/0362

PARTNERSHIP – partnership between building owner, a developer and the Appellant as contractor – supply of building works – whether liable to VAT although made by the Appellant to the partnership – yes – appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                                        SPACE 2 BUILD LIMITED                       Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                             REVENUE AND CUSTOMS (VAT)         Respondents

                        TRIBUNAL: TRIBUNAL JUDGE JOHN F AVERY JONES CBE

Sitting in public in London on 2 February 2010

Kevin Mallett ACA for the Appellant

Christiaan Zwart, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1. Space 2 Build Limited appeals against assessments to VAT for period 03/03 of £7,126, period 06/03 of £6,275, and periods 09/03 to 06/05 of £17,809, total £31,210 in respect of building work for the refurbishment of 20 Roland Way London SW7.  The Appellant was represented by Mr Kevin Mallett ACA, and the Respondents (“HMRC”) by Mr Christiaan Zwart.

2. I heard evidence from Mr Patrick Jack, director of the Appellant, and officer K M J Rangel.  I find the following facts:

(1) The Appellant (defined therein as the Contractor) entered into a written partnership deed (“the Partnership Deed”) on 13 September 2002 (but expressed to be effective from 15 August 2001 (defined as the Effective Date) (although the Appellant was incorporated in 2002, and although clause 2.1 states that the parties wish to form a partnership (“the Partnership”) with effect from the Effective Date “which shall mean the date of this Deed”) with Mr T Binks and Mr N Marmont (defined as the Investors), and Dunster Purchasing Limited (defined as the Developer).  The partnership business was for the acquisition of 20 Roland Way, London SW7 (“the Property”), the carrying out of any works and its disposal on sale. 

(2) Although the Partnership Deed states that the parties will purchase the Property in the proportions and for the sums set out in Schedule 3 (which it seems should be Schedule 4) the total cost of which is £957,669 of which the investors were to pay £213,919 and the bank £743,750) Mr Binks had according to the Land registry entries acquired it on 2 October 2001 for £875,000.  A schedule shows that the Investors were to put up cash of £164,703 each and a bank would lend £898,376.  A project appraisal was attached to the Partnership Deed showing a purchase price of £875,000 (£931,500 including costs), works of £1,227,781 and a prospective sale figure of £1,413,900 giving an expected surplus of £219,869.  The profit sharing proportions were 49.5% to the Developer, 49.5% to the Investors together and 1% to the Contractor.  The estimated share of profits for the Appellant, based on the surplus of £219,869 was £2,199.  The Partnership is still continuing and no profit share had been paid to the Appellant. 

(3) The terms of the Partnership Deed included:

“4.2.1  The Contractor shall carry out the building works to complete the Project agreed between the Developer (on behalf of the Partnership) and the Contractor (‘the Building Works’).

4.2.2  The Partnership shall pay the Contractor for the Building Works such amount and on such dates as shall be agreed between the Developer (on behalf of the Partnership) and the Contractor.”

There follows covenants by the Contactor to carry out the Building Works in a good and workmanlike manner to the complete satisfaction of, and in accordance with instructions provided by the Developer (on behalf of the Partnership).

(4) The Partnership was not registered for VAT.

(5) The works to the Property are described in a detailed and costed Scope of Works dated 12 September 2002, the last page of which is a Form of Tender under which the Appellant agreed with Dunster Holdings Limited to complete the works within 23 weeks for £170,359 exclusive of VAT.  This is dated 13 September 2002 and is signed by Mr Jack on behalf of the Appellant [written as “Space to Build Limited”] and by someone on behalf of Dunster Holdings Limited. 

(6) As the building work progressed the Appellant was paid on the basis interim certificates all on Dunster Holdings Limited paper and without showing any VAT.  The final account dated 23 July 2003 was on paper headed “Dunster” and was for a total of £194,804.41 (comprising £10,607 demolition contract (Mr Jack explained that the floors were found to be dangerous and had to be demolished), £170,359 for the main contract, variations of £7,073.67 and additional works by way of purchase order of £6,764.41).

(7) A planning permission dated 29 April 2002 was for “Erection of rear roof extension.”  The inside was in fact gutted leaving only the walls standing and the property was rebuilt inside with a new flat roof, in place of the previous one having the dip in the centre, forming an “L” shape with the remaining part being a moveable roof over what was described as a garden studio.  No other planning permission was granted.

(8) The works are liable to VAT since they are refurbishment works which left the party walls either side of the property standing and also the front and back walls.

3. Mr Jack and Mr Kevin Mallett contend that the works were carried out pursuant to the Partnership and are not liable to VAT.  I saw a letter of 10 August 1998 from Customs and Excise addressed to Mr Jack of P&P Building & Joinery (presumably Mr Jack’s business name before the Appellant was incorporated) saying that “Following a telephone conversation with the owner of Dunster Properties who assured me that you are in fact in partnership, I can confirm that you are not required to charge VAT to your partner.”  Mr Jack said that the partnership arrangements were in the same form as the ones to which that letter related.

4. Mr Zwart, for HMRC, contends that the supply of the works was made to a different party (Dunster Holdings Limited) from any of the partners (Dunster Purchasing Limited), and in any event was outside the terms of the Partnership Deed in the sense of being for a payment provided for in clause 4.2.2 under a separate contract between Dunster Purchasing Limited (on behalf of the Partnership) and the Appellant, and not under the Partnership Deed itself in return for a share of profit.

5. In my view the works were carried out pursuant to the Tender which is a contract between the Appellant and Dunster Holdings Limited (not Dunster Purchasing Limited, which is the partner in the Partnership, even though the companies may be related).  As a separate contract it has nothing to do with the Partnership arrangements and is a supply for VAT in its own right.  That is sufficient to conclude the matter in favour of HMRC.

6. However, even if the tender contract had been between the Appellant and Dunster Purchasing Limited (one of the partners) as envisaged by clause 4.2.1 it would still in my view have been pursuant to a different contract from the Partnership itself.  The Appellant was not paid a share of profits for doing the building work but a contractual sum of £194,804.41 compared to the projected share of profit of £2,199.  The sum was paid for the building work and not for the supplies made by the Appellant in its capacity as a partner for which the prospective profit share, which it is common ground is not liable to VAT, was to be paid (and has not yet been ascertained).

7. I am afraid that someone has thought that since partnership profit shares are not liable to VAT then the same applies to anything else that is written into the Partnership Deed.  Customs and Excise may have contributed to this misunderstanding in the letter of 10 August 1998 quoted above.  I saw a letter of 5 March 1998 from Dunster Properties Limited to Mr Jack of P&P Joinery & Decorating Contractors saying

“In short, you will not need to register for VAT purposes on Dunster projects providing you enter into a Dunster Project Partnership Agreement.  For your piece (sic) of mind, please keep this letter as confirmation of the above, and accordingly I have nothing to loose (sic) by providing this letter as an indemnity to you.  In the event that this advice is wrong and you are required to raise VAT on Dunster Project Partnership invoices with us, we will pay this to you retrospectively.” 

In my view the advice was wrong, and I hope Dunster Holdings Limited pays the VAT.

8. I have considered whether the Appellant can argue a case for legitimate expectation on the basis of Customs’ letter of 10 August 1998.  I am afraid I do not consider that I can because, whatever my jurisdiction, the supply here is not to one of the partners and so it is not within the terms of that letter which confirms “that you are not required to charge VAT to your partner.”  There is conflicting authority in the High Court as to my jurisdiction to consider this: the decision of Sales J in Oxfam v HMRC [2009] EWHC 3078 (Ch) in favour of such jurisdiction, and of Jacob J in Customs and Excise Commissioners v National Westminster Bank [2003] STC 1072 against it.  Until the matter is clarified I do not consider that I should accept such jurisdiction.

9. Accordingly, I dismiss the appeal.

JOHN F AVERY JONES

TRIBUNAL JUDGE

RELEASE DATE: 12 February 2010