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University of Kent v Customs and Excise [2004] UK V18625 (24 May 2004)

VAT – zero-rating – whether accommodation units "caravans" within item 1 of Group 9 Schedule 8 VATA 1994 – no

VAT – exemption – whether accommodation units immovable within Art. 13B(b) of the Sixth Directive – no

LONDON TRIBUNAL CENTRE

THE UNIVERSITY OF KENT Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: JOHN CLARK (Chairman)

CATHERINE FARQUHARSON

Sitting in public in London on 15 January 2004

Mr PJ Coombs, Assistant Director of Finance, The University of Kent, for the Appellant

Mr Andrew O'Connor of Counsel, instructed by the Solicitor for HM Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

The University of Kent ("the Appellant") appeals against a decision of the Commissioners contained in a letter dated 8 May 2003. There were two aspects to this decision. The first was that accommodation units known as "Lodja Sleep" units were not caravans for the purposes of VAT. The second was that the supply of such units did not constitute the letting of immovable property. The Appellant appeals against this first part of the decision, and in the alternative against the second part.

The law

Section 30(2) of and Items 1 and 3 of Group 9 of Schedule 8 to the Value Added Tax Act 1994 provide that supplies of the following are to be zero-rated:

"1 Caravans exceeding the limits of size for the time being permitted for the use on roads of a trailer drawn by a motor vehicle having an unladen weight of less than 2,030 kilogrammes.

3 The supply of such services as are described in paragraph 1(1) or 5(3) of Schedule 4 in respect of a caravan comprised in item 1 . . . "

There is no definition of "caravan" in the Value Added Tax Act 1994.

Paragraph 1(1) of Schedule 4 to the Value Added Tax Act 1994 provides:

"1—(1) Any transfer of the whole property in goods is a supply of goods; but, subject to sub-paragraph (2) below, the transfer—

(a) of any undivided share of the property, or

(b) of the possession of goods,

is a supply of services."

Section 29(1) of the Caravan Sites and Control of Development Act 1960 defines "caravan" as follows:

""caravan" means any structure designed or adapted for human habitation which is capable of being moved from one place to another (whether by being towed, or by being transported on a motor vehicle or trailer) and any motor vehicle so designed or adapted, but does not include—

. . . (b) any tent."

Under regulation 8(1), item 7 of the Road Vehicle (Construction and Use) Regulations 1986 (SI 1986/1078) the maximum width for "any other trailer drawn by a vehicle other than a motor cycle" is 2.3 metres.

Article 13B(b) of the EC Sixth Directive provides that subject to certain conditions, Member States are to exempt:

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

1 the provisions 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 on sites developed for use as camping sites;

2 the letting of premises and sites for parking vehicles;

3 lettings of permanently installed equipment and machinery;

4 hire of safes."

Section 30(2) of and Item 1 of Group 1 of Schedule 9 to the Value Added Tax Act 1994 provide for exemption in respect of:

"1 The grant of any interest in or right over land or of any licence to occupy land".

This is subject to a number of exceptions that are not relevant to the present case.

The evidence

Both the Appellant and the Commissioners submitted bundles of documents including photographs of the units as installed on the Appellant's premises. In addition, Mr Terry Shane Marsh, General Manager of Rollalong Hire Ltd, made a witness statement and gave oral evidence as a witness for the Commissioners, and Mr S Blay, one of the principal members of the Appellant's management team responsible for the provision of the units, gave oral evidence for the Appellant. From the evidence we find the following facts.

For the academic year 2002-2003 the Appellant admitted a record number of students. As the policy was to guarantee each student a place on campus, there were too many students and not enough study bedrooms. The Appellant had to put students in hotel rooms, find temporary lodging and hire temporary accommodation. For the latter purpose the Appellant contacted Rollalong Hire Ltd, and hired 12 Lodja Sleep units for that academic year. The units were removed in June 2003. Each unit cost £75 per week to hire, and in addition Rollalong Hire Ltd charged 17.5% VAT.

The units were a standard product of Rollalong Hire Ltd, and were designed as sleeping units. (Certain modifications were made for the purposes of the Appellant's proposed use of the units, as described below.) Another form of unit called "Dine" was available, being the same size, but designed solely for cooking, and containing a fitted refrigerator, microwave oven, a freezer, and seating for 8 persons. According to Mr Marsh, it was not anticipated that the Lodja Sleep units would be used for cooking or eating. The dimensions of the units were: width, 2700 mm, length, 3600 mm, and internal ceiling height 2300 mm.

The units had been located in a car park adjacent to Keynes College on the campus. The siting, which was discreet, had been agreed with the local planning authority. A level survey had shown that the site had a natural incline. A contractor was engaged to place paving slabs and concrete blocks under the legs of the units. Other infrastructure requirements had involved new duct works to carry electricity and water from the adjacent College, partly using the existing duct but also in part in a new duct. Work was also carried out on waste and drainage connections, and the water supply.

The units were transported by lorry, three units on each lorry. On arrival at the site, the units were unloaded from the lorries by means of a crane device built into each lorry. The approximate unloading time for the three units was between one and one and a half hours. In addition to the driver, each lorry had a further employee of Rollalong Hire Ltd to assist with the unloading and to ensure that each unit was placed level on the site chosen by the Appellant. Units of this type have no foundations, and are sited on the ground by means of four adjustable corner points. Their approximate weight is one tonne, and their external height between 8 and 9 feet.

The units were set out in two rows back to back, creating a service corridor between them. Once they had been put in place, timber steps and landings had had to be provided to the door of each unit. In some cases it had also been necessary to provide a timber skirt around units because of their location; as they were higher above the ground, a panel was required for safety purposes, to prevent people from going under the units. A timber member was secured to the tarmac of the car park with "fisher bolt connections". A timber batten was bolted to the sub-frame of the unit, and a shaped plywood panel was screwed on to the timber. Subject to this, the units were freestanding. Service corridors were provided, with access framing and panelling to the service aisle. To close the other end, some garden fencing had been adapted in order to protect the drainage run, which was partly above and partly below ground. Closed circuit television monitoring had been installed, together with lighting to support this. Contractors had run the electricity and water connections. The electricity connection had been taken from an adjacent sub-station and fed through the ductwork. The drainage involved connection to a common corridor between the units, partly above and partly below ground to the manhole of an existing residential property. Part of this connection, as it was outside the garden fencing, was encased in concrete to reduce the risk of inadvertent damage. The drainage connections were the subject of building notice approval to the local authority. A further part of the infrastructure was required because the units were located in a busy car park and near a busy delivery road. Concrete traffic control barriers were placed round the edges of the units. To support this measure and to show the line of the road, high visibility markers were placed along the side of the cabins. For fire protection, a post was mounted on the front face of each elevation and a fire extinguisher mounted on it. Following discussion with the local fire authority relating to evacuation procedures for the units, a fire evacuation notice was compiled and placed in each unit. An emergency contact phone had to be placed on the adjacent college. Rollalong Hire Ltd was required to install smoke detectors.

The units as normally supplied would have contained two beds. To make them suit the Appellant's use, intended for one student per unit, one of the beds was omitted, and instead the Appellant supplied a desk and chair to go within the unit. To make the accommodation more attractive to students, in the living area the Appellant supplied and fitted carpet instead of the vinyl flooring that would normally have been provided.

The electrical connections to most of the units were via a push coupling at the rear of the unit. In three cases the units did not have plug-in connectors, and fixed wiring had to be installed to a box on the back. The connection from the sub-station came though the ducting up into a service aisle and into a weatherproof box between the units. Twelve individual cables were taken from that box in the service corridor to the units.

The water supply connections to each unit were by a single point connection to the rear. Each individual unit was connected to the common water supply main pipe (which Mr Blay believed to be 65 mm in diameter) from Keynes College. The waste water connections were by 110 mm plastic drainage pipe, fitted with a push fit connector; the piping was between the service aisles, with temporary H frames to support the piping run when above ground. (This foul water piping was separate from that for the clean water supply.) The drainage route then ran partly above, and partly below, ground to the shallow manhole. The preparation of these connections involved breaking ground, and partly the use of existing ducting, partly the laying of new ducting.

The majority of the infrastructure was completed between 18 October 2002 and occupation, which commenced on 7, 8 and 11 November 2002.

Once the units were in place, the Appellant could not itself have moved them; it would have been necessary to engage a contractor to do so. Mr Blay speculated in his evidence that the units could possibly have been dragged, but believed that the recommendation by Rollalong Hire Ltd was that the units should be lifted. His understanding of the conditions of hire was that according to Clause 10 of those conditions, the units should not be moved without written consent.

It would have been possible for a resident occupying a unit to plug in a microwave oven and prepare meals; the electrical system could have coped with this. The utensils could have been cleaned in the wash hand basin, although this would not have been ideal, as there was no draining facility available. Ordinarily, when students arrived at the University, they would be given a booklet informing them that they were not permitted to take such appliances into their study bedroom. However, for some administrative reason unknown to Mr Blay, occupiers of these units were not given such a booklet. Whereas those occupying study bedrooms were provided with a licence agreement, those in the units had a simpler letter dealing with the contractual arrangements. Higher wattage appliances such as kettles or toasters could have been used in the units, although depending on the wattage, the system could have struggled if for example a microwave oven and electric kettle had been operated at the same time. Mr Blay felt that the system could have operated in such circumstances. He thought that microwave ovens could have been operated simultaneously in all twelve units, as the twin socket in each unit had a 13 amp loading requirement. If a number of high wattage appliances in the units had been operated at the same time, this would have led to "trips" because of the loading. It was not clear whether a refrigerator could have been used in a unit; this would have depended on the power rating of the appliance.

The units had arrived in phases, on 2, 12 and 18 October 2002. The initial order had been for 60 units at £60 per week per unit. Because of the degree of uncertainty on the Appellant's behalf as to the number required and the period for which they would be needed, there were negotiations with Rollalong Hire Ltd resulting in the increased hire charge per unit of £75 per week and the reduction in the number of units to 12. It had only been when the units had been located on campus that the Appellant received from Rollalong Hire Ltd its conditions of hire. The units were finally taken off campus on 11 June 2003.

Comparison of the units with ordinary study bedrooms showed that the "footprint area" in each unit was very marginally less than the Appellant would normally provide for a study bedroom. Being in the car park, the units were less appealing. In the colleges, there was a shared kitchenette for a number of rooms, and when going from a study bedroom into an internal area such as a space or corridor, a resident would be fully under shelter. The charge made to the resident of a unit included breakfast in the adjacent college, but not evening meals. Mr Blay did not know whether there was any restriction on eating in the units, but did not believe that eating in the rooms was condoned. He did not know whether toasters were used. He did not know whether the water in the units was suitable for drinking. As he was not involved in the letting of accommodation, he was unable to confirm whether the units were occupied during vacations.

To the best of Mr Blay's knowledge and that of the Accommodation Office, there had been no complaints about the standard of the units; some minor defects and problems with the units had had to be addressed, but he was not aware of any residents being unhappy or wishing to move.

The student licence to occupy the units ended at 10 am on 7 June 2003. On 9 June 2003, removal men took the desks and chairs out of the units. On 9 and 10 June 2003, such items as electricity, water and drainage connections were removed in readiness for the removal of the units on 11 June 2003. The units were removed by lorry crane; Mr Marsh thought that it would have taken the driver and a further employee between one and one and a half hours to remove a unit from the Appellant's site and unload it elsewhere, ignoring the journey and the disconnection and reconnection of the utility supplies. Once the units were removed, minor repairs to the site were necessary. To remove the infrastructure, two men were needed to deal with the building contractor work, two from an outside contractor to remove the water connections, and one or two men to deal with the electrical connections. The work took about half a day, although the building contractors were there over a period of two days, as they had to remove fence panels. Mr Blay explained that the piping had been easy to remove, and the ducting had been left in the ground and sealed.

Arguments for the Appellant

On the first ground of appeal, Mr Coombs contended that the supply of the units should be zero-rated under section 30 of and Group 9 of Schedule 9 to the Value Added Tax Act 1994. There was no dispute as to the transfer of possession in the goods. The primary question was whether a Lodja unit was a caravan. It was too large to be used on the roads; the width limit was 2.3 metres, and the unit was 2.7 metres wide. He had put to the Commissioners in correspondence that the supply of the units should be zero-rated. In their reply, the Commissioners had said that it was their policy to adhere to the definition in section 29(1) of the Caravan Sites and Control of Development Act 1960. Mr Coombs referred to this. It specifically excluded certain items of railway rolling stock, and tents. This suggested that any structure other than these excluded items should be regarded as a caravan. However, in their reply, the Commissioners had applied a qualification to the definition, that it must be "self-contained living accommodation", and that in the absence of a kitchen or any cooking facilities, the units could not be regarded as such accommodation. The Appellant disagreed; the accommodation was self-contained, and the Appellant was also providing living accommodation for the occupants of the units. Each unit had a security door with a secure lock, so was self-contained. Was it "living accommodation"? In correspondence, the Commissioners had stated that the units did not have the attributes of dwellings, and could not therefore be considered "caravans" for the purposes of the legislation. This raised the question what attributes were needed in a dwelling. Although there was a requirement to take in food, this was a longer-term requirement, and most food was obtained outside the home. Having the facilities available was of no use if there was nothing to cook. The critical requirement for a dwelling was that it should maintain body temperature and isolate the occupant from heat loss. The technical specification of the unit was that it was weatherproof, so the requirement was fulfilled. Perhaps the reason for mentioning tents in the definition of "caravan" was that they could fulfil this requirement, so that unless excluded, tents would count as dwellings. The units had internal heating, hot and cold water, beds and storage. Students spent up to 24 weeks occupying units during that academic year; they "lived" in those units for that year.

Mr Coombs asked why zero-rating for caravans was only available if they were too large to be towed. He suggested that the answer was the policy of the UK in providing VAT relief in respect of the cost of providing residential accommodation. Mobile homes were used both for temporary and residential accommodation. The zero-rating of mobile homes was achieved by Group 9. This used a more general phrase and adopted the word "caravan". This reflected the policy of the UK. Mr Coombs referred to the ECJ case of Commission of the European Communities v UK (Case C-416/85). This related to the failure of the UK to fulfil its obligations in connection with goods and services taxed at the zero rate. In its submission to the ECJ, the European Commission said that zero-rating could only be adopted for defined social reasons and for the benefit of the final consumer. Five of the groups in the old Schedule 5 did not meet the test. At the time, caravans were under Group 11 and were not one of the five groups. It therefore appeared that the European Commission was satisfied that caravans were zero-rated for a social reason. Mr Coombs suggested that this was because they were residential accommodation. The ECJ held that four groups providing for zero-rating were illegal. One was Group 8. As a result the legislation was amended with effect from 1 April 1989 to restrict zero-rating of the supply of construction services to dwellings, residential purpose and so on. The notes to Group 8 were also amended; one was as residential accommodation for students or school pupils. Mr Coombs pointed out that this related only to the grant of a major interest, or supplies in the course of construction. He raised the point to illustrate the purposive structure of zero-rating; there was a social reason for relieving the final consumer, this being the cost of human habitation.

He explained that the Appellant became the final consumer. The accommodation was regarded as closely related to the supply of education. The VAT "stuck" to the Appellant. He confirmed that the Appellant had treated the letting of the units to students as exempt.

On the second ground of appeal, Mr Coombs contended that the letting of the units was also exempt as the letting of immovable property within Article 13B(b) of the Sixth Directive. This would not apply in practice if the first ground succeeded, as under section 30 of the Value Added Tax Act 1994 zero-rating applied whether or not VAT would be chargeable. Zero-rating took precedence over exemption.

Mr Coombs accepted that there was an apparent contradiction in pursuing both arguments. If the units were "caravans", they must be portable. If so, how could their provision amount to the letting of immovable property?

He answered this question in the following way. First, the units were too heavy to be moved by hand; Rollalong Hire Ltd had provided delivery to the site, and removal. Secondly, the units had to be stable enough not to move when lived in for normal domestic purposes. Thirdly, the units were designed to be fixed to services; these had to be fixed to civil engineering works. If Rollalong Hire Ltd had attempted to move the units without the Appellant having disconnected the services, greater force would have been required to remove the units. It was not clear whether Rollalong Hire Ltd would have had power to remove the units. Some of the units had been physically fixed to the ground by the skirting installed beneath them.

Mr Coombs referred to the ECJ case of Rudolf Maierhofer v Finanzamt Augsburg-Land (Case C-315/00). This concerned prefabricated houses constructed of prefabricated components. The buildings each had a concrete base and were erected on concrete foundations sunk into the ground. The walls were secured to the foundations by bolts, the roof was covered with tiles, and the floors and walls of the bathrooms and kitchens were also tiled. The construction system was such that the buildings could be dismantled by eight people in ten days, and subsequently re-used. The ECJ found that while there was no need for the buildings to be inseverably fixed to or in the ground, it was significant that they could not be dismantled or easily moved. Mr Coombs pointed out that it had taken from half a day to a day to remove the infrastructure. Many structures were immovable while in use; their removal depended on the degree of force used. Once the units had been installed, as far as the Appellant was concerned, they were immovable.

Mr Coombs referred to Article 13B(b) of the Sixth Directive. The terms on which Rollalong Hire Ltd transferred possession to the Appellant amounted to letting within that Article. The exceptions did not apply. In relation to the first exception, the Appellant was not carrying out a similar function to the hotel sector. Its function was furthering the fund of knowledge and disseminating it, and the provision of accommodation was ancillary to this.

He referred to the definition of caravan as "capable of being moved". If it was capable, this did not prevent it from being immovable when on the site and connected to the services.

Arguments for the Commissioners

Mr O'Connor confirmed the Commissioners' acceptance that the Appellant, being the recipient and not the maker of the supply, had sufficient legal interest to bring the appeal. The Commissioners also accepted that the supplies of the Lodja-Sleep units amounted to a transfer of possession of goods within paragraph 1(1)(b) of Schedule 4 to the Value Added Tax Act 1994. The issue between the parties was whether the units fell within the definition of "caravans" at item 1 of Group 9 of Schedule 8 to the Value Added Tax Act 1994. The term "caravan" was not defined anywhere in that Act. In determining the meaning of the term, it was crucial first to consider the purpose for which item 1 of Group 9 was enacted. That purpose was to extend to residential caravans the relief that was afforded to dwellings under Group 5 of Schedule 8 to that Act. This broad purpose was stated at paragraph 2 of the Notes on Clauses for the Finance Bill 1972, which referred to relief for "houses and other domestic accommodation". The caravans in what became Group 9 were akin to houses; they were too large to be towed on the road, and were usually permanently sited with some degree of attachment to the land. Ministers had decided that residential caravans should be given the same relief as houses.

The connection of Group 9 to Group 5 was made explicit at Note (a) to Group 9 (which should have referred to item 4, not item 3, of Group 5). Paragraph 8 of the Notes on Clauses explained the purpose of this Note, and referred to keeping the treatment of caravans in line with new houses. This purpose of item 1 of Group 9, to extend to caravans the relief that was afforded to dwellings under Group 5 of Schedule 8, was the explanation for two matters. First, it explained the size threshold in item 1; this was designed to exclude from the relief touring caravans, which were not generally used as dwellings. Secondly, it explained the Commissioners' policy of using the broad definition of "caravan" in section 29 of the Caravan Sites and Control of Development Act 1960. A narrower definition (which might, for example, require the presence of wheels) would not meet the purpose of the provision, and would in fact work against it.

Mr O'Connor argued that crucially for the present case, a purposive construction of the term "caravan" at item 1 also dictated that the structure in question must be akin to a dwelling. Adopting the terminology of Note 2(a) to Group 5, it must consist of "self-contained living accommodation". To construe the term "caravan" so as to include structures that did not consist of "self-contained living accommodation" would be to extend the term beyond the purpose for which it was enacted. He confirmed that it was and always had been the Commissioners' policy only to regard structures as "caravans" within item 1 of Group 9 if they constituted self-contained living accommodation. This view had been expressed in the decision letter.

The units did not consist of self-contained living accommodation. The Commissioners rejected the Appellant's contention that the units were "fully fitted dwellings with all the services and fittings to enable an occupant to take up residence immediately once the unit has been installed". The units were sleeper units. They did not contain any catering facilities; this was an essential element of self-contained living accommodation. The units were never designed to be self-contained, but rather to be used in conjunction with "Lodja Dine Units". It followed that the Lodja-Sleep Units were not "caravans" within the meaning of item 1 of Group 9, and the supplies were not therefore zero-rated.

At the hearing Mr O'Connor indicated that the Commissioners had not understood that the Appellant would argue that the units constituted self-contained living accommodation. As the Appellant maintained that it was clear from the earlier correspondence that this argument would be pursued, we gave leave to Mr O'Connor to make further written submissions on this matter following the hearing, on terms that the Appellant would be given the opportunity to comment on those submissions and make its own further submissions on this question.

In those submissions Mr O'Connor referred to the discussion of the term "dwelling" (in the context of a different Act) in St Catherine's College v Dorling [1979] 3 All ER 250. At p 255 the earlier case of Wright v Howell (1947) 204 LT Jo 299 was cited, stating at p 300 that

"the word "dwelling" on its true construction included all the major activities of life, particularly sleeping, cooking and feeding . . . "

Mr O'Connor contended on behalf of the Commissioners that this general definition was applicable to the term "dwelling" at item 1 of Group 5. The Lodja-Sleep units did not fall within this definition. They were not designed, and were not suitable, for either cooking or feeding. It could not seriously be argued that the position was altered by the fact that a kettle or toaster could be plugged in.

He also referred to the Tribunal case of University of Bath (1996) VAT Decision 14235. This was on different facts. The Tribunal described the rooms in the Phase One Properties:

"The student rooms, although small, are equipped as a bedroom and study with a bed, a desk, chairs and storage space. Each also contains a 'pod' containing a shower, WC and washbasin."

This description was almost identical to that of a Lodja-Sleep unit. Mr O'Connor saw no reason to doubt that a kettle or a toaster could have been plugged into sockets in the University of Bath rooms. The Tribunal considered that Counsel for the University of Bath was right not to insist that each individual room was a dwelling. Mr O'Connor submitted that on the basis of the reasoning in University of Bath, the Appellant's contention in the present case that each Lodja-Sleep unit amounted to a dwelling was wrong.

Finally on the first issue, he relied on University Court of the University of St Andrews (1997) VAT Decision 15243. The rooms in question lacked toilet and washing facilities, as well as cooking facilities. The Tribunal followed the University of Bath case and held:

"On no reasonable use of language could a room in the Hall be described as a dwelling albeit it is a unit of habitation in which a student lives."

Mr O'Connor submitted that following the University of Bath case, the result would have been the same if the rooms (like the rooms in the University of Bath case and the Lodja-Sleep units) had had toilet and washing facilities but had still lacked cooking facilities. He submitted that there was clear Tribunal authority in support of the Commissioners' contention that the lack of cooking facilities in the Lodja-Sleep units meant that they could not be within the meaning of the word "dwelling" at item 1 of Group 5.

The second issue related to the extent of exemption. The Commissioners accepted that there was a letting. The question had to be decided by establishing whether the units amounted to residential property. The Maierhofer case was at the heart of the question. In support of its view that the units were "immovable", the Appellant contended that the units were too heavy to be lifted without heavy lifting equipment. Mr O'Connor questioned whether the units could have been dragged, although he accepted that the units were too heavy to be moved "by hand", and that they had to be stable. The Appellant also relied on the existence of rigid connections of the units to incoming electricity and water supplies, and to outgoing waste services. The Commissioners did not accept that these matters were sufficient to render the units "immovable", applying the test formulated in Maierhofer at paragraph 35 of the Court's judgment. This was:

"the letting of a building constructed from prefabricated components fixed to or in the ground in such a way that they cannot be either easily dismantled or easily moved constitutes a letting of immovable property for the purposes of Article 13B(b) of the Sixth Directive, even if the building is to be removed at the end of the lease and re-used on another site."

Mr O'Connor argued that the facts as shown in Maierhofer at paragraph 29 of the Advocate-General's Opinion were very extreme, and that the buildings were far more permanent than the units in the present case. He emphasised the reference to the buildings being capable of being dismantled without damage and re-used elsewhere. There was a range of ease of movement. This was considered at paragraphs 30 to 35 of the Court's judgment. As the position in the case was extreme, the buildings were held to be immovable. Another clue was given by the Court's reference to Commission v France (C-60/96), in which the property at issue had been caravans, tents, mobile homes and light-framed leisure dwellings. Such property was either mobile or easily moved. This was the other side of the line. Structures could be regarded as being on a scale; at one end was the type of structure in Maierhofer, considered to be immovable, while at the other were those in Commission v France, considered movable. The units in the present case were at a "movable" point of the scale. The Appellant's points that the units were too heavy to move and were connected to services did not meet the law in the cases. The Commission had accepted that mobile homes could be movable. It was not enough to say that only the lessor could move them. The connections to services were not enough to make the units immovable, having regard to the description in Commission v France, which appeared identical to the description of these units. Mr O'Connor emphasised that the question was how easy it was to move the units, not to install them.

The Tribunal had to decide whether the present case was extreme enough to follow Maierhofer. The exemption had to be construed strictly. Mr O'Connor conceded that the units were fixed to the ground, by the services installed (although this was arguable) and by the skirting. However, he argued that the units were "only just fixed", not to the same degree as in Maierhofer, as there were no foundations. It was a selling point of the units that they were easily moved. It only took two men about half an hour to remove the units, although the services also had to be disconnected. In Maierhofer the buildings could be dismantled by a team of eight persons within a period of ten days. There was no reason to distinguish the Lodja-Sleep units from the structures being considered in Commission v France. The Appellant was not correct to look at how movable the units were once installed; Maierhofer showed that this was not the correct test. Mr O'Connor argued that the units in the present case were not up to the level of immovability in Maierhofer, and not within the scope of the exemption at Article 13B(b) of the Sixth Directive.

Appellant's reply to further submissions

Mr Coombs contended that the Commissioners had not offered any further arguments in support of their contention that the word "caravan" should be given a meaning analogous to the term "dwelling". The units fell within the phrase "other domestic accommodation" used in the Notes on Clauses for the Finance Bill 1972, and the zero-rating of supply on hire of the units was not inconsistent with the passage quoted. It was not necessary that a residential caravan should be identical to a house to benefit from the relief. The Commissioners had not demonstrated that the units were not structures adapted for human habitation, as set out in section 29(1) of the Caravan Sites and Control of Development Act 1960, nor had they demonstrated that the units failed the Commissioners' own declared policy in interpreting the word "caravan" to mean "self-contained living accommodation". The phrase "akin to houses" in the Notes on Clauses implied domestic accommodation that was related to a house in having similar characteristics, but did not mean that the accommodation concerned must be exactly the same as a house. The Commissioners appeared to treat the word "dwelling" as synonymous with "dwelling-house"; this might not be unreasonable in the context of Group 5 of Schedule 8, but was not necessarily appropriate in the context of Group 9 of Schedule 8. A caravan could be used as a temporary dwelling-place or a permanent place of abode. The most significant difference between houses and caravans in respect of their type of construction was that houses were assembled from individual components in such a way as to require the structure to be dismantled if it was to be moved, while caravans were assembled as one-piece units that were capable of being moved intact after being disconnected from any utility services, and any fixings to anchor the caravan to the ground.

The Commissioners had not demonstrated satisfactorily in their further submission that matters relating to the construction of conventional buildings necessarily applied to the interpretation of the word "caravan". Despite the more complex current design of caravans than in 1972, Parliament had seen fit not to change significantly the wording now contained in item 1 of Group 9 of Schedule 8, other than to include a further Note (b) that the Group does not include the supply of accommodation in a caravan or houseboat. The Appellant contended that the wide scope of the words used was a choice by Parliament to ensure that all forms of domestic accommodation, in addition to traditionally built houses, would be afforded relief from VAT. Mr Coombs referred to the policy approach taken by the then government in retaining the balance between direct and indirect taxation, and seeking not to impose a tax on such elements as the provision of domestic accommodation. The wide provision originally enacted had not subsequently been significantly restricted.

Mr Coombs distinguished St Catherine's College v Dorling, The University of Bath and University Court of the University of St Andrews. These related to individual study bedrooms within a conventional building, and not directly to caravans. Further, the legislation in the current Group 5 of Schedule 8 was changed significantly from 1 April 1989 following the decision of the ECJ in Commission of the European Communities v UK. At the time of enactment of the Finance Act 1972, the Group did not refer to "dwelling". Mr Coombs contended that Lodja-Sleep units could be distinguished from a study bedroom that was within the confines of a wider building as in those three cases cited, because each Lodja-Sleep unit was a caravan in its own right. Whether or not an individual study bedroom within the buildings that were the subject of those three cases amounted to a "dwelling" had no bearing on the question whether a unit amounted to a "caravan".

The Appellant did not agree that the units were not suitable for the occupants to engage in cooking or eating within them. The resident could cook and eat a meal of the modern convenience type rather than the traditional roast dinner. Microwave ovens could be used. The Appellant contended that the correct question to ask was whether the absence of built-in cooking facilities in the units disqualified them from falling within the term "caravan" in item 1 of Group 9. The Technical Specification for the units showed beyond doubt that they were designed for the purpose of human habitation, and had all the features of a modern caravan bar the provision of a built-in cooking appliance. The weight of evidence in the Specification concerning the adaptation of the units for human habitation was such that the absence of such an appliance did not detract from the conclusion that the units fell within the word "caravan". The Appellant maintained its contention that the wording as enacted in Group 9 of Schedule 8 was wide enough to encompass the zero-rating of supplies of all structures that were designed for use as domestic accommodation. The hire of the units to the Appellant properly fell to be zero-rated.

Discussion and conclusions

We deal with the two issues in the same order as argued by the parties. On the first issue, item 1 of Group 9 of Schedule 8 to the Value Added Tax Act 1994 uses the word "caravan". In the absence of any definition of that expression anywhere within that Act, external tests must be used to establish its purpose and scope. The word cannot automatically be construed as it is for the purposes of other legislation; the purpose of the reference within the Value Added Tax Act 1994 requires to be examined.

The most common reference to a definition of "caravan" for the purposes of other legislation seems to be to that in section 29(1) of the Caravan Sites and Control of Development Act 1960. The context in which this definition is used is to extend as broadly as possible the concept of "caravan", to achieve the maximum control of sites on which such structures are located. There is no legislative link between the Value Added Tax Act 1994 and the definition in the 1960 Act. However, in their decision letter, the Commissioners refer to their long-standing policy of adhering to this definition. The breadth of the definition is restricted once it is applied for the purposes of Group 9 of Schedule 8, because zero-rating is restricted to those "caravans" that exceed the size limits for trailers permitted to be drawn by motor vehicles falling under the 2,030 kg unladen weight limit. On the basis that the 1960 Act definition applies, we do not read item 1 of Group 9 as requiring that the structure in question must be drawn as a trailer; if the item is a "caravan", it appears to us sufficient that it exceeds the size limits in regulation 8 of SI 1986/1078. Despite the breadth of the 1960 Act definition, we regard it as appropriate to start with it, but on the basis that we would expect that breadth to be limited in some way when it is used for the purposes of Group 9. The initial limitation is clear; only if the structure exceeds the size limits can it qualify for zero-rating.

The Lodja-Sleep units, being 2.7 metres wide, clearly exceed the size limits. The question is whether any further test needs to be fulfilled for them to be regarded as "caravans" for the purposes of Group 9 of Schedule 8. We accept that the presence or absence of the need for any further test depends on the purpose underlying item 1 of Group 9 in conferring zero-rating on certain "caravans". We agree with the parties that this purpose is to provide zero-rating on similar terms to that available in respect of residential accommodation. We approach with some caution the process of relating the zero-rating provisions in item 1 of Group 9 to those now in Group 5 of Schedule 8, since these reflect the modifications that took into account the result of the infraction proceedings in Commission of the European Communities v UK. Zero-rating in respect of construction was previously much broader. In assessing the purpose of the zero-rating for "caravans", the position needs to be considered as at the time of its original introduction, in the Finance Act 1972. The Notes on Clauses relating to the then Group 10 of Schedule 4 referred to relief for "houses and other domestic accommodation", and stated:

"The caravans in this Group are akin to houses; they are too large to be towed on the road, and are usually permanently sited with some degree of attachment to the land. Ministers have decided that residential caravans should be given the same relief as houses."

The Notes also equate caravans to houses by excluding from the zero rate removable contents other than those of a kind ordinarily installed by builders as fixtures in houses. This treatment has been continued in note (a) to Group 9 of Schedule 8, subject to the incorrect statutory cross-referencing to which Mr O'Connor referred.

Thus the declared intention was to treat caravans intended as residential accommodation in the same way as houses. What characteristics do "caravans" need to share with "houses" in order to qualify for similar treatment? We accept that they do not have to be exactly the same. However, it appears to us that in order to be equated with houses, "caravans" must provide a broad range of facilities similar to those to be found in a house. Although the expression "dwelling" may be a more recent introduction, we regard it as an acceptable substitute for "house" or "housing" in assessing equality of zero-rating treatment. To establish whether the range of facilities is comparable with those in a dwelling, we do think it both appropriate and necessary to apply the "self-contained living accommodation" test, as this is a clear attribute of an ordinary dwelling. In one sense, students occupying units "lived in them", in the same way as students occupying study bedrooms can be said to live in those rooms. However, this on its own does not demonstrate that the accommodation is self-contained. We do not agree with Mr Coombs' grounds for distinguishing St Catherine's College v Dorling, The University of Bath and University Court of the University of St Andrews; these all relate to the question whether a unit of accommodation constitutes a "dwelling". We accept that the ordinary incidentals of living in a "dwelling" include sleeping, cooking and feeding. The Lodja-Sleep units, as their name implied, were designed to provide for the first of these. Further, with the modifications of the units as made by the Appellant, provision was made for the occupant to use the unit in the same way as a study bedroom within one of the Colleges; in certain respects, the units were better equipped than some of the study bedrooms. However, the units were not designed to facilitate cooking and eating, even if some modest facilities in the form of a microwave oven, a toaster and kettle could have been introduced. Further, there were no proper facilities for washing and drying crockery, cutlery and cooking utensils. Although cooking and eating within the units was not expressly banned, as would have been the case for "ordinary" study bedrooms, the units as provided were intended to perform a similar function to that of such study bedrooms. There was no evidence that occupants of the units had cooked and eaten food within the units, merely evidence that within certain constraints this might have been possible. In assessing whether the accommodation could be described as self-contained in the context of zero-rating, we think that what matters is the purpose for which the units were designed, together with the specific modifications that the Appellant made to the units for use by student occupants.

Our conclusion on the first issue is that the Lodja-Sleep units did not constitute self-contained living accommodation, and therefore could not be equated to a "house" or "dwelling" in assessing whether their supply to the Appellant constituted the zero-rated supply of a "caravan" within item 1 of Group 9 of Schedule 8 to the Value Added Tax Act 1994. As they were not "caravans" falling within this description, the supply by Rollalong Hire Ltd was correctly standard-rated.

Given our conclusion on the first issue, we do have to consider the second issue, as there is no zero-rating to take precedence as Mr Coombs argued. Were the units "immovable"? We accept that the appropriate test is how easily the units could be removed from the site. We also accept Mr O'Connor's contention that there is a scale of degrees of movability or immovability. Whether, in the light of Rudolf Maierhofer, the units are to be regarded as movable or immovable depends where on this scale they fall. In that case the Advocate General referred to the buildings in question being capable of being dismantled by a team of eight persons within a period of ten days. It is not clear whether all these persons needed to be working continuously for the whole of that period. However, the amount of work required in order to dismantle and remove the buildings was substantial. The Advocate General also referred at paragraph 43 of his Opinion to the buildings being "firmly fixed to or in the ground". In the case of the Lodja-Sleep units, there was a limited degree of attachment to the ground, both by the linkages to various utility services and by the attachment of skirting where this needed to be installed. We do not regard the linkages or this attachment as sufficient to enable the units to be regarded as having been firmly fixed to the ground. It took no more than an hour and a half to remove a unit, together with the work required to remove the service installations, skirting and attachments, and fencing. Subject to the contractors being present for two days to deal with the fencing, the other works took about half a day. The work involved was nowhere near as substantial as in Maierhofer. We regard the Lodja-Sleep units as much closer to the structures considered in Commission v France. The Specification Document appears to stress ease of mobility; it refers to each unit as being capable of easy transportation to any part of the country by flat bed lorry with "crane-off facility", and to the service connections required to render it operational. However, it does not specifically mention ease of removal and redeployment. Mr Marsh's evidence was that this involved only a limited amount of work. Our conclusion on the evidence is that the units were not sufficiently attached to the ground to render them "immovable" for the purposes of the exemption in Article 13B(b) of the Sixth Directive.

Our conclusion on the second issue is that the letting of the Lodja-Sleep units to the Appellant did not amount to the letting of immovable property within Article 13B(b) of the Sixth Directive so as to qualify as an exempt supply, and thus that it was correct for Rollalong Hire Ltd to treat the supply as standard-rated.

As on both issues we find against the Appellant, the appeal is dismissed. We make no order as to costs.

JOHN CLARK

CHAIRMAN

LON/2003/0552