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North East Direct Access Ltd v Customs & Excise [2003] UKVAT V18267 (08 August 2003)

VALUE ADDED TAX — hostel for homeless persons — whether exempt from VAT under Schedule 9 VATA 1994 group 1 — whether proprietor is excluded from exemption by Item 1(d) and Note 9 to group 1, as offering sleeping accommodation in a similar establishment to an hotel, inn or boarding house — not exempt — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

NORTH EAST DIRECT ACCESS LTD Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Mr I E Vellins (Chairman)

Mr J E Davison (Member)

Sitting in public in Newcastle on the 22 May 2003

Mr R Barlow, counsel, for the Appellant

Mr J Puzey , counsel for the Respondents

DECISION

In this appeal the Appellant is North East Direct Access Ltd which trades as a hostel for homeless persons supplying accommodation, catering and other facilities at premises at Great North Road, Plawsworth, County Durham, and is registered for VAT with effect from 1 April 1992.

The Appellant appeals against a review decision of the Commissioners notified to the Appellant by letter dated 7 January 2002. That decision upheld on review a previous decision of the Commissioners to assess the Appellant pursuant to section 73 of the Value Added Tax Act 1994 in the sum of £12,063 plus interest representing VAT arrears for periods 05/97 to 05/99 inclusive, notified to the Appellant by notice of assessments dated 17 April 2000. The notices had been issued when a visiting officer had noted that the Appellant had not been accounting for VAT on the value of supplies to residents, and on the basis that the officer concluded that the Appellant was an establishment similar to a hotel, inn and boarding house and was accordingly liable to VAT on its supplies. The Appellant appealed maintaining that it was not an establishment similar to a hotel, inn and boarding house as defined in note 9 to group 1 of Schedule 9 of the VAT Act 1994 and that accordingly its supplies were exempt from VAT.

At the hearing of this appeal at Newcastle on 22 May 2003, the Appellant was represented by Mr R Barlow, counsel, and the Respondent was represented by Mr J Puzey, counsel.

Evidence was given at the hearing of the appeal by the Appellant's accountant, Mr P Chapman and by a member of the Appellant who worked at its establishment, Mrs B Duff.

The issue in this appeal is whether the Appellant is providing accommodation within the terms of item 1(d) of group 1 to schedule 9 of the VAT Act 1994 as a "similar establishment" to a hotel, inn or boarding house. If it is, then its supplies are taxable and not exempt. If it is not, then its supplies are exempt from VAT. In its notice of appeal the Appellant gave an alternative ground for appeal, namely that exemption applied as its supplies fell within either item 1, item 4, or item 9 of group 7 to schedule 9 of the VAT Act 1994. Mr Barlow at the hearing of the appeal indicated that the Appellant was not pursuing the alternative grounds of appeal, and that he was not pursuing the Appellant's contentions that its supplies were exempted under item 1, item 4, or item 9 of group 7 of schedule 9.

As to the background to the appeal, on 13 October 1999, an officer of the Commissioners visited the Appellant's premises, interviewing the director and obtaining details of the business activities and record keeping. The visiting officer noted that the Appellant was not accounting for VAT on the value of supplies to residents who had stayed more than 28 days. The officer concluded from his enquiries that as the Appellant was an establishment similar to hotels, inns and boarding houses, it was liable to VAT on its supplies, subject to valuation relief in accordance to Notice 709/3. On 8 February 2000 the Appellant's accountants wrote to the Commissioners enclosing details of the value of supplies upon which the Appellant had underpaid VAT. The Appellant's accountants nevertheless challenged the Commissioners' view of the Appellant's liability, arguing that the Appellant provided a much wider range of services than that provided in hotel, inn, boarding house or hostel accommodation. On 17 April 2000 the Commissioners issued assessments now under appeal. The Appellant requested the Commissioners to review the decision to issue the assessments. On 7 January 2002 the disputed assessments were reviewed by the Commissioners and upheld, and notified to the Appellant's accountants.

Under the provisions of item 1 of group 1 of Schedule 9 to the VAT Act 1994 "the grant of any interest in or right over land or of any licence to occupy land:" is exempt from VAT, other than (amongst other exceptions)

"(d) the provision in an hotel, inn, boarding house or similar establishment of sleeping accommodation or of accommodation in rooms which are provided in conjunction with sleeping accommodation or for the purpose of a supply of catering;".

Note (9) defines "similar establishment". It states:

"Note (9) "similar establishment" includes premises in which there is provided sleeping accommodation, whether with or without the provision of board or facilities for the preparation of food, which are used or held out as being suitable for use by visitors or travellers".

Documentation

An agreed bundle of documents was produced at the hearing, containing the documentation relevant to this appeal.

The form VAT 1, application for registration for VAT by the Appellant dated 30 April 1992, showed that the business had been transferred to the Appellant as a going concern by the DSS Resettlement Agency on 1 April 1992. In it the Appellant described its business activity as "homeless person's hostel".

On 8 February 2000 the Appellant's accountants wrote to the Commissioners setting out calculations in respect of the three years ending 31 March 1999, providing information upon which the officer of the Commissioners wished to raise an assessment. The accountants however indicated that they did not accept the Commissioners basis for their proposed assessment stating "it is clear that North East Direct Access Ltd provide a much wider range of services than that simply provided in hotel or hostel accommodation. Some of these services are under the direct supervision of registered medical practitioners, nurses and others and accordingly are exempt from VAT". The accountants awaited the issue of an assessment, and indicated that they would appeal.

On 17 April 2000 the Commissioners issued their assessments.

On 18 May 2000 the Appellant's accountants wrote to the Commissioners requesting a reconsideration of the decision to issue the assessments. In that letter the accountants stated "whilst it is accepted that furnished sleeping accommodation and meals are provided by the company, the assessment raised ignores that the company provides a much greater range of services than a typical hotel or hostel. Furthermore, these services are provided to individuals for periods considerably in excess of 28 days. Indeed a number of people have been resident in the company's premises since before the company formation over 8 years ago. Over the three year period [1996 – 1999] approximately 79% of income arose from residents beyond the first 28 days. Such a consistently high proportion indicates that by far the majority of residents are long stay, a situation which is not typical of a hotel or hostel and provides an indication that the company is providing more than simply accommodation for visitors or others for whom the accommodation is not a permanent place of residence." The accountants enclosed a copy of a report prepared by Durham County Council Social Services Department in August 1994 setting out the history of the unit prior to the formation of the Appellant in 1992, which showed that by far the majority of the residents were assessed as incapable of independent living, and dependant on the provision, to greater and lesser degrees, of supervised personal care. The accountants indicated that in 1992 the rent officer had awarded the Appellant a figure of housing benefit for the cost of a resident each week which was the rate being the then standard rate for hostel accommodation, but after appeal, the rate was increased substantially to reflect the substantial range of services offered in excess of the straight-forward hostel accommodation. The accountants pointed out that in 1996 the Appellant received a grant award from Durham County Council to assist with a building programme, the main criteria being that clients were homeless and had a significant mental health need which affected their overall functioning and capacity to cope alone in the community. The accountants stated that since 1992 as many of the longer stay residents have grown older, their difficulties have only served to make them more dependant on the continuing support provided by the Appellant. GP's and district nurses regularly visited residents at the site. The Appellant had the responsibility of controlling and dispensing medication to many of the residents in accordance to directions given to them by the doctors and nurses involved. The accountants argued that the services and facilities provided by the Appellant are more akin to a residential care home than that of a hostel. The accountants suggested that the assessment was inappropriate and requested that the assessments raised on 17 April 2000 be cancelled and that the method by which the Appellant had historically calculated output tax be accepted as reasonable.

On 17 January 2001 an officer of the Commissioners replied to the Appellant's accountants stating that the papers had been submitted to the Charities and Health Care Policy branch of the Commissioners who had confirmed that the Commissioners did not consider that exempt health or welfare services were provided by the Appellant.

On 22 March 2001 accountants instructed by the Appellant requested a further reconsideration of the Commissioners assessment that had been issued on 17 April 2000. The accountants gave details of the historical background to the premises at Plawsworth. These had been originally run by the Department of Social Security who had decided to close the premises with effect from 31 March 1992 despite objections raised by the relevant local care and medical authorities. The Appellant company was incorporated on 2 February 1992 and it took over the premises on 1 April 1992. It was a worker's cooperative. The accountants submitted a copy of the Memorandum of Articles of Association. The main objects as set out in clause 3 of the Memorandum, for which the cooperative was established, were to provide direct access accommodation and facilities for homeless people, self catering facilities for those wanting to resettle, half-way accommodation for those ready for re-housing, and a care home facility for those who were ill and need a high level of support, and to provide training for the residents, and a retail outlet to sell goods produced by the residents. Clause 4 required the income and property of the cooperative to be applied solely towards the promotion of the objects and no portion should be paid to the members of the cooperative except by way of payment of wages, bonuses and expenses in return for services actually rendered to the cooperative. Clause 7 required that in the event of the winding up or disolution any asset should be transferred to a common ownership enterprise with objects similar to the Appellant.

Clause 59 of the Articles provided that the profit of the cooperative should be applied in a manner decided at a general meeting, firstly to a general reserve for the continuation and development of the cooperative, secondly to a bonus to members, and thirdly, to make payments for social and charitable objects.

In the letter the accountants stated that the sole criteria of the Appellant for determining whether it will provide its services is that an individual must be homeless. They pointed out that unfortunately the lifestyle attached to homelessness also brings with it numerous behavioural and other problems categorised as, drugs/alcohol/gambling addictions, mental health problems, physical disabilities, learning disabilities, and problems associated with old age. They pointed out that the Appellant did not advertise its services and all residents were either referred by the local agencies (care, health, police etc) or by self-referral on a 24 hour basis. When new persons arrived they were interviewed to assess who they were, why they were homeless, who were the next of kin, what benefit details they received, and their medical history (e.g. addictions/medical/ psychiatric). They were then provided with food and a room, and the rules and facilities were explained. Thereafter, on arrival or the next day the Appellant discussed with the persons what they were seeking from their stay, made appointments with the benefit agencies and assisted with the completion of documentation, and made referrals to the agencies, such as the medical examination agency. The Appellant was under the local GP care in Chester-le-Street. The GP visited the premises as required and the practice nurse visited twice a week undertaking a medical on each new resident. The Appellant collected and administered to the residents whatever drugs were prescribed. The Appellant kept in a secure place the drugs prescribed to residents including anti-depressants, anti-alcohol, pain killers, methadone etc. A community psychiatric nurse visited weekly or as required, as did a community psychiatric nurse specialising in drug and alcohol abuse, a Chiropodist visited monthly, a probation officer when required and a social worker had visited weekly, although budget cuts had resulted in a suspension of this. The accountants pointed out that the Appellant provided for the homeless residents a wide range of advice, training and counselling, including advice and counselling on social skills, financial advice and assistance and house-keeping skills and advice and training, for example, cooking, decorating, DIY, gardening etc. There were recreational facilities at the premises. The accountants pointed out that the income of the Appellant arose from its charges to the homeless, coming from two sources, housing benefit paid direct to the Appellant by the local authority, and state benefit paid by the DSS to the residents, from which the residents paid a sum to the Appellant. The accountants pointed out that at the date of their letter the housing benefit was £95.80 per week for each resident and the state benefit £25 per week totalling £120.80 per week per resident, although the Appellant was in negotiation with the local authority to increase this figure to £145 per week per resident. They pointed out that these sums were in excess of the rent which a local authority allowed for bed and breakfast accommodation of £65 per week, which demonstrated the importance that the local authority placed on the support services that the Appellant provided to its residents. The accountants also pointed out that it was the intention of the Appellant to apply to become registered as a charity.

The Durham County Council Social Services Department report on the Appellant's premises dated 1 August 1994 set out the background history of the premises. It stated that North East Direct Access (NEDA) was the current name for what was originally the Plawsworth Resettlement Centre, a mile south of Chester-le-Street. The site was initially composed of army barrack-type accommodation and initially commenced its work as a national assistance resettlement unit in 1959. In the late 1980's the government indicated that all such units would close. As the ultimate deadline for closure of 31 March 1992 loomed, an idea was developed for a workers cooperative, and the premises were handed over to the Appellant as a workers cooperative a few weeks before the intended closure. This cooperative was set up by the workers who had formally worked at the premises for the DSS. At the time the people occupying the premises consisted of a high percentage who had some kind of drink problem. Over 50% of the residents had received some treatment for mental disorder which included addictions. Significant numbers had become homeless as a result of a breakdown of parental marriage or of their own marital relationship. The report indicated that a 24 hour, 365 day shift system operated for the running of the establishment between 10 care staff, four cooks, and one member working a 9 until 5 administrative shift. The report stated that NEDA provided a 24 hour direct access service for homeless people. 63 beds were available, 42 of which had been converted into single rooms to which residents had their own keys. There were two double rooms and 9 partitioned cubicles. There was a 6 bedded dormitory. Two emergency beds existed and were kept free at all times. It was the strategic intention of the unit to provide single rooms for all residents and there was a building programme, to replace the old army-style barrack accommodation with individual timber framed bungalows. A day activity centre was to be rebuilt. The report indicated that of 65 residents reviewed on 1 April 1994, all were men, and 32 of them had drugs/alcohol/gambling problems, 24 had mental health problems, 7 had physical disabilities, 3 had learning disabilities and 4 were over 65 years of age, (which meant that some of the men had a combination of these problems). They came from a variety of birth places, and a variety of previous places of residence. Of those 65 residents reviewed on 1 April 1994, 6 of them had been there a week or less, 2 over one week, 12 over two weeks, 2 over 4 weeks, 8 over 12 weeks, 9 over 26 weeks and 26 over 52 weeks. The majority of the men indicated that they had no idea as to where else they could stay if they had not been staying at NEDA. Many of the men had pointed to the conflicts that occurred between what was seen as discrete short stay and long stay populations. Many aspired to be re-housed ultimately, many aspired to their own homes and only one saw a move being with a partner.

The Appellant produced with the bundle of documents a number of medical and other reports relating to some of its residents, and case study reports of some of its residents.

The business plan of the Appellant stated that the North East Direct Access Cooperative would provide direct access accommodation for single homeless people, and help and advice for those wanting to resettle.

On 16 May 2001 the Commissioners wrote to the Appellant's accountants setting out the reasons why the Commissioners did not accept that the Appellant was entitled to be considered for exemption under items 1, 4 and 9 of group 7 of schedule 9. This detailed consideration is not now relevant to this appeal in view of the Appellant's representative indicating at the hearing that he was not pursuing arguments under group 7 as a ground of appeal.

On 15 August 2001 the Appellant's accountants wrote to the Commissioners submitting that the circumstances of the Appellant were similar to those of the Appellant in a tribunal case Dinaro Limited t/a Fairway Lodge (Tribunal Decision 17148), where the tribunal had considered that Fairway Lodge was not a "similar establishment" to a hotel, inn, or boarding house. The accountants pointed out a number of points of similarity that existed in the case of NEDA to that of Fairway Lodge namely:-

1) NEDA was a not-for-profit company operating a hostel

2) The hostel had facilities on a par with those of Fairway Lodge

3) The accommodation was provided to vulnerable persons i.e. the homeless (many of whom suffered from mental health problems) requiring accommodation and support services

4) The fees payable by each resident were in part met by housing benefit and other state disability benefits.

5) Residents were referred by local agencies (social services, health, police etc) or by self referral. No advertising was undertaken by the company.

6) Mrs Duff had recently undertaken a survey of the current 51 residents whose length of stay was seven with less than 6 months, six from 6 months to a year, thirteen for 2 to 3 years, six from 3 to 4 years and nineteen over 5 years. Until a number of recent deaths the company had 4 residents whose length of stay was between 8 and 10 years. Based upon this information it seemed that NEDA's average period of residency was considerably in excess of Fairway Lodge.

7) NEDA's employees also assisted with the claiming and collection of the residents benefits.

8) The fees charged by NEDA also included the provision of meals (4 a day)

9) Many of NEDA's residents received varying rates of the care component of disability living allowance. Most received the middle rate but some were on a higher rate.

10) For the same reasons as in the Fairway case, NEDA's residents received attention throughout the day and night

11) NEDA's employees collected, fulfilled and administered the resident's medication requirements, and provided individual therapy/counselling and got residents involved in the organised activities

12) NEDA also oversaw the attendance of specialists.

The accountants also pointed out that the tribunal in the Dinaro case had highlighted three elements of dissimilarity, in reaching the tribunal's decision that Fairway Lodge was not a "similar establishment". The accountants submitted that these three elements also applied to NEDA namely:-

1) Selectivity was exercised over the choice of residents, i.e. only homeless persons (many of whom had mental and other health problems) might be residents.

2) There was a high degree of care and supervision.

3) NEDA also emphasised a family concept – indeed if asked the residents would state that NEDA's staff were their family.

On & January 2002 the Commissioners replied to the Appellant's accountants indicating in the view of the Commissioners that the Appellant's premises were not on all fours with the decision of the tribunal in the appeal of Dinaro Limited. In the letter the Commissioners stated as follows:

"The centre's main purpose is to provide sleeping accommodation to its residents. In addition to this it supplies 4 meals a day and there are laundry facilities, games rooms and outdoor activities provided. The majority of the residents have keys to their own room. Some clients have stayed at the centre for long periods but in the tribunal case of Isabel McGrath (MAN/88/87) the chairman concluded that "some hotels may have long stay residents who have no other place of residency. Such permanency may distinguish the guests but it does not affect the function and description of the establishment".

"Therefore the centre has all the characteristics of an hotel, inn or boarding house. The fact the majority of the residents are long stay and suffer from a variety of physical or psychological problems does not detract from this.

In the Dinaro Limited decision the chairman applied three tests which he concluded meant that the Lodge did not fall within the definition of a similar establishment.

1) The selectivity exercised over the choice of residents.

Unlike Dinaro, there is nothing to indicate that the centre will only accept persons who have mental problems, although the majority of the residents do suffer from such problems. The centre is free to accept homeless persons who do not have such problems, whether they are referred to the centre by another agency or simply turn up at the door.

2) The high degree of care and supervision for all residents.

The majority of the residents are in receipt of the middle rate component of disability living allowance. To qualify for this allowance the residents need to be suffering from either a physical or mental disability so that they require constant supervision. However this care or supervision can be confined to helping the residents in filling in forms to claiming benefits or training in home-craft skills. The fact that the majority of the inhabitants are provided with keys to their own rooms, and therefore a degree of privacy, would indicate that continual supervision is not required for all residents.

3) The emphasis of a family concept for all those who are residents.

There is no doubt that the staff at the centre can offer practical help to the residents in terms of counselling and training, however this falls short of a "family" concept.

In the appeal of Westminster City Council (LON/87/564) the tribunal concluded that one of the characteristics of an inn, hotel or boarding house was that it's accommodation is usually provided for poor people who are away from home or who for the time being have no home. The tribunal applied the following test-

"Are there any characteristics that Bruce House lacks that which an hotel, inn or boarding house possesses and which are fundamental to the nature of an hotel, inn or boarding house with the result that the lack of them in Bruce House so distinguishes it as to make one say that Bruce House is not similar?"

The tribunal concluded that although there were some differences they "are not so great as to make us say that Bruce House is not similar to an hotel, inn or boarding house".

The same conclusions can be drawn from your client's case. Whilst there are differences between the centre and the hotel sector (the socio-economic background of the residents and the provision of counselling facilities being the main ones) they are not significant. The centre provides furnished sleeping accommodation, and is used by visitors or travellers. It should therefore be seen as a "similar establishment" as defined in group 1 of schedule 9."

The directors report and financial statements of the Appellant for the year ending 31 March 2001 showed a profit for the financial year before taxation for 2001 of £1,721. The profit for the previous year 2000 had been £40,838.

Mrs Duff had compiled a schedule setting out details of the length of stay of the residents and details of the benefits received by residents and their medical problems.

The Appellant produced a copy of its application for registration as a charity made in March 2003. At the hearing of the appeal Mrs Duff indicated that the application for registration as a charity had initially been rejected.

Evidence of Witnesses at Hearing

The Appellant's accountant, Mr Peter Chapman, gave evidence at the hearing that his firm was first appointed as auditors of the Appellant in 1992, the Appellant having been formed as a workers cooperative in 1992 limited by guarantee. He pointed out that the Articles of Association of the Appellant at paragraph 59 dealt with the application of profits namely firstly to reserves, secondly to a bonus to members, and thirdly to make payments for social and charitable objects. Mr Chapman gave evidence that during the 11 years that he had been an auditor of the Appellant there had been no distribution of surpluses, as profits had been retained, because the Appellant had had a ten year plan to redevelop the site and the buildings in order to improve and extend the facilities. He stated that there had been occasional bonuses paid to members but not on a regular basis and not every year. These bonuses had been relatively small and had been round sums such as £1000, and generally followed a period of time when a member of the cooperative had retired. All the members of the cooperative worked for the organisation as employees. There had not been a consistent pattern of making a payment out of profits to a retired member but some (not all) had received retirement award. The payments had not been calculated as a proportion of the profits but as a proportion of a retiring members salary, of the level of £10,000 or £20,000. No payment out of profits had been made for social or charitable purposes. All members worked for the cooperative and received a wage. The members did have a financial stake in the success of the cooperative as they were dependant on the cooperative to pay their wages, but their financial interest was as employees, although bonuses could be paid in the form of "golden handshakes". Mr Chapman said the bonuses paid to retiring employees could not been seen from the accounts but had been calculated as part of the salaries in the accounts.

Mrs Barbara Duff gave evidence at the hearing. She confirmed that she was a member and an employee of NEDA which operated at Great North Road, Plawsworth, Chester-le-Street, County Durham as a hostel for homeless men. She had become involved in the premises in 1986 when it was a government run hostel and she was a civil servant working for the resettlement agency. At that time all employees were civil servants. When the government intended to close down such premises, the workers formed a cooperative and lobbied to avoid the closure of the premises, and the cooperative took over the running of the premises being comprised of the 20 employees who had been previously employed there. The cooperative was set up through the Durham Cooperative Development Association. It qualified for a £10,000 interest free loan and a £15,000 grant from Durham County Council. Some of the employees had qualified for redundancy payment, and they loaned their redundancy payments to the cooperative. With the aid of these payments the cooperative purchased the premises from the resettlement agency in 1993. All the moneys that had been loaned by the employees had been repaid to them over the years by the cooperative. The premises had been extremely run down and the cooperative refurbished and rebuilt over a period of time. All the employees who started the cooperative in 1992 became members. Since then new employees could be invited to become members if they wished. At the date of the hearing about 60% of the employees were members of the cooperative and 40% were not. Those members who ceased to be employees ceased to be members. All members participated in decision making. All decisions had been made by general consensus, and they never had had to go to a vote as everyone had always agreed on decisions. Each employee had general duties but some employees had specific roles such as in catering or in attending to accounts. Mrs Duff looked after the financial side of things as well as working with the residents. She said that she counselled residents and gave them general support and help, she helped with their medical problems, helped sort out their debts, organised their medication, and arranged for residents to go to the doctors surgery if they needed to do so or to keep hospital appointments. She told residents if they needed to have a bath and if they needed to have new clothes. The premises are open every day during the year and for 24 hours every day. The wage for each employee is based on the same rate and they all do shifts.

Mrs Duff said that on three occasions a bonus had been paid to a member, but on each occasion it was either on retirement, on death or on resignation. This had been based upon the fact that in the early days employees had had to put in a large amount of work and the bonus payment was a "thank you" for that hard work. The bonus had only been paid to 3 members.

Mrs Duff said that with regard to the type of people who came to NEDA, primarily they had to be homeless to be a resident, but their homelessness could have been caused by a variety of problems such as mental health problems, drug abuse, alcohol abuse or learning difficulties. She had calculated the schedules that had been produced in the bundle of documents. She said that the Appellant did not advertise and people came through referral agencies such as Social Services, Hospitals, Prison Authorities, the local authority and the Social Security officers. In addition, some people had stayed before at NEDA or had heard through word of mouth of the premises. All the residents were men. Historically it had been a rule that all the residents should be men. The Appellant had thought of taking women but had decided that that was a bad idea because of the problems of the male residents. She said that the Appellant could refuse a man who wished to become a resident, for example, if it was a man who was just passing through the area or if it was a man who was drunk who would be refused access until he sobered up. She said that the premises had been used by the previous agency to accommodate men as a "drop off point" where men were passing through on their way to Scotland from say Yorkshire, but as such persons were not looked upon as part of a resettlement plan the Appellant would not accommodate a man who was just passing through.

Mrs Duff confirmed that the rent levels were set by the local authority for housing benefit purposes, and the housing benefit for each resident was paid by the local authority direct to the Appellant. The current housing benefit for each resident was £91. In addition residents were entitled to an additional grant which was a "support of people" grant in the order of about £39 per week. Accordingly the Appellant received for each resident about £130 per week in respect of the benefit and grant. In addition, each resident would pay an additional £40 to the Appellant for the services he received. Accordingly the Appellant currently received £170 per week in total in respect of each resident.

Mrs Duff confirmed that the services provided by the Appellant to cover the medical and other similar needs of the Appellant, were as set out in the accountants correspondence with the Commissioners. When each resident arrives he is given his own room, and a key to it. Each resident does his own cleaning although the cleaning materials are provided by the Appellant. Each resident has his own bedroom but with a shared living area in small units. Some of the units are 4 bedroomed units and some are 5 bedroomed. The living area consists of a sitting room. There is no cooking facilities there but there is a kettle. The residents eat in a separate dining room which is a communal dining room for the whole premises. Each bedroom has its own sink and there is a bathroom and toilet shared with the others in the small unit. There is a table tennis area and snooker room and a workshop building. There is a television in each shared living area together with a further television in a communal TV room. Mrs Duff produced photographs of the facilities and buildings. She confirmed that the gates were closed at night and that the area was fenced. There is an office block. Some of the new buildings were an experiment to provide a bed-sit type form of accommodation for a resident who wished to try his own independence. There were 4 at the moment with another 8 planned. It was part of the Appellant's programme to encourage this. She said that a lot of the residents led an unsettled life for years and the Appellant was trying to encourage them to have a degree of stability and to take pride in themselves. She gave us an example of one resident who had been a resident for ten years following a mental breakdown. The resident had blamed himself for the death of a friend and his own family would not let him stay at home, and previously he had locked himself up during the day and would only go out at night and would not wash and clean himself. That person had now been sufficiently rehabilitated to be housed in a bed-sit at the premises and was looking to move on. It had taken the 10 years to get him back to normal. That person is now looking to get a job and to move on to a home of his own.

Mrs Duff agreed that the description of the business activity of the Appellant on its VAT application form as "homeless persons hostel" was a fair description of the Appellant's activity. She agreed that a person had to be homeless and there was no other criterion for a person to be accepted as a resident. She said however that there were a number of problems that would cause a person to be homeless. She confirmed that she would not refuse anyone who was homeless who did not need support. She agreed that on her schedule there were individuals who had no specific problems at that point but she said that such persons might in the past have been recovering from drug problems or alcohol problems, and their recovery had meant that at the time she prepared the schedule some persons had no serious illness at that point. She confirmed that it was a person's homelessness that was the reason why they were accepted by the Appellant, and while the person was resident with the Appellant the Appellant's employees could offer that person support and help with health or other problems. She agreed that the Appellant's business plan showed that the Appellant was a direct access accommodation for single homeless persons and that it offered help and advise for those wanting it. She agreed that the Appellant could not give support unless it provided the accommodation. She agreed that the Appellant did not operate on a referral only basis. She agreed that the Appellant appeared in the Yellow Pages directory, so she had been told, but had never seen it there. She had only become aware of this last year. She said that she had been told that it was under "hostels or hotels" in the Yellow Pages. She said that if the Appellant did not have any space for someone the only other alternatives in the area was the Salvation Army hostel in Newcastle, and bed and breakfast places through the DSS. She was not aware of anyone who had come to the premises having seen it advertised in the Yellow Pages. She could not recall many people being refused entry but the Appellant did have the right to refuse entry. The Appellant organised games activities and trips away. On arrival or on the following morning an in-depth review was made for each resident.

Mrs Duff said that there was no contract or licence or tenancy form which a person had to sign if they wished to come to the premises. The Appellant had a rule that each resident should keep his own room clean and tidy, there should be no alcohol or drugs brought into the premises and each resident must behave in an orderly manner. To ensure that each resident paid over what was needed to the Appellant, the employees helped the resident to make his claim to the appropriate authority for the benefit. If a resident did not pay he would be told to go although he would be given the opportunity to catch up with his payments. There was no maximum or minimum length of stay. The employees could accept or refuse anyone they chose to do. No one who had been told to go had ever contested this in the courts. Although the employees sought to help a resident with problems there was no compulsion about it and the resident did not have to take advantage of the help if the resident did not wish to do so.

Mrs Duff confirmed that the various schedules that had been prepared from time to time of the length of stay of residents showed that in August 2002, 21 residents had been there for less than 1 year, 17 for less than 5 years and 20 for over 5 years. Similarly, in August 2001, 13 residents had been there for less than 1 year, 19 for less than 5 years and 19 for over 5 years. In April 1994, 39 residents had been there for less than 2 year and 26 for over 1 year. She said that it was not fair to say the aim was to move residents on. She said that some of the residents aimed to move on, but others had tried to live in other places and had not been happy. She confirmed that each resident had a file, and notes were kept of discussions with residents. She confirmed that the GP would come to the premises if he was requested to come but appointments would be made for residents to go to his surgery. The practice nurse visited the premises once a week. There was nobody at the Appellant's premises with authority to prescribe drugs. She confirmed that her hostel provided access to other social services, but these services were provided externally. She said that the Appellant had been refused registration as a charity by the Charity Commissioners because of its Memorandum and Articles as the Appellant was a workers cooperative and as such could not become a charity. The employees of the Appellant helped residents with shopping and budgeting on an informal basis. Some of the residents had many personal items in their own rooms, others had very little. The Appellant provided a bed, bookcase and wardrobe in each bedroom, together with linen. There were a minimum of 4 staff on duty during the day and 2 at night from 8 p.m. to 8 a.m. with 2 staff on call if necessary. None of the staff were medically qualified.

Submissions of Respondents' Representative

Mr Puzey submitted on behalf of the Respondents that the short issue before the tribunal was whether the Appellant's hostel made taxable supplies of accommodation within item 1(d) of group 1 to Schedule 9 of the VAT Act 1994. The Commissioners maintained that the Appellant is providing accommodation within the terms of item 1(d) as a "similar establishment" to a hotel, inn or boarding house. The case had originally arisen as a result of an assessment made by the Commissioners. The Appellant had not actually appealed against the assessment but had appealed against the decision of the Commissioners that upheld the assessment, but for the purpose of the appeal the same issues applied.

He submitted that item 1 provides an exemption from VAT for the grant of any interest in or right over land or of any licence to occupy land. However, item 1(d) is an exception. Accommodation in an hotel, inn, boarding house or similar establishment is taken away from the VAT exemption by the words "other than". The Commissioners submitted that the Appellant provides accommodation under the words "similar establishment" and therefore its supplies are not exempt from VAT. It does provide accommodation but that does not amount to a grant of any interest in or right over land or any licence to occupy land. Accordingly the short issue is whether the Appellant came within item 1, group 1 of schedule 9. If the Appellant did the services are not exempt, but if the Appellant did not come within that item the Appellant's services are exempt.

Mr Puzey submitted that the Appellant was a similar establishment to a hotel, inn or boarding house because of the provision of its accommodation. The Appellant had sought to argue at the hearing and in correspondence that its centre was much more than the provision of accommodation, however Mr Puzey submitted that undoubtedly a resident did not go to the Appellant's centre unless he was in need of accommodation. Indeed he went because he was homeless. The Appellant's accountant in correspondence had argued that the Appellant's provision of accommodation was not its principal purpose and that the accommodation was not provided for its own sake but merely to facilitate the rehabilitation of the homeless. Mr Puzey submitted that the Commissioners disagreed with that suggestion. He submitted that undoubtedly many of those who came to the centre would have problems but the reason why a man went to the centre rather than anywhere else was because he needed accommodation. Homelessness is ameliorated by providing accommodation and that is what the Appellant does. Just as a hotel provides accommodation for those who need or desire it and can pay, the Appellant provides accommodation to those who for whatever reason are homeless. There is no minimum or maximum stay at the Appellant's hostel and no selectivity about those whom it accepts. There is no need to be specifically referred or recommended by any other body or agency. An alcoholic could go to the Alcoholics Anonymous, a drug addict could go to a drug treatment centre, but if a person was homeless he would go to the Appellant's centre. Whilst a person who was not in receipt of benefits would not go to stay at the Appellant's centre, Mr Puzey submitted that the care activities that are provided there are not such as to make the Appellant's centre a care home as such rather than just a hostel for the homeless.

Mr Puzey submitted that throughout the Appellant had called itself a homeless person's hostel. Mrs Duff in her evidence had described it as such. The application for VAT, form VAT 1, had described the business activities of the Appellant as "homeless persons hostel". The Memorandum of association gave its Objects as "to provide direct access accommodation and facilities for homeless people". The Objects also referred to it as "a care home facility" and the provision of training, but the emphasis was clearly placed on the provision of accommodation. The Business Plan of the Appellant stated at the beginning of its introduction "the cooperative will provide direct access accommodation for single homeless people". The essential emphasis in the documents and the description applied to the unit was therefore on the provision of accommodation.

Although Mrs Duff had said that there are other activities provided at the unit, they were not formalised or structured or planned if those activities were provided internally. There was provision for external services principally from the medical profession, but normally if a resident needed a doctor he would go to the doctors surgery like any other individual. Mr Puzey submitted that the Appellant was not providing those external services but was providing a gateway to those services. Although the Appellant's employees advised a resident how to fill in forms and asked a resident if he had remembered to take drugs this did not make the unit anything other then a hostel for homeless people.

It had been suggested on behalf of the Appellant in correspondence that because there was no maximum length of stay and a significant number of the residents had been there in excess of a year, the premises were not similar to a hotel, inn or boarding house. The Appellant had argued that its residents were not like residents in a hotel as they stayed for much longer periods than in a hotel. However, there was no minimum stay specified for a resident, and it was not a requirement of item 1(d) that those who stayed must be gone after a certain period of time, The analysis relied upon by the Appellant did not demonstrate that the majority of residents were permanent; a similar analysis in 1994 by the Appellant had shown that 39 out of the 65 residents had been there for less than a year. The tribunal decision in the case Namecourt Limited v the Commissioners [1983] LON/83/253 had confirmed that the length of stay was not determinative for the purposes of item 1 group 1.

Mr Puzey submitted that long stay residents were common in hotels, inns, boarding houses and similar establishments, and the length of stay did not prevent such premises from coming within item 1(d). The VAT legislation expressly contemplated that people can stay at a hotel etc for longer than the period of 28 days, as by virtue of schedule 6, paragraph 9 of the VAT Act 1994 those who do stay at such an establishment are charged a lower rate of VAT after 28 days. The Appellant had argued that item 1(d) should be restricted to the traditional hotel or boarding house, but that was not correct. In any event, Mr Puzey submitted that the Appellant had not demonstrated that it predominantly only does provide long stay accommodation, as 3 different analyses had been provided of the residents all of which illustrated that this unit has both short stay and long stay guests.

The Commissioners did not in any event accept that the users of the Appellant's hostel were not visitors or travellers. There was no permanent or legal right of occupation, and by virtue of their homelessness many of the guests would be of an itinerant or transient disposition. On the other hand it should also be noted that many of the Appellant's visitors would be seeking more permanent accommodation of their own after leaving the Appellant's premises. The centre did not of itself solve the problems other than homelessness of its users. Many will be drug dependant or alcohol dependant and have a history of mental health problems. However, the Appellant in return for the receipt of housing benefit and state benefit provides food and accommodation. The medical services are provided by visiting practitioners, for example the GP, nurse and chiropodist. Social workers come from outside. Whilst residents may be encouraged to undertake self improvement projects there is no element of compulsion to this.

Although the residents paid a rent to the centre, the residents had no right of occupation, as one would have under a tenancy. If a resident was told to go there is no recourse to the courts, and the only documentation was a set of rules. Mr Puzey submitted that this was not the sort of situation contemplated in item 1 as "an interest in land…" .

Mr Puzey suggested that the Appellant's accommodation should be analysed in the same way as the tribunal had analysed accommodation in the cases of Namecourt Limited v the Commissioners and The Lord Mayor and Citizens of the City of Westminster v the Commissioners [1989] VAT TR71.

The Appellant had sought to draw a parallel between the facts of the present appeal and that of Dinaro Limited t/a Fairway Lodge (Tribunal Decision 17148) in which it was held that a hostel for the mentally ill provided exempt supplies and was not a similar establishment within the meaning of item 1. In the Dinaro case in reaching that decision the tribunal relied on 3 elements, firstly selectivity over the choice of residents, secondly the high degree of care and supervision for all the inhabitants, and thirdly the emphasis of a family concept for all those were residents. Mr Puzey submitted however that the Appellant's hostel was quite different to the hostel in the Dinaro case. In the Dinaro case that Appellant only accepted "persons who have mental problems coming mainly from psychiatric institutions upon their release to the outside world". All of those residents had to be referred by the local authority. Mr Puzey submitted that neither of these criteria applied to NEDA. The necessity for a higher level of care and supervision for the residents of Dinaro was self evident given their problems. Mr Puzey however submitted that NEDA's users by contrast may or may not have a need for a high level of care and supervision. Perhaps a substantial number will do so, but anybody who is homeless can stay at NEDA, hence their respective care requirements will vary widely, unlike those in the Dinaro case. Further, the Appellant in the Dinaro case worked to a particular philosophy , namely that of the "Fairway family". This was not the case in NEDA. In the Dinaro case the chairman stated that Dinaro's Fairway Lodge "is an exception and it will be rare for similar establishments to exist".

Mr Puzey submitted that it would not be correct to restrict the words "similar establishment" to the words "hotel, inn or boarding house". He submitted that in interpreting the words "similar establishment", the word "similar" did not equal the word "same". He submitted that note (9) did not exclusively define Note 1, because of the word "included". The Appellant was suggesting that item 9 should be used in some way to interpret item 1(d). Mr Puzey however submitted that it was not an exclusive definition, and the Commissioners did not accept that those who stayed at NEDA were not visitors or travellers. Some would stay indefinitely and many would not. He submitted that those who stayed were a transient population of an itinerant disposition, but the nature of the fact was that they were homeless and they did not stay permanently.

As well as the Dinaro case the Appellant was relying upon a European case Blasi [1998] STC 336. Mr Puzey however argued that there were important distinctions between the Blasi case and the NEDA appeal. In the Blasi case there was an actual landlord and tenant situation namely a letting agreement. The Blasi decision was based upon the German legislation which required that qualification for exemption depended on proving intention, evidenced by a letting agreement to let for a minimum of 6 months. English legislation did not provide any time limit. The Blasi case had also established that while exemptions were to be interpreted strictly, the exclusions from them were not.

The Appellant had sought to argue that hotels, inns and boarding houses had a commercial basis which NEDA did not. Mr Puzey submitted however that NEDA was a workers cooperative, whose objects included payment of bonuses to members. He submitted that this may not a be large part of its business but NEDA was undoubtedly a commercially run operation where the members could benefit from the benefits of golden handshakes of as much as £10,000 and £20,000, and its members did have a real interest in its commercial survival as it provided the members with their livelihood. It was not run with the intention of making a loss but to make a profit to keep the jobs of the employees and to develop the site. Mr Puzey pointed out that the Appellant charged its residents on a commercial basis even though the residents were making payments through state benefits. The total of £170 per week per resident was at least compatable with that which would be payable at a bed and breakfast accommodation. Commercially it would be in direct competition with a local authority accommodation for homeless people. The Appellant had claimed to be a unique operation in its area but essentially people who stayed there were homeless and there were no entry requirements other than that a person must be single and homeless. There was no maximum or minimum stay and the staff could refuse admission, for example if the resident did not pay or was asked to leave. This would be very similar to a bed and breakfast accommodation, and Mr Puzey argued that there was no reason why the Appellant should be exempt from VAT but a bed and breakfast accommodation should not.

Submissions of Appellant's Representative

Mr Barlow submitted on behalf of the Appellant that the appeal should be allowed. He clarified that it was not the Appellant's case that the supply of accommodation was only ancillary to the supply of care and food etc. He accepted that accommodation was the principal supply and the care was incidental. He submitted however that the issue in the appeal was whether the supply of accommodation was made by an establishment similar to an hotel, inn or boarding house, or not. The relevance of the provision of care etc is as to whether, in all the circumstances, NEDA in fact is an establishment similar to an inn, hotel or boarding house. The terms were not an exhaustive list and the fact that the legislation uses the words "similar establishment" infers that there will be establishments that are not inns, hotels or boarding houses but can fall within the wording of "similar establishments". That phrase "similar establishments" is meant to be a "genus" to which they all belong. Mr Barlow submitted that the answer to what that genus may be was contained in article 13 of the 6^th VAT Directive which refers to the words "hotel sectors". He submitted that "sector" was meant as that sector of the economy that operates as a hotel or has similar functions to a hotel. Mr Barlow submitted that NEDA should not be considered properly as providing accommodation in the hotel sector. He submitted that an organisation that was not like a hotel or similar to it did not fall within the words "similar establishment" and was therefore not taxable if it was providing accommodation. He submitted that the United Kingdom could have used the term "hostel" and the omission of that word "hostel" was likely to be because it was intending that premises such as those of NEDA were not taxable.

Mr Barlow submitted that the wording in the Appellant's VAT1 form describing their business as "homeless persons hostel" did not answer the question and that description could not be taken at its face value. He submitted that it was not relevant that not all the residents had serious health, drug or alcohol or similar problems, at the time Mrs Duff prepared her schedules, because that did not mean that people did not have those sort of problems before they were admitted. Many had been successfully cared for by NEDA to the extent that they recovered from serious problems but wished to continue living at NEDA. The fact that all residents were homeless when they arrived at NEDA was strong support for the fact that NEDA was not an establishment similar to a hotel, as hotels do not have residents who are homeless when they arrive. That is not the purpose of a hotel. He submitted that there was no competition between NEDA and a bed and breakfast establishment where people would have to leave and come back and where people could be admitted with children, and where bed and breakfast accommodation was not just restricted to men. Hotels did not keep files on their residents and notes of conversations concerning care.

Mr Barlow submitted that the United Kingdom provision in schedule 9 VATA 1994 by using the words "hotel, inn, boarding house or similar establishment" was attempting to give affect to the reference to the hotel sector or sectors with a similar function in the 6^th VAT Directive. The wording of the Directive is unclear in that the words "as defined in the laws of the Member States" might be taken to empower the Member States to define accommodation but not the hotel sector and similar sectors, but the European Court of Justice appeared to accept that the Member States were entitled to define the sector as a matter of their laws as in the Blasi case. However, that case also made it clear that the Member States are not given carte blanche to define the hotel and similar sectors in any way they chose. He submitted that the United Kingdom had not sought to define the hotel sector except by reference to the type of establishments it encompasses. It has not for example attempted to define the sector in terms of duration of occupation. Nor has it attempted to limit their exemption by providing "further exclusions" which would require specific words.

Mr Blasi submitted that the tribunal in the case of Lord Mayor and Citizens of the City of Westminster had taken too wide a view of the United Kingdom's enactment of the relevant provision in the Directive, and that in the light of the Blasi case, the Lord Mayor and Citizens of the City of Westminster case should have been decided in that Appellant's favour. He submitted that in particular it is not sufficient for an organisation to have some of the characteristics of a hotel for it to be similar to a hotel or similar sector. He submitted that "sector" clearly means "sector of the economy" and the European Court of Justice had held that the intention was to exclude from exemption organisations competing with hotels, which was not the case in the City of Westminster premises nor was it the case in NEDA. Mr Barlow made the same point in respect of the Namecourt case arguing that it was decided before the Blasi case, and accordingly had failed to take into account the arguments in the Blasi case, and would have been decided differently had it been decided after the Blasi case. He submitted accordingly that the Namecourt decision and the City of Westminster decision were old cases and were only persuasive as being tribunal cases and had not taken into account the principles laid down in the Blasi appeal. He submitted further that the premises in the City of Westminster case and the Namecourt case were not similar to the NEDA premises. For example, in the Westminster case the premises were a transit place where people did not stay for very long and it was not possible to do a great deal for them. This was unlike the NEDA premises.

Mr Barlow submitted that many hotels did provide for long stay residents but the length of the stay was not a determining factor but only one of the factors that may be relevant. He submitted that one should look at the generality of what happened at NEDA and not at why each individual resident might have come. He said that the residents at NEDA were not visitors in the ordinary sense of the word, and they were not travellers in the ordinary sense of that word. He further submitted that the activities of the Appellant could not be regarded as having a commerciality similar to the way that a hotel or inn was run. It was not run for commercial reasons for the profit of share holders or others. The fact that on 3 occasions golden handshakes were given to employees and members did not suggest that it was being run in the same way as a commercial organisation.

Mr Barlow submitted that the tribunal in the Dinaro case had correctly looked at those factors which established dissimilarity to hotels, inns and boarding houses, as well as those factors which went as to similarity. He submitted that the Dinaro decision was relevant to the NEDA appeal. He submitted that there was a high degree of care and supervision over NEDA's residents. NEDA's residents had various problems physical and mental as well as problems associated with alcohol and drugs. This was entirely different to a normal inn, hotel or boarding house. NEDA provided 24 hour care. Staff were on duty all night to keep an eye on residents.

Mr Barlow submitted that on all the facts of the appeal NEDA was not a similar establishment to a hotel, inn or boarding house. He pointed out that the Appellant had taken over the organisation and premises from a government department that had previously run it in a similar way so far as the recipients of the services were concerned. NEDA was a workers cooperative, not a commercial organisation in the ordinary sense. The Appellant did not pay profits to its owners in the normal sense, the only exception being the three golden handshakes which were a reflection of the hard work that those members had put in prior to their death, retirement or resignation in the case of those 3 individuals. The Appellant was a company limited by guarantee. All the residents were male. All were in receipt of state benefits. The state or local authorities paid directly for many of the residents. Welfare services were provided. There was no advertising (and the Yellow Pages insertion should not be regarded as advertising but as a means of enabling resident to find the place, and similar to a telephone directory). The Appellant is not in competition with commercial organisations. Most of the residents were otherwise homeless. Many residents were long term and the premises of the Appellant became their dwellings at least for long periods if not permanently. The facilities provided were not physically like a hotel, inn or boarding house.

Conclusions

Having considered all of the evidence, submission and principles of law we made the following finding of fact and law.

The Appellant North East Direct Access Limited operated the premises North East Direct Access at premises that were originally the Plawsworth Resettlement Centre at Chester-le-Street, County Durham. The premises had been used as a national assistance resettlement unit. When these units were closed, the Appellant company was formed in 1992 by the employees who had been working in the premises as employees of the national assistance resettlement unit. They formed the company as a workers cooperative to provide continued employment for them and to enable the premises to continue to operate. The operation was funded by a grant, a loan, and by moneys introduced into the company by the employees from their redundancy payments. We find that in describing itself in its documentation the Appellant has succinctly and properly described itself as a "homeless persons hostel". This was the way that Mrs Duff, an employee and witness for the Appellant at the hearing described the Appellant's establishment at the hearing of this appeal. The Appellant in its application form VAT1 for registration for VAT described its business activity as "homeless persons hostel". Its Memorandum of Association gave as its objects "to provide direct access accommodation and facilities for homeless people". Its business plan stated "the cooperative will provide direct access accommodation for single homeless people". We find that the main and predominant purpose and use of the hostel is for the provision of accommodation for homeless men.

The premises consist of accommodation and facilities on a site of approximately 4.5 acres. The site is fenced and the gates are closed at night. The are various buildings on the site including an office and reception, a kitchen/dining building, and a workshop. Residents are housed in various bungalows and flats. Some of the buildings are 4 bedroomed units, and some are 5 bedroomed. Other buildings consist of bed-sits. When admitted each resident is given a bedroom of his own with his own key. Each resident has the responsibility to clean his own room. Each bedroom has its own sink. In each unit the residents share the living accommodation as a sitting room with television. Each bedroom is provided with a bed and a wardrobe and a resident is given his own bookcase. They are provided with linen. There is a kettle in each unit but meals are provided in the dining room for the residents who are provided with 4 meals a day in the communal dining room of the centre. Each unit has a toilet. The centre has a communal table-tennis area and snooker room and TV room and there is a workshop building where residents can do wood-work etc. Some residents have accumulated numerous personal possessions and effects with which they have furnished their room. 4 bed-sit type units have recently been constructed with more planned.

In August 2001 Mrs Duff had calculated that there were 51 residents. When the cooperative was formed there were approximately 20 employees. Each employee has general responsibilities at the centre, but some have specific roles for example in catering and in administration. The centre is open every day and night, and at night there are some staff working through the night and some on call.

An individual must be homeless in order to be admitted. The centre does not accept men who are just passing through or who are drunk on arrival, and a resident would be asked to leave if he did not pay his rent. Some of the persons who come to the premises are referred to the premises by various social services departments. Others come because they have heard of the establishment by word of mouth or have been there before. The lifestyle attached to homelessness also brings with it numerous behavioural and other problems and the Appellant has categorised those problems as drugs/alcohol/gambling addictions, mental health problems, physical difficulties, learning difficulties, and problems associated with old age. The Appellant does not advertise it's services as such but apparently has an insertion in the Yellow Pages. Accordingly persons do not come to the premises as a result of any advertisement but are either referred by the local agencies such as care, health and police etc or by self referral on a 24 hour basis. The Appellant addresses the individual's homelessness and physical/mental behavioural conditions by providing them with accommodation, and food and support services. On arrival a person in interviewed to assess who they are, why they are homeless, benefit details and medical history. They are provided with food and a room and the rules and facilities are explained. The staff discusses with them their needs, and make appointments with benefit agencies and refer them to such medical agencies as they need. There is a local GP to whose surgery residents go, and who visit the establishment if required. The practice nurse visits twice a week. The centre secures drugs in a safe place and collects the drugs for the residents and administers drugs to the residents that are prescribed by the doctor. A file is kept for each resident. Nurses, chiropodists and probation officers visit when required. Staff advise residents and counsel them and offer house-keeping training and training for certain skills such as decorating, DIY and gardening. Mrs Duff described the method of funding a resident's stay which at the time of the hearing was approximately £170 per week consisting in part of housing benefit, in part of support the people grant and a balance paid by the residents from their benefits. Some residents stayed for a short time and others for longer periods including some residents who had stayed for over 5 years. Mrs Duff in her evidence gave evidence of the split-up of the residents as to their length of stay at different periods of time. All of the residents are men. Women are not accepted. The Appellant's income is used to pay the wages of its staff and upkeep of the premises and has been ploughed back into building the various buildings on the site. It was not the normal practice to distribute surplus profits but on 3 occasions since its incorporation sums of money including £10,000 and £20,000 have been paid to 3 member employees who had retired, resigned or died. A resident has not permanent or legal rights of occupation, and no tenancy agreement or licence agreement is signed by a resident.

This appeal is concerned with the construction and interpretation of the provisions of item 1 of group 1 of schedule 9 to the Value Added Tax Act 1994. Under the provision of item 1 of group 1 of schedule 9 "the grant of any interest in or right over land or of any license to occupy land is exempt from VAT, other than" (certain exceptions).

Amongst those exceptions is item 1(d) "the provision in an hotel, inn, boarding house or similar establishment of sleeping accommodation or of accommodation of rooms which are provided in conjunction with sleeping accommodation or for the purpose of a supply of catering".

By note (9) to item 1 "similar establishment" is defined as "similar establishment" includes premises in which there is provided furnished sleeping accommodation, whether with or without the provision of board or facilities for the preparation of food which are used by or held out as being suitable for use by visitors or travellers".

The Commissioners maintain that the Appellant is providing accommodation within the terms of item 1(d) as a "similar establishment", on the facts of this appeal, but the Appellant in turn maintains that it is not. If the Appellant's supplies which have led to the making of the assessment are of accommodation within the term "similar establishment" they are taxable at the standard rate. If they are not they are exempt supplies for the purposes of value added tax.

The provisions of the Value Added Tax Act are derived from the exempting provision of the 6^th VAT Directive, article 13B(b) providing exemption for "the leasing or letting of immovable property excluding… the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or in sites developed for use as camping sites;… . Member States may apply further exclusions to the scope of the exemptions".

The definition "similar establishment" was considered by the VAT Tribunal in 1983 in the tribunal case Namecourt Limited v the Commissioners [1984] VAT TR22 (Decision number 1560). In that appeal the Princes Lodge was held to be a similar establishment and accordingly that the supplies of accommodation were chargeable to tax and not exempt. The chairman found that the occupants of Princes Lodge did not normally come by chance; they were always or almost always referred to the establishment by some social service agency. In many cases there were people who had just been released from prison and had nowhere to go, people who had come from mental hospitals, people who had come from broken homes of one sort or another. Many of them were subject to some physical or mental disability. They were usually referred to Princes Lodge by some agency of the social services and funded. They were in almost every case suffering from sort of social problem. They were all unemployed, and were homeless and practically destitute. They were given a room with the use of bathrooms and toilets and there was a communal room with a television set and table. They were provided with breakfast if they wanted it, and they had cooking facilities available for other meals and were allowed to do some cooking in their own rooms if they wished. They had their own key to come and go as they liked. They were provided with bed linen. Most of the people who came to Princes Lodge were relatively long-stay visitors usually staying for over 6 months. Many of them were looking for more permanent accommodation of their own. The chairman concluded looking at the situation as a whole "Princes Lodge is in essence a similar establishment to a boarding house. It is, if we may say so, much easier to reach that conclusion than to say exactly how one has reached it, but it seems to us that this exception to item 1 is really directed to the sort of establishment that provides accommodation for a transient or floating, though not necessary short-stay class of resident. It may be long-term, or it may be short-term, but it is accommodation which you can go to with a view to moving on from in due course; and it will be accommodation which carries with it some element of service. Again the level of service which you would get in a small boarding house is very much less then the level of service in a 5 star hotel but some element of service would be involved. It seems to us that this is exactly what Princes Lodge provides".

Mr Barlow has submitted that the case of Namecourt Limited was incorrectly decided. We do not agree. We conclude that Namecourt Limited was correctly decided, on its facts. It is a tribunal decision and as such is only persuasive and not binding upon us, and it was decided before the Blasi European decision, but we conclude that if the Namecourt case had been heard after the Blasi case its decision would have been the same.

The words "similar establishment" were also considered by the tribunal in the case of The Lord Mayor and Citizens of the City of Westminster v the Commissioners of Customs and Excise [1989] VAT TR71. In that appeal the Westminster council ran and managed a hostel building known as Bruce House for single homeless men and provided accommodation and certain catering services. Those eligible for Bruce House were single homeless men off the street including the chronic alcoholic, grossly mentally disordered, the elderly and/or chronic sick and those rendered homeless because of personal problems. The services provided were regarded as part of the social welfare services of the council and included rehabilitation where possible, helping the men to find work, and medical and psychiatric help where it was needed. Their length of stay varied between a few weeks and several weeks. The Tribunal held that in running Bruce House the council was carrying on a business, and that in its provision of accommodation and food Bruce House had significant characteristics shared by hotels, inns and boarding houses, and its differences were not so great as to prevent it being a "similar establishment" and its supplies were not therefore exempt supplies.

His honour Judge Medd stated:-

"It seems to us that we should ask ourselves this question "Is Bruce House, although it would not normally be regarded as a hotel, inn or boarding house, an establishment which has some of the characteristics of a hotel, inn or boarding house?"

When posed in that way the answer to the first part of the question seems to us simple. No one would call Bruce House a hotel, nor would they call it an inn, we do not think they would call it a boarding house either.

So one must then go on to consider whether Bruce House has some of the characteristics possessed by hotels, inns and boarding houses and this we think is more difficult. The characteristics for which one is looking must be, we consider, the characteristics which distinguish these types of establishments all of which provide accommodation, from other establishments which also provide accommodation. One such characteristic is to be found in the purpose for which the accommodation is provided. Thus a school, or a prison, provides accommodation, but we would not regard either as a similar establishment to a hotel or boarding house because the accommodation they provide is provided for a purpose subsidiary to the main purpose of the establishment. A hotel, inn or boarding house on the other hand provides accommodation as its main purpose. The accommodation provided by Bruce House is likewise provided as its main purpose – it is not provided for a subsidiary purpose such as housing people while they are being educated or detained in the building.

Likewise hotels, inns and boarding houses commonly provide food for those resorting to them. So does Bruce House though in a fairly minimal way. A further characteristic of a hotel, inn or boarding house is that its accommodation is usually provided for people who are for varying periods away from their home, or who, for the time being have no home. This seems to us to be a characteristic of Bruce House".

Mr Barlow has again submitted that this decision, being a tribunal decision, is not binding upon us but is merely persuasive, that it was decided before the Blasi case, that it was incorrectly decided, and should have been decided differently. We disagree. We conclude that this case was correctly decided, and would have been decided in the same manner if heard after the Blasi appeal. We adopt the conclusions of that chairman. We find that that appeal has considerable parallels to the current appeal as Bruce House was also a hostel for homeless people dealing with a similar type of clientele to that dealt with by the Appellant, and in much the same way.

In Dinaro Limited t/a Fiarway Lodge v the Commissioners of Customs and Excise [2000] (Decision number 17148) the tribunal again had to consider the meaning of the word "similar establishment". In that appeal a private limited company Fairway Lodge was a hostel. Residents were referred by the local authorities social services department. The fees at the time of that hearing were £307 per week. Residents were provided with 3 meals a day. Residents stayed for a period of up to 18 months generally but there were some persons who had been there indefinitely. The tribunal found that Fairway Lodge provided long term care and supervision for its residents among other factors and concluded that on the facts before it Fairway Lodge was not an hotel, inn or boarding house. The tribunal concluded that it was not the provision of sleeping accommodation which necessarily made an establishment "similar". The chairman stated that "while a similar establishment included premises in which there is provided furnished sleeping accommodation in accordance with the terms of note 9 the provision of sleeping accommodation alone would not make a dissimilar establishment similar". The chairman came to the conclusion that the differences were sufficient to make Fairway Lodge not similar to an hotel, inn or boarding house, finding that there were 3 main elements in establishing the dissimilarity, namely the selectivity exercised over the choice of residents, the high degree of care and supervision for all the inhabitants, and the emphasis on a family concept for all those who were residents.

In dealing with the selectivity exercised over the choice of residents the chairman stated " the establishment will only accept those persons who have mental problems coming mainly from psychiatric institutions upon their release to the outside world. There was no evidence before the tribunal that any other type of person during the period the subject of the assessment was a resident at Fairway Lodge. There are hotels, inns and boarding houses which cater for specific types of persons but they will accept other visitors".

With regard to the high degree of care and supervision for all the inhabitants the tribunal found as a fact that most of the residents were in receipt of middle rate care component of disability living allowance, for which a person qualified if he was severely disabled physically or mentally.

In considering the emphasis of a family concept for all those who are residents, the chairman referred to a document which was the "philosophy of Fairway Lodge" to promote and nurture the concept of the Fairway family. "This is really supported group therapy".

The tribunal concluded that in assessing the purpose for which accommodation in Fairway Lodge was provided, the tribunal found that the predominant purpose of Fairway Lodge was not the provision of accommodation but the fulfilment of its objectives, accommodation being subsidiary to its primary purpose of helping in the rehabilitation of people with mental problems and supporting and supervising the residents to aid their improvement and individual well being.

The tribunal concluded "Fairway Lodge because of the source of the resident's income, provides food and also had to prove supervision and security; but it only accepted residents nominated by the local authority's social services department. It therefore follows that Fairway Lodge was not an hotel, inn or boarding house or similar establishment. It is an exception and it will be rare for similar establishments to exist".

We find that NEDA in the current appeal does not share with Fairway Lodge the 3 main elements which the tribunal in the Dinaro case had found were the 3 main elements in establishing the dissimilarity from a hotel, inn or boarding house. We find that the Dinaro case was decided on its own facts. As the chairman in the Dinaro case said concerning Fairway Lodge "it is an exception and it will be rare for similar establishments to exist". We find that the NEDA establishment is not a similar establishment to Fairway Lodge. In Dinaro Fairway Lodge only accepted persons who had mental problems coming mainly from psychiatric institutions upon their release to the outside world, and all of their residents had to referred by the local authority. Neither of these criteria apply to NEDA.

In Dinaro Limited the problems of its residents were such that there was a necessity for a high level of care and supervision. We find that although some of the residents in NEDA may have a need for such a higher level of care and supervision, many do not. We find that anyone who is homeless can stay at NEDA and we find that the care requirements at NEDA vary widely, which was not the case in Dinaro.

In the Dinaro case there was the emphasis of a family concept for all those who were residents with a promotion of the concept of the Fairway family and supported group therapy. We find that in the circumstances of NEDA there was no evidence of such a type of philosophy.

We have concluded that the provision of care that exists at NEDA is ancillary to the principal supply of accommodation and food.

In the case of Blasi v Finanzamt Munchen 1 (case C/346/95 [1998 STC 336] the Court of Justice of the European Communities considered letting agreements of accommodation to refugee families for periods in excess of 6 months where the average length of letting was 14 months. By German law a let was deemed to be short term and therefore taxable if the agreement was for a period less than 6 months whatever the actual duration of the let. By the German law based on Article 13B(b) of the EC Council Directive the leasing and letting of immovable property was exempted from VAT but lettings for the short term accommodation of guests was excluded from the exemption. There was referred to the Court of Justice of the European Communities the question whether the provision of short term accommodation for guests constituted the provision of accommodation in sectors with a function similar to that of the hotel sector within the exclusion of the exemption of Article 13B(b)(1) of the 6^th Directive and whether the criterion for the duration of the letting agreement irrespective of actual duration for distinguishing between taxable and exempted transactions was compatable with Article 13B(b)

Article 13B of the Directive provides:

"Without prejudice to other community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straight forward application of exemptions and preventing any possible evasion avoidance or abuse;

(b) the leasing or letting of immovable property excluding :

the provision of accommodation as defined in the laws of the Member States in the hotel sector on in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites;

Member States may apply further exclusions to the scope of this exemption".

In Blasi the court held as follows:-

"It must first be noted that the court has consistently held that the terms used to specify the exemptions provided for by Article 13 of the 6^th Directive are to be interpreted strictly since they constitute exceptions to the general principle that turnover tax is to be levied on all services supplied for consideration by a taxable person.

The phrase "excluding: the provision of accommodation, as defined by the laws of the Member States, in the hotel sector or in sectors with a similar function" in Article 13B(b)(1) of the 6^th Directive introduces an exception to the exemption which Article 13B provides for the leasing or letting of immovable property. It thus subjects the transactions to which it refers to the general rule laid down in the Directive, namely that VAT is to be chargeable on all taxable transactions, except in the case of derogations expressly provided for. That phrase cannot therefore be interpreted strictly.

It should be added that as the advocate general had noted at paragraph 18 of his opinion the words "sectors with a similar function" should be given a broad construction, since their purpose is to ensure that the provision of temporary accommodation similar to, and hence in potential competition with, that provided in the hotel sector is subject to tax".

In defining the classes of provision of accommodation which are to be taxed by derogation from the exemption for the leasing or letting of immovable property, in accordance with Article 13 B(b)(1) of the 6^th Directive, the Member States endure a margin of discretion. That discretion is circumscribed by the purpose of that derogation, which, in regard to making dwelling accommodation available, is that the taxable provision of accommodation in the hotel sector or in sectors with a similar function must be distinguished from the exempted transactions of leasing and letting of immovable property.

It is consequently a matter for the member States when transposing Article 13 B(b)(1) of the 6^th Directive, to introduce those criteria which seem to them appropriate in order to draw that distinction.

Where accommodation in the hotel sector (as a taxable transaction) is distinguished from the letting of dwelling accommodation (as an exempted transaction) on the basis of its duration, that constitutes an appropriate criterion of distinction, since one of the ways in which hotel accommodation specifically differs from the letting of dwelling accommodation is the duration of the stay. In general the stay in a hotel tends to be rather short and that in a rented flat fairly long.

In this connection as the advocate general has stated in paragraph 20 of his opinion the use of the criterion of the provision of short term accommodation, being defined as less than 6 months, appears to be a reasonable means by which to ensure that the transactions of taxable persons whose business is similar to the essential function performed by a hotel, namely the provision of temporary accommodation on a commercial basis are subjected to tax."

Mr Barlow has submitted that the question to be asked in the current appeal of NEDA is whether NEDA fell within the hotel sector, and that the word "sector" meant that sector of the economy that operates as a hotel or has similar functions. He submitted that an organisation that was not like a hotel or similar to it was exempted from VAT on its supplies if it provided accommodation.

We find that the decision in Blasi was based on the German legislation which sets a time limit on lettings, which is quite different to the United Kingdom legislation which does not set any time limit in schedule 9 group 1. Furthermore the Blasi case was concerned with a written contractual letting agreement. The facts in the Blasi case and the provisions of the German law were thus quite different to provisions in the United Kingdom law and the facts of the present appeal. The United Kingdom legislation does not use the words specifically "hotel sector" or "sectors with a similar function" but the wording of schedule 9 group 1 item 1(d) of the VATA 1994 uses the words "hotel, inn, boarding house or similar establishment". We find that the United Kingdom legislation has been drafted in conformity to article 13B. We further find on all the facts in the current appeal that NEDA was providing accommodation in a "similar establishment" to an hotel, inn and boarding house. We find that the accommodation provided by NEDA could properly be regarded as falling within the expression "hotel sector" or in "sectors with a similar function" using the wording of article 13B(b), even though that wording is not used in the United Kingdom legislation.

We were also referred to a decision of the tribunal in 1989 in the case of McGrath v the Commissioners of Customs and Excise (Decision number 5428) which concerned a premises known as Norma's Guest House in Manchester. The chairman concluded "some hotels have long stay residents who have no other place of residence. Such permanency may distinguish one guest from another but it does not affect the function and description of the establishment. It is my view that Norma's was exactly what it described itself as in its title, a guest house. That must be either a hotel or boarding house or if it is not so close thereto as it has to be a similar establishment."

In its correspondence and notice of appeal the Appellant had claimed exemption under group 7 items 1,4 and 9. These claims were abandoned by Mr Barlow at the hearing, in our view quite correctly. It was quite evident that the exemption of medical services did not apply to the Appellant who were not supplying services under the direct supervision of registered medical professionals. Furthermore the Appellant was not a hospital or a licensed registered or exempted institution, and it was not a charity.

In determining whether an establishment is providing accommodation within the terms of item 1(d) as a similar establishment to a hotel, inn or boarding house, each case must be decided on its own facts.

We have concluded that the Appellant NEDA can correctly be described as a homeless persons hostel. It provides accommodation for single homeless men. It also provides meals for them. It provides care, counselling, facilities and other services. We find that the provision of accommodation is its main and principal purpose. In doing so it provides facilities which are intended to rehabilitate the homeless. Its residents are homeless for a variety of reasons including disabilities and addictions. There is no minimum or maximum stay required. Although many residents are specifically referred to the hostel by various authorities there is no need to be specifically referred or recommended by any other body or agency.

We find that the premises in the current appeal are similar to the premises Bruce Hostel which were regarded by the tribunal in the case of The Lord Mayor and Citizens of the City of Westminster as being a "similar establishment". Bruce Hostel was also a hostel for homeless people dealing with a similar type of clientele to that of the Appellant and in much the same way. In the Namecourt Limited case Princes Lodge was held to be a "similar establishment". We find that the facts of the current appeal fall within the conclusions of the tribunal in the Namecourt case, and we adopt those conclusions.

We find that the facts of the current appeal are very different from the facts in the Dinaro case. We have found that the 3 main elements considered by the chairman in the Dinaro case as establishing dissimilarity from a hotel, inn or boarding house do not apply in the current appeal. In the Dinaro case Fairway Lodge only accepted those persons who had mental problems coming mainly from psychiatric institutions, and did not accept other visitors. The circumstances are accordingly entirely different to those of the current appeal. The residents at Fairway Lodge had a higher degree of care and supervision to that in the current appeal. In the current appeal there was not the same emphasis of a family concept for the residents as there was in the Dinaro case. The chairman in the Dinaro case indicated that Fairway Lodge was an exception and it would be rare for similar establishments to exist. NEDA is not a similar establishment to Fairway Lodge. We have accordingly decided, applying the legal principles, on all the facts in this appeal, that the Appellant provides in an hotel, inn or boarding house or similar establishment sleeping accommodation or accommodation in rooms which are provided in conjunction with sleeping accommodation or for the purpose of a supply of catering, because we have found that it is a "similar establishment" to a hotel, inn or boarding house.

We therefore find accordingly that the Appellant is making taxable supplies of accommodation within item 1(d) of group 1 of schedule 9 of the Value Added Tax Act 1994.

We therefore dismiss the Appellant's appeal.

The Commissioners did not make any application for coats and we make no order as to costs.

I E VELLINS

CHAIRMAN

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