United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2005] UKVAT V19206

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London and Quadrant Housing Trust v Her Majesty's Revenue and Customs [2005] UKVAT V19206 (25 July 2005)

19206

OUTPUT TAX – Supplies made by Housing Trust to two associated bodies – All three parties separately registered for Value Added Tax – Whether the Appellant making taxable supplies or whether acting as agent/paymaster – Durham Aged Mineworkers' Homes Association considered – Plantiflor followed – Appeal dismissed

LONDON TRIBUNAL CENTRE

LONDON AND QUADRANT HOUSING TRUST Appellant

and –

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: MISS J C GORT (Chairman)

MR S K DAS LLM, ACIS

Sitting in public in London on 7 and 8 June 2005

Miss Hilary Thompson, a solicitor with KPMG, for the Appellant

Mr Kieran Beale of counsel, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

The appeal is against:

(i) An assessment dated 3 January 2001 and amended on 15 April 2002 for underpaid output tax in the sum of £107,982 for the period September 1988 to September 2000 and two assessments dated 14 April 2002 for the periods December 2000 and March 2001 with a combined sum of £29,494 in respect of supplies made to the London and Quadrant Bexley Housing Association Ltd ("Bexley", also referred to in some documents as "L&QBHA").

(ii) An assessment dated 13 March 2001 and amended on 15 April 2002 for underpaid output tax in the sum of £134,284 for the period January 1998 to December 2000 and an assessment dated 14 April 2002 for the period March 2001 for the sum of £11,516 in respect of the supplies made to the Tower Housing Association ("Tower").

There was originally an appeal against the Respondents' refusal to grant retrospective approval for a power of exemption to special method for use by the Appellant (referred to in some documents as "L&Q") for all periods covered by the assessment but that appeal was not proceeded with at the hearing.

The amount of the assessments was not in dispute, but the liability of the Appellant to pay the tax was in dispute.

The Appellant is a Registered Social Landlord with chargeable objects and is registered with the Housing Corporation under the Housing Act 1974 and with the Register of Friendly Societies under the Industrial and Provident Act 1965. The principal activity of the Trust is the provision of accommodation for people in housing need and it is a charitable organisation. Its office is at Osborne House, London SE.

Housing Associations are independent bodies, responsible for their own performance and management. They are nonetheless subject to a degree of regulation provided by the Housing Corporation, a Non-Departmental Public Body sponsored by the office of the Deputy Prime Minister. The Housing Corporation has issued a regulatory code and guidance setting out the fundamental obligations on Housing Associations, pursuant to section 36 of the Housing Act 1996 ("HA 1996").

Provision is made for the registration of social landlords in Part I of the HA 1996. A body is eligible for registration as a social landlord ("RSL") if it is registered as a charity, is registered under the Industrial and Provident Societies Act 1965 or is a company registered under the Companies Act 1985 which satisfies certain conditions. The conditions, set out in section 2(2) HA 1996, are that it is a non-profit making body (as defined in section 2(3)) and is established to provide, construct, improve or manage houses to be kept available for letting. What is provided is social rented housing at rents affordable to persons on low incomes: that is, at rent substantially below market value. The provision of housing is nonetheless private sector housing and not public or local authority housing.

The Appellant is the third largest housing association in the United Kingdom with housing stock in London and the South East of England. The majority of its stock is freehold, with some properties being managed on behalf of other landlords.

The principal activity of Tower is a provision of low-cost home ownership through shared ownership leases. The principal activity of Bexley is the provision of affordable rented houses predominantly in the London Borough of Bexley.

Originally the Appellant held a separate VAT registration. Tower was then formed in the early 1980s and joined the corporate group. Bexley joined the corporate group in February 1998. In April 2001 the Appellant, Bexley and Tower formed a VAT group but Tower subsequently left the group on 24 May 2001. The assessments which are currently under appeal cover the periods when the Appellant, Tower and Bexley held separate VAT registrations. The Appellant is a parent company and Tower and Bexley are subsidiaries. The Appellant is not a management company and it, Bexley and Tower produce consolidated accounts.

The Issue

The issue between the parties was as to the nature of the arrangements between the Appellant and Bexley and the Appellant and Tower and whether or not the Appellant was making taxable supplies to both Bexley and Tower. It was the Appellant's case that there was no onward supply to Bexley and Tower but the arrangements in place were consistent with a paymaster agreement. The Appellant maintained that there was an implied agreement for it to obtain services as principal both for itself and as agent for Tower and Bexley. Such shared costs are properly dealt with by way of inter-company charges.

The legislation

D. Relevant Legal Provisions

(1) The Sixth VAT Directive

Article 2 of the Sixth Council Directive of 17 May 1977 on the harmonisation of the laws of Member States relating to turnover taxes – common system of value added tax : uniform basis of assessment, 77/388/EEC ("the Sixth BAT Directive"), provides that "the supply of services effected for consideration within the territory of the country by a taxable person acting as such" shall be subject to value added tax.

Pursuant to Article 6(1), a supply of services is defined as any transaction which does not constitute a supply of goods within the meaning of Article 5. Article 6(2) provides as follows:

The following shall be treated as supplies of services for consideration:

(a) the use of goods forming part of the assets of a business for the private use of the taxable person or of his staff or more generally for purposes other than those of his business where the value added tax on such goods is wholly or partly deductible;

(b) supplies of services carried out free of charge by the taxable person for his own private use or that of his staff or more generally for purposes other than those of his business.

Article 11 of the Sixth Council Directive provides for the determination of the taxable amount of a supply. Article 11(A)(1) reads as follows:

"1. The taxable amount shall be:

(a) in respect of supplies of goods and services other than those referred to in (b); (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies, including subsidies directly linked to the price of such supplies.

…

(c) in respect of supplies referred to in Article 6(2), the full costs to the taxable person of providing the services."

Article 11(A)(2) states that:

"The taxable amount shall include:

(a) taxes, duties, levies and charges, excluding the value added tax itself;

(b) incidental expenses, such as commission, packing, transport and insurance costs charged by the supplier to the purchaser or customer. Expenses covered by a separate agreement may be considered to be incidental expenses by the Member States."

In contrast, Article 11(A)(3) provides that the taxable amount shall not include:

"(a) price reductions by way of discount for early payment;

(b) price discounts and rebates allowed to the customer and accounted for at the time of the supply;

( c) the amounts received by a taxable person from his purchaser or customer as repayment for expenses paid out in the name and for the account of the latter and which are entered in his books in a suspense account. The taxable person must furnish proof of the actual amount of his expenditure and may not deduct any tax which may have been charged on these transactions."

Article 17 of the Sixth Directive confers a right to deduct input tax in so far as the relevant goods and services are used for the purposes of the taxable transactions of the taxable person. Article 17(5)(c) and Article 19 set out rules governing the calculation of the deductible proportion. Article 19(1) stipulates that the deductible proportion shall be determined on an annual basis, fixed as a percentage and rounded up to a figure not exceeding the next unit. Article 20 governs adjustments of deductions.

(2) The Value Added Tax Act 1994

Section 4(1) VATA 1994 provides that VAT shall be charged on any supply of goods or services made in the United Kingdom, which is a taxable supply made by a taxable person in the course of furtherance of any business carried on by him. A taxable supply, under section 4(2), is any supply of goods or services other than an exempt supply.

Section 5(1) states that Schedule 4 is to apply to determine what is, or is to be treated as a supply of goods or services. Section 5(2) provides as follows:

Subject to any provision made by [Schedule 4] and to Treasury orders under sub-sections (3) to (6) below, X

(a) supply in this Act includes all forms of supply, but not anything done otherwise than for consideration;

(b) anything which is not a supply of goods but I done for a consideration (including, if so done, the granting, assignment or surrender of any right) is a supply of services.

Section 5(4) states:

"Without prejudice to subsection (3) above, the Treasury may by order make provision for securing, with respect to services of any description specified in the order, that where –

(a) a person carrying on a business does anything which is not a supply of services but would, if done for consideration, be a supply of services of a description specified in the order; and

(b) such other conditions as may be specified in the order are satisfied, such services are treated for the purposes of this Act as being supplied by him in the course or furtherance of that business."

Section 19 VATA 1994 sets out the domestic UK provisions relating to the calculation of the taxable amount in a given supply. Section 19(1) provides as follows:

"(1) For the purposes of this Act the value of any supply of goods or services shall, except as otherwise provided by or under this Act, be determined in accordance with this section and Schedule 6, and for thee purposes subsections (2) to (4) below have effect subject to that Schedule."

Section 19(2) provides that if the supply is for consideration in money, its value shall be taken to be such amount as, with the addition of the VAT chargeable, is equal to the consideration. Section 19(3) states that if the consideration does not consist or does not consist wholly in money, its value is taken to be such amount in money as is equivalent to the consideration. Schedule 6 to the Act provides for a different basis for valuation in special cases.

Section 19(4) VATA 1994 provides that where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply shall be deemed to be for such part of the consideration as is properly attributable to it.

Sections 24 to 26 VATA 1994 govern the payment of output tax and the recovery of input tax by taxable persons. Section 26 provides as follows:

"(1) The amount of input tax for which a taxable person is entitled to credit at the end of any period shall be so much of the input tax for the period (that is input tax on supplies, acquisitions and importations in the period) as is allowable by or under regulations as being attributable to supplies within subsection (2) below.

(2) The supplies within this subsection are the following supplies made or to be made by the taxable person in the course or furtherance of his business –

(a) taxable supplies;

(b) supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom;

(c) such other supplies outside the United Kingdom and such exempt supplies as the Treasury may by order specify for the purposes of this subsection."

(3) The Commissioners shall make regulations for securing a fair and reasonable attribution of input tax to supplies within subsection (2) above, and any such regulations may provide for –

(a) determining a proportion by reference to which input tax for any prescribed accounting period is to be provisionally attributed to those supplies;

(b) adjusting, in accordance with a proportion determined in like manner for any longer period comprising two or more prescribed accounting periods or parts thereof, the provisional attribution for any of those periods;

( c) the making of payments in respect of input tax, by the Commissioners to a taxable person (or a person who has been a taxable person) or by a taxable person (or a person who has been a taxable person) to the Commissioners, in cases where events prove inaccurate an estimate on the basis of which an attribution was made; and

(d) preventing input tax on a supply which, under or by virtue of any provision of this Act, a person makes to himself from being allowable as attributable to that supply."

Section 47 deals with the question of supplies to and from agents. Its material parts read as follows:

"[2A) Where, in the case of any supply of goods to which subsection (1) above does not apply, goods are supplied through an agent who acts in his own name, the supply shall be treated both as a supply to the agent and as a supply by the agent.]

(3) Where … services are supplied through an agent who acts in his own name the Commissioners may, if they think fit, treat the supply both as a supply to the agent and as a supply by the agent."

Paragraph 5(4) of Schedule 4 to the VATA 1994 states that:

"Where by or under the directions of a person carrying on business goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, that is a supply of services."

(3) The Value Added Tax (Supply of Services) Order 1993

At the material time of the supplies in question, Article 3 of the Value Added Tax (Supply of Services) Order 1993 (the 1993 Order) provided as follows:

Subject to Articles [6, 6A and 7] below, where a person carrying on a business puts services which have been supplied to him to any private use or uses them, or makes them available to any person for use, for a purpose other than a purpose of the business he shall be treated for the purposes of the Act as supplying those services in the course or furtherance of the business.

Article 6(1) provides that the Order shall not apply in respect of any services which are used or made available for use for a consideration.

The evidence

Agreed bundles of documents were provided by the parties. Mr David Montague, the group financial director gave evidence on behalf of the Appellant. Mr Nicholas Dean-Webb gave evidence on behalf of the Revenue. Mr Beale provided a helpful chronology.

Under a business plan dated August 1997 in respect of Bexley it is stated inter alia that Bexley had inherited a management organisation which has been providing a contract housing management service to Bexley Council since April 1994. Since May 1996 the staff of Bexley had been working together under one roof at Norfolk House, Sidcup. As from 18 September 1997 that building was renamed Athena House.

Under sub-paragraph 2.9.1 of the Business Plan it states: "Many of the functions of L & QBHA Bexley) will be carried out wholly or in part by staff based at the London & Quadrant Group Headquarters, Osborne House, Lee Green, or at other L&Q offices."

There then follow several paragraphs dealing with the allocation of responsibilities between the Appellant and Bexley. Under paragraph 2.9.3 the responsibilities of the Appellant are said to include; Information technology services, legal services, personnel/training/payroll services, financial services, development services, marketing services, development of group, arrangement of new borrowing requirements, central administration, administrative support, research services, and secretariat services.

Shared responsibilities are said to be: Budgets, accounts, new business growth, internal audit, and policy monitoring and review.

Under paragraph 2.10.1 of the Business Plan it is provided that the Appellant's finance division is at the head office and is responsible for controlling group finances, and for providing information technology services and the assessment of rents. Paragraph 2.10.2 provides:

" A dedicated team within the finance division will provide management and statutory accounting services to L&QBHA. All other services, including bought ledger, rent accounting, development accounting, payroll and treasury, will be absorbed into the existing structure.

10.3 "The new L&QBHA finance team will consist of one manager and four officers. The manager will report to the L&Q group assistant finance director."

In the past there had been some overlap between the functions of the Appellant and those of Bexley in the area of Bexley. The Appellant had owned and managed some of the sheltered homes in Bexley. Some properties were jointly managed by Bexley and Tower. When the Appellant acquires land in Bexley, this will either be acquired in the name of Bexley or Tower, or the freehold would be transferred to Bexley and/or Tower. Bexley builds, owns and manages affordable housing, whereas Tower builds, owns and manages low-cost housing for home ownership on the same site. In the case of Tower the resident would buy a share of the house and rent the remainder from Tower, with a view to gradually buying up the whole of the property.

On some occasions the Appellant would acquire the freehold and lease it to Bexley or Tower; sometimes the Bexley residents would exercise the right to buy. Where the property was a flat this would usually be leased to the tenant.

The Appellant did not charge rent. It would jointly negotiate with the seller and an agreement would be made as to how Bexley and/or Tower would pay. On some occasions the Appellant would pay the vendor, or Bexley and/or Tower would pay. There was no joint ownership of property between Bexley and Tower. The running costs were shared on an agreed basis: the invoice would be sent to the Appellant and the costs apportioned, having initially been paid for by the Appellant. The particular agreement would depend on the nature of the site itself and how the common parts were used.

The Appellant's aim was to allocate the costs as fairly as possible, where there were the same number of shared homes in Tower as there were in Bexley, the costs would be subject to an independent audit. The Appellant was required to send statements to all leaseholders so they could challenge the way costs were allocated. On joint estates the amount that the tenants were required to pay would be contained in the lease. For example, where there were fifty houses, one lease would state that that tenant was responsible for one-fiftieth of the maintenance. Where the costs were in common those would be billed direct to Bexley or Tower and such costs did not form part of the assessments in dispute. The overheads which were contained in the assessment were the costs of such matters as recruitment, training and the provision of information systems. A meeting was held on 8 June 1998 in which the financial policy of the Group was discussed. A note of that meeting is included in the bundle of documents and shows inter alia that Tower was keen to understand the charge from the Appellant and the Appellant was keen to ensure that Tower paid its way. The aim was to find a way to charge for the central overheads on the basis of consumption, prior to 1998 costs had been charged on the basis of the proportionate number of employees.

Also in 1998 a Procedure Agreement was drawn up between the Appellant and Bexley. This was required by the Housing Corporation before they would transfer local authority stock to the Appellant. The agreement had various headings, including 'Responsibilities of the parties', 'Services to be provided by the parent' and 'Financial responsibility and assistance'. Under the paragraph headed "Services to be provided by the parent" it is stated inter alia that the parties agree to negotiate Service Level Agreements. These are to be for a rolling three-year term, however, the services provided by the parent to the subsidiary and the operation of the Service Level Agreements are to be formally reviewed annually between the parties themselves. Under the heading "Financial responsibility and assistance" it is stated:

"It is hereby agreed and declared between the parties that, as a matter of record of their intentions only and expressly not so as to create any formal or legal obligation between them financially or otherwise and so that this clause shall be binding in honour only, their liabilities shall be regarded as joint and several and the parties agree that in the event that either of them shall at any time be in financial difficulties the other party shall make every practicable effort to provide such support and assistance, financial and otherwise, as may be possible in the circumstances."

The Service Level Agreement for the period 1 April 2000 to 31 March 2003 (and thereafter on a rolling three-year term) under paragraph 2.2 headed "Timescales and Standards" provides:

"The parent shall provide the Services in accordance with the covenants set out in Part I of the second Schedule to the Procedure Agreement and with the timescale set out in the Services Descriptions in Part A of the Schedule or, if none are specified, expeditiously and diligently."

It was Mr Montague's evidence that, despite the fact that this was a document that the Appellant was required to enter into by the Housing Corporation as a condition of stock transfer, it never in reality reflect the Appellant's intention. The costs were never shared in the way set out in the agreement, and the interaction between the parties was never governed by the monitoring and review procedures set out in the Service Level Agreement ("SLA").

The Schedule to the Procedure Agreement under the heading "Part II Responsibilities of the parent" provides:

"The responsibilities of the parent will include:

Information technology services

Legal services

Personnel/training/payroll services

Financial services

Development services

Marketing services

Development of Group

Arrangements of new borrowing requirements

Central Administration

Administrative support

Research services

Secretariat services

The costs of the services which the Appellant procured on behalf of Tower and Bexley were paid for by it, but the costs were subsequently allocated to the particular recipient of the service. According to Mr Montague, whilst the Housing Corporation had issued best practice guidance, including the clear requirement to have an SLA, it was learning the best way to proceed as was the Housing Corporation which was now moving away from SLAs because it had become clear that they were not appropriate and did not reflect the reality. Other Housing Associations had also abandoned them. There was no SLA with Tower.

The Appellant had operated as it did in order to benefit from economies of scale and to achieve a reduction of administration costs. It was considered that best value could be achieved by purchasing services in bulk for all three companies. Support services were provided from a central source and the costs were shared via inter-company re-charges. Shared costs related to such items as IT systems and support, stationery and telephone services. All three systems use the same rent accounting system and paid a firm for support and development of the system. The costs of the system and associated support were met jointly by the Appellant, Bexley and Tower.

In respect of its IT requirements the Appellant took out an agreement with BlackBerry Enterprise. This necessitated them taking out a BlackBerry Enterprise Server Software Licence Agreement. This Agreement granted a personal revocable, non-exclusive, non-transferrable licence to install and use one copy of the software on a single server residing on the Appellant's premises solely in conjunction with its use of the BlackBerry Solution. This facility was, however, used by both Bexley and Tower.

The Housing Corporation did inspect the Appellant regularly; it has a regulatory role and expects high standards of corporate governance to be applied and maintained by Housing Associations. Its guidelines from its regulatory code set out inter alia that:

"The regulator expects RSLs to demonstrate efficient and effective organisational arrangements;

The Housing Corporation expects RSLs to deal with it in an "open and co-operative manner";

Control should be open and transparent and enshrined in the governing instruments for the subsidiaries. Rights and obligations should be clear to all. In this regard, intra-group agreements and procedural agreements are key documents;

Subsidiaries are expected to negotiate and agree terms in an agreement by which respective responsibilities are assigned;

Operating agreements should be properly documented."

Advice given in 1999 by the Housing Corporation on good practice on the legal and governance arrangements and operating procedures between a parent RSL and its unregistered subsidiaries include the following:

"A subsidiary should make its own decisions and not simply accept instructions from the parent;

A parent company can lay down limits, but should not tell the subsidiary how to operate within those limits;

Where staff and offices are shared there should be clearly established administrative procedures to help everyone know who is doing what;

Where one company acts as an agent or manager, particular care is needed to make the position clear;

Attempts should be made to separate the outward appearance of the various entities;

Accounting documentation and records should clearly show which company expenses relate to which company's activities;

It is permissible for companies in a group to share staff and offices, but suitable charges should be made to the other company using their staff and facilities. The charge should be based on fair market value, to avoid unintended subsidies from one group company to another. Joint employment and joint ownership of assets can cause confusion and sometimes conflicts;

Where transactions take place with a third party, it is important for the third party to know with which entity in the group it has contracted;

Where assets are owned by the parent, it may well be appropriate to enter into formal leasing agreements, to impose expense control for the subsidiary and generate income for the parent;

RSLs should be formal about preserving the distinct identities of different companies in a group, especially where there are shared staff or joint use of a group name.

The National Housing Federation published a Code of Governance in September 1995. Both the Appellant and Bexley sought to comply with the Code, however the arrangements between the Appellant and Bexley and Tower are characterised by a degree of informality. It was not clear to the Tribunal precisely what sums were paid by which entity in the Group. It was said by Mr Montague that the Appellant acted as agent for Bexley and Tower in some aspects and on some occasions Bexley and Tower procured services on their own behalf, for example legal services. On some occasions when Bexley and Tower procured services on their own behalf nonetheless the invoice would be sent to the Appellant who would pay it and the cost subsequently be allocated to the recipient of the service. The Bexley budget statement for the year 2000/2001 showed as "other central charges (L&Q)" in the column headed "revised budget 1999/2000" the sum of £659,000 and for the budget 2000/2001, £700,000. There was a note saying "following departmental restructure Bexley's FTE staff have increased to 74". It was this increase that led to an increase in the 2000/01 budget. It was the practice each year to re-allocate costs on the basis of the experience of the first six months. A revised budget was used to estimate the budget for the following year. It does not appear possible from the documents provided to know in advance what sums Bexley or Tower owe, the system is for there to be a final cost allocation undertaken at the end of the financial year. The notes on the Appellant's financial statements for year ending 31 March 2000 show as amounts from subsidiaries £4,590, and there is a note below this which appears in the debtors column: "Amounts owing from subsidiaries represent inter-company balances in respect of staff and administration costs and in the case of Tower Housing Association includes on-lending from London and Quadrant Housing Trust."

The Appellant took out insurance on behalf of itself and Bexley and Tower, and paid the premiums but then charged a proportion of the cost to Bexley and Tower. Similarly the Appellant invited companies to tender for a statutory audit of itself and Bexley and Tower.

The Appellant produced in evidence a book by somebody called Mary S Gober entitled "The Art of Giving Quality Service". This book places emphasis on customer service. According to Mr Montague, it was the policy of the Appellant to provide its customers with as efficient and effective a service as possible and it considered that by offering economies of scale it achieved this.

The reason given by Mr Montague for not complying with the SLA was that the Appellant had recently acquired two new housing associations and consultants and advised that by adopting detailed agreements the housing associations would have faced regulatory and auditory responsibilities with which they were unable to comply. It was considered that by providing detailed budgets for approval by each member of the Group showing the types of expenditure incurred and the way the money was spent, that was sufficient. Each member and each subsidiary could challenge the amount and the way the services were delivered. It was accepted that there could not be an exact calculation of the costs to Bexley and Tower. As much as could be directly allocated was so allocated; the remainder went into a residual pot and was allocated as fairly as could be. The charge for the information systems was on the basis of the number of personal computers as a proportion of the total number. It was accepted by Mr Montague that whilst in principle both entities paid for what was used, there was an element of cost-subsidy. There was also financial help given by the Appellant when it was needed. It was accepted by Mr Montague that in 1998 the VAT position had not been considered and that it might have been better to have applied for VAT Group registration at that point.

Mr Montague was taken through the SLA and asked to point out which areas had not been adhered to. The first divergence indicated was at paragraph 2.1 where no fee was charged by the Appellant in consideration for its providing services to Bexley. The cost to Bexley were therefore less than it would have been if the Appellant had adhered to the SLA. Paragraphs 6 and 7 which dealt with dispute resolution and default in the provision of the services were similarly not followed. The terms of the agreement were not relied on to resolve disputes or defaults. Paragraph 9 relating to assignment and sub-contracting was not followed, nor was paragraph 10 which dealt with variation of the agreement itself which should have been in writing but was not. With regard to the Schedule to the SLA, neither clause 1.3 nor clause 1.5 of Schedule A were adhered to, and the charging structure in Schedule B was never used. By implication the rest of the SLA was adhered to.

Mr Dean-Webb, an officer of Customs and Excise at the time, had visited the Appellant on 23 May 2000 and on 13 July 2000. The only information Mr Dean-Webb had at the time about the arrangements between the Appellant and Bexley and Tower was the SLA which was given to him by representatives of Bexley. It was only later on in his enquiries that he was informed that the SLA had been abandoned. He had been given the SLA when enquiring as to what the inter-company charges in the accounts referred to. It was observed that the Appellant had put all the value added tax on the invoices through its own records. This was said by Mr Montague to have been an error, but this treatment was at odds with the Appellant's explanation as to what was happening between the parties. An Assessment based on the terms of the SLA was raised in respect of Bexley dated 3 January 2001. It was not until a letter dated 2 February 2001 from KPMG that Mr Dean-Webb was informed that the SLA did not reflect what was actually happening. In that letter it was pointed out that the SLA was made between the Appellant and Bexley, whereas the assessment related to both Bexley and Tower, and the letter continued: "It would seem somewhat ludicrous to insist that a supply exists between L&Q and one subsidiary purely because of the existence of the SLA where there is no supply for precisely the same procedure carried out between L&Q and THA." The Appellant was said to be acting as paymaster/paying agent in receiving invoices incurred on services provided by third parties and meeting other costs such as use of staff before re-charging a relevant proportion of those costs to each of the subsidiaries. The relevant proportion was then calculated and moved across into the accounts of either Bexley or Tower. KPMG sought to rely on the decision of the High Court in the case of Durham Aged Mineworkers' Homes Association v Commissioners of Customs and Excise [1994] STC 553 per Auld J.

It was accepted by the Commissioners (as they then were) that the staff were engaged on joint contracts of employment, so that where an employee working normally for the Appellant did work for another entity such as Bexley, there would be no supply for VAT purposes. It was also accepted that it was not the existence of the SLA which determined the matter. No part of the assessment related to the 3% which was paid retrospectively by Bexley and Tower with regard to their right to occupy the premises because this was an exempt supply, there being no option to tax. The Commissioners did not accept that the Durham case was on all fours with the Appellant's arrangements and informed the Appellant that it was their opinion that it fell to be distinguished on its facts. The subsequent amendment of the assessment and the provision of a separate assessment in respect of Tower was made following the receipt of figures from KPMG. These figures accompanied a letter of 12 July 2001. By a further letter dated 14 March 2002 in which KPMG indicated that if Mr Dean-Webb could indicate that the Appellant could recover input tax equivalent to the output tax due on the recharges, then the Appellant would accept that the recharges were taxable supplies.

The Respondents' case

The Revenue's principle argument was that the Appellant did not either as a matter of fact or law operate as merely an agent for its subsidiaries in relation to the contested supplies. It therefore made onward supplies of the relevant goods and services to Bexley and Tower, its two subsidiaries.

In correspondence with the Commissioners KPMG had stated inter alia as follows:

"We believe that L&Q have acted as a paymaster, centrally incurring costs relating to centralised administrative functions and then recharging these to LQB and THL. These costs arose because L&Q allowed THL and LQB to make use of its facilities, including its headquarters at Osborn House, in return for them paying an agreed proportion of the associated costs. As you are aware, THL, LQB and LLQ all share a pool of staff on joint contracts of employment.

…

"It was our understanding that the finance department at L&Q received and paid all invoices. Invoices in the name of LQB and THL were allocated directly to them and paid by them. Invoices proper to L&Q were then split out, leaving a pool of invoices relating to shared overhead costs. 3% of these costs was then recharged to LQB and a further 3% to THL. Indirect costs were then split between the various functions of information systems, central, finance and personnel and a proportion of these was then similarly recharged to LQB and THL."

Whilst it was accepted that the SLA had in fact been abandoned as far as the charging structure set out in Schedule B was concerned, nonetheless it was the Respondents' case that throughout the relevant periods the Appellant provided a variety of services to Bexley and Tower and in doing so it was following the model for the provision of services laid down in a combination of its business plan, the Procedure Agreement and the SLA. It was for this reason that the assessments originally notified to the Appellant were amended to reflect the actual, rather than the notional, costs which had been charged to Bexley and Tower. It was not accepted that the SLA was abandoned in its entirety, and Mr Montague in his evidence had selectively isolated those areas which were no longer followed, but had not given specific evidence that it was abandoned in its entirety.

Insofar as the Appellant sought to suggest that the entirety of the SLA was abandoned, this would severely jeopardise the Appellant's stated aim of complying with the requirements of its regulator, the Housing Corporation. It was submitted that it must be doubted whether the Housing Corporation would be impressed to hear that the third largest Housing Association in the country had put in place a "paper agreement" for the purposes of keeping an industry regulator at bay.

Under the Procedure Agreement it was recognised by the Revenue that services would be provided by the parent to its subsidiaries, the first schedule gives a list of the services to be provided and by the second schedule both the Appellant and Bexley agreed to comply with the requirements of the Housing Corporation, the Department of the Environment and other regulators. Whilst the Procedure Agreement did not specify how the services were to be paid for, clause 4.4 of the Agreement stated that party should negotiate in good faith in respect of the level of services to be provided, the performance targets to be met and the annual price of the services. It was therefore anticipated that the Procedure Agreement would lead to the signature of a service level agreement governing these matters. With regard to the specific SLA, whilst it was accepted by the Revenue that it had not formed the basis of the charges actually levied, nonetheless enough of it survived in that the Appellant continued to discharge functions from a central office and provide a number of services to and for the benefit of itself, Bexley and Tower. It was not accepted that the SLA was put in place to appease the Housing Corporation and encourage it to sanction the transfer of significant quantities of housing stock to Bexley. Nor was it accepted that the SLA did little more than reflect a customer service culture inherent in a "post-Mary Gober" world; the SLA was of a formal nature being a sealed deed. The Appellant's approach failed to give effect to the ordinary meaning of the word "services" which the Appellant clearly undertook to provide for the benefit of the Group as a whole. The fact that other provisions in the SLA (for example governing dispute resolution) were not used did not mean that the SLA had no force, it simply meant that the parties chose not to exercise the rights afforded them under that contract.

It was submitted that the Appellant had agreed to discharge a number of core administrative, managerial and support functions for the benefit of the Group as a whole. For VAT purposes the "discharge of functions" falls to be equated with "the provisions of services" where they are made by one taxable person to another. In the present case the services were not provided solely to internal divisions within one company, they were also provided to separate legal entities which also maintained separate VAT registrations.

It was accepted by the Revenue that there was no profit motive behind the supply, and that the consideration for the supplies had been worked out on a strictly cost basis. The Appellant and its subsidiaries are non-profit making bodies, as far as each other is concerned. The absence of a commercial uplift did not deprive the supply of services of its taxable status, as was shown in the case of Eastbourne Town Radio Cars Association v Commissioners of Customs and Excise [2001] UK HL 19. Nor did the absence of a mark-up on a costs component mean that VAT need not to be paid, the Tribunal was referred to the case of Commissioners of Customs and Excise v Plantiflor Ltd [2002] UK HL 33.

It was not accepted that Mr Dean-Webb's letters showed that the Revenue had agreed that the SLA was abandoned. What had been accepted was that the new figures provided by KPMG showed that the assessment based on an estimate derived from figures in Schedule B to the SLA were incorrect in the face of the provision of new figures of charges actually made. It had been accepted that the charging structure had been abandoned but there was no broader acceptance that no services were provided by the Appellant to Bexley and Tower.

It was not accepted on behalf of the Revenue that the various payments should be characterised as disbursements paid by the Appellant on behalf of itself, Bexley and Tower. Direct costs which the subsidiaries incurred were allocated directly to them and paid by them, they were not included in the assessed amounts which related only to the indirect costs which had been split because they could not be specifically allocated to anyone of the three legal entities. There was no evidence that the Appellant paid out sums covering the split services in the name of and for the account of either Bexley or Tower for the purposes of article 11 of the Sixth Directive. None of the invoices indicated that the Appellant was acting as a named purchasing agent for Bexley or Tower and none of the split invoices are charged to the name of Bexley or Tower, all were addressed to the Appellant. It was a requirement of the Appellant's invoicing system that a specific entity should be invoiced. Furthermore the split invoices were not entered into a suspense account in the name of either Bexley or Tower to be specifically discharged by the subsidiaries in due course. The expenses were entered into the Appellant's general accounting system and separate entries for recharges then made. The Appellant had claimed input tax on all of the shared invoices, and if the shared invoices were not paid the supplier could sue the Appellant to recover the sums due, but not Bexley or Tower.

It was further submitted that the arrangements put in place regarding the "re-charges" were no more than a mechanism for ensuring that the subsidiaries accounted for the benefit of the services that they received from the Appellant. An example of this was the central computer server which was bought by the Appellant and was its property. The Appellant derived a substantial share of the benefit of that server, as the majority consumer of the services it provided. Nonetheless the server might also be used in the course of providing IT support for Bexley or Tower, or more generally by them accessing a group wide system of information exchange. The cost of the individual personal computers used by Bexley were allocated directly to Bexley, and therefore were a direct cost. If no charges were made for the use of the server, the subsidiaries as separate legal entities would derive the benefit of the business assets of another taxable person without payment, which would give rise to a deemed supply of services under paragraph 5(4) of Schedule 4 to the VATA 1994 and/or under the VAT (Supply of Services) Order 1993. By virtue of paragraph 7 of schedule 6 to the VATA 1994 the value of the supply would then be taken to be the cost of providing the service. In the present case the same result is achieved by virtue of the subsidiaries paying the proportionate costs attributable to their actual consumption of those services. The "costs" which are paid are consideration for the service.

Neither Tower nor Bexley knew in advance what amount they were committed to where there were joint supplies. The budget system relied on by the Appellant did not identify with any precision any specific supplies, and in any event was revised on a mid-year basis. If the supply is characterised as a supply of central services from the Appellant to the subsidiaries for which a cost charge is made on the basis of actual consumption then the subsidiaries know where they stand because they control their own consumption of their services.

With regard to the case of Durham Aged Mine Workers' Homes Association v Commissioners of Customs and Excise [1994] STC 553, relied on by the Appellant, it was submitted that this case fell to be distinguished on its facts because there was no implied agreement to share the costs of goods and services in the present case, rather those goods and services were supplied to the appellant as the central body, which in turn re-supplied the same or similar goods and services to its subsidiaries. The implication of a cost-sharing agreement was inconsistent with the express wording of both the Procedure Agreement and the SLA. The fact that Bexley and Tower in fact paid a proportion of the costs incurred by the Appellant did not mean that the arrangements are converted into a joint venture with an implied cost-sharing arrangement. The Durham case itself was in fact distinguished by Lord Slynn in the Eastbourne Town case (supra) (and by Simon Browne LJ in that same case in the Court of Appeal).

In rejecting the Appellant's argument that it was acting as an agent when supplying goods and services to Tower and Bexley, the Revenue relied on the case of Customs and Excise Commissioners v Plantiflor Ltd [2002] UK HL 33, in which the House of Lords had rejected an argument that Plantiflor had been acting as a mere agent in the supply by Parcelforce of deliveries of flower bulbs to Plantiflor's customers. The facts of Plantiflor were that the taxpayer carried on the business of supplying horticultural goods by mail order. A charge of £2.50 was made for postage and packing, the postage element being £1.63. No VAT was charged to the customer on the postage element. The taxpayer entered into an agreement with Parcelforce whereby the taxpayer agreed to send a minimum annual number of parcels to Parcelforce and Parcelforce agreed to deliver them to the customers for a flat rate per parcel. It was held that on the true construction of the agreements between the taxpayer and the customer and between the taxpayer and Parcelforce the postal element in the customer's contribution to postage and packing was paid to the taxpayer rather than to Parcelforce and was, accordingly, … part of the consideration moving from the customer to the taxpayer for the supply of goods and services to the customer and was subject to value added tax. In the alternative, it was submitted that the Appellant throughout received supplies of goods and services invoiced to its own name and the Commissioners were therefore entitled to treat the relevant supplies as being both a supply to the Appellant as agent and a supply by the Appellant as agent in accordance with sections 47(2A) and 47(3) of VATA 1994.

The Appellant's case

The Appellant relied on the fact that it was not a management company and whilst Tower and Bexley were subsidiaries for the Appellant, in practical terms all three carried out the same activity and generally provided the same service, incurring the same expenditure in order to provide that service. Under the principles of economy of scale and reduction of administrative costs, it had been agreed that best value would be achieved by purchasing service in bulk for all three companies, with invoicing and initial payment being dealt with by the Appellant, who was then reimbursed its share of the costs by both Bexley and Tower. The cost-sharing was achieved via inter-company re-charges.

Mr Montague's evidence was relied upon for demonstrating a clear intention at the time, not retrospectively, to share the costs for administrative ease, both before and after the SLA. Neither the Procedure Agreement nor the SLA were followed, not only in relation to costs, but also in relation to the provision of services. The support service from the central source was achieved by a paymaster agreement.

The central function was that of all three parties facilitated by joint-contracts of employment. Osborne House was occupied by Bexley and Tower as well as the Appellant.

The costs which were shared were those relating to IT systems and support, stationery and telephone services. All three companies use the same rent accounting system and paid a firm for support and development of the system. The costs of the system and associated support were met jointly by the Appellant, Tower and Bexley. A variety of invoices show were the invoice is addressed to the Trust, that clearly make reference to work carried out for the subsidiaries. These invoices were paid by the Appellant, and the cost was recovered through inter-company account charges.

Prior to 1998 all overheads were allocated on the basis of attribution of salary costs and this system was recognised as being inappropriate and it was agreed that the group should move to a consumption-based approach, as per the finance policy group report dated June 1998 and the finance policy group update dated 21 August 1998, to provide further control of costs for each group member.

Mr Montague's evidence was that procurement could be carried out by any of the three parties, although more usually it was the Appellant who made the procurement not just in relation to direct but also indirect invoices. Whilst it was accepted that the documents in support of the supplies were in the name of the Appellant in the majority of cases, the Appellant formally contracted on behalf of Bexley and Tower. For example the invitation to tender for audit showed the Appellant's intention to contract on behalf of Bexley and Tower.

There was an informal agreement in place, and that fitted the culture of the organisation. The Appellant relied on the case of the Durham Aged Mineworkers' Hoes Association v Commissioners of Customs and Excise [1994] STC 553 which was a case where two separate entities jointly receive the supplies of goods and services and where the court found that there was an implied agreement that the two entities would carry on business as a joint venture, splitting the costs 50:50 between them, regardless of the respective use by those entities of the goods or services supplied. That case showed that there was no essential need for there to be a document. Similarly in that case there was a close working relationship and an implied agreement between the two associations that the costs would be shared and one association would act as paymaster/agent for the other. The court also held in that case that the perception of outside suppliers could not determine the relationship between the immediate recipient of the supplies and another for whom they were in part destined. It was submitted that the Appellant's case was on all fours with that decision, and the Appellant was merely acting as paymaster in compliance with an implied agreement between the parties and therefore there were no supplies between the Appellant and Bexley or Tower.

The Appellant relied on the Commissioners' statement in their letters of 12 September 2001 and 29 November 2001 that it was accepted that the SLA together with the Procedure Agreement was abandoned almost straightaway, and therefore that agreement could not determine the relationship between the parties. It was not accepted by the Appellant that the services which formed the subject of the SLA were provided to Tower and Bexley in the terms set out in the SLA and that it was just a costing structure prescribed by it which was ignored.

It was not accepted by the Appellant that it was not possible to distinguish those supplies to it which were cost components of the onward supply to Bexley and Tower from those which the Trust used itself. The volume of the supplies was directly linked to the sum paid by the subsidiaries, and the Appellant relied on the decision in the case of Milnathort Golf Club (VAT Decision No.17889) in which it was held that a single price was not decisive and that detailed invoices were desirable, but not essential.

In the statement of case at paragraph 16 and 17 the Commissioners had referred to "the assets and facilities shared by all three entities". It was contended that this was a concession and that sharing was not consistent with onward supply but was consistent with the shared use following a paymaster arrangement.

There was clear evidence that there was an implied agreement for the Appellant to obtain services for itself as principal and as agent for Bexley and Tower. Such shared costs were properly dealt with by way of inter-company charges. It as not a case where the Appellant performed the role of a management company. All three companies were essentially in the same business of making essentially similar supplies and therefore required the same inputs to make the supplies. The Appellant did not in the course and furtherance of its business make supplies of the type which formed the basis of the assessment. The Appellant relied on the doctrine of "substance over form" with regard to the SLA, it was not the basis of the understanding between the Appellant, Bexley and Tower, nor was it a guide to how they conducted themselves. The results of any other explanation was a double restriction of input, a restriction suffered by the Appellant who must then account for output tax on the full amount, followed by a further restriction in the hands of Bexley and Tower. This result cannot have been intended by the Appellant, and nor did it so intend.

The Revenue had contended that the Appellant was in breach of its duty to the Housing Corporation, but the Housing Corporation had inspected and visited regularly and had never raised any issue with the Appellant. Whether or not the Appellant followed the Housing Corporation guidance should not be used to determine whether or not it was providing a service to Bexley and Tower.

It was accepted that the Appellant had made a systems error with regard to input tax recovery, but it was submitted this did not illustrate the parties' intentions.

Whilst the Appellant had subsequently applied for VAT Group registration, it had not been obliged to do so and a paymaster agreement was an accepted method of dealing with inter-group payments. The joint contracts in relation to the staff indicated the arrangement between the parties. The cost of training and payroll cost were appropriate to the employers, and were proper to all three parties. With regard to the business plan, the fact that the Appellant had responsibilities did not mean it was providing services. It was Mr Montague's evidence that where there was a reference to the Appellant, that meant that the staff at headquarters had the responsibility, and Bexley had frontline staff on those premises to deal with such matters.

With regard to the accountability to tenants, it made no difference that they were charged retrospectively for the services, the fact that payment was due after the event did not affect the position. Both Tower and Bexley had the same opportunity to complain which would be the same whether they were receiving a service or agreeing a set allocation. The tenants had no right or expectations with regard to the SLA.

The Appellant derived no profit from the supplies delivered to Bexley and Tower. There were no invoices between the parties, it was an informal arrangement. It was not part of the Appellant's business to supply services to any member of the group, all three were providing services to the public. The parties had acted on an implied agreement to share costs.

All the cases relied on by the Revenue could be distinguished. The case of Nell Gwynn House Maintenance Fund Trustees v Commissioners of Customs and Excise [1999] 1 WLR 174 could be distinguished by the nature of the business which in that case concerned the maintenance of a block of luxury flats which was paid for out of a maintenance fund into which the lessor of the block and the tenants of the flat were each required to contribute for a specified performance of the annual maintenance costs. The lease provided for the trustees of the maintenance fund to retain their remuneration out of that fund and to hold the balance on trust to be applied for the day-to-day management and maintenance of the building and the employment of staff. In that case it had been held that by entering into contracts of employment with individual members of staff who performed services in the building the taxpayers had supplied services to the occupants of the building; that in taking moneys out of the maintenance fund for the staff salaries the taxpayers were receiving the moneys beneficially in consideration for the provision of services and the consideration they obtained was the full amount of the moneys taken out of the fund and not merely their remuneration as trustees; and it was held accordingly that the trustees were liable to value added tax on the services provided without any repayment for expenses. In the present case the Appellant was in the same business as Bexley and Tower, whereas in the Nell Gwynn case it was not probable that all 400 tenants would contract individually. In that case there was money that the trustees were beneficially entitled to, which was not the same as incurring costs and cost-sharing.

The Eastbourne case concerned a group of self-employed private hire car drivers formed an unincorporated association to provide, on a non-profit making basis, a taxi booking and administration service for its members. The constitution provided for the management of the association to be vested in a committee which had power to employ an office manager, telephonist and other staff. In 1994 the association had amended its constitution so that its purpose was to engage staff on behalf of the members and to facilitate the supply to members by third parties of telephone and other services. The members reimbursed the full costs thereby incurred by the association. It was held in that case that the 1994 Act provided that a club or association providing facilities or other advantages to its members for a subscription or other consideration, by being deemed to be thereby carrying on a business, was capable of being a taxable person making a taxable supply of services to its members notwithstanding that as an unincorporated body it had no juridical persona; also that a supply of services by an association would arise if there was a direct link between the service it provided to its members under its rules and the consideration it received from them irrespective of any contractual terms making members the employer of any staff provided. An association created for that purpose was very different from the present case. The present Appellant came clearly within the Durham case, and so the Eastbourne case could not apply.

The Plantiflor case concerned disbursements and the nature of supplies to customers, and in that case there were many customers. In the present case the Appellant was not providing services and therefore that case should be distinguished..

Reasons for decision

Whilst it may have been the Appellant's intention to operate a paymaster arrangement in respect of shared overhead costs, we do not find that its actual method of operation is such as to take it outside the provisions of section 4(1) of the VATA 1994 or the Sixth Directive. It was accepted by Mr Montague that goods and services from third parties were procured centrally by the Appellant; the Appellant used those goods and services to provide a number of managerial and administrative functions for the benefit of itself, Bexley and Tower; the Appellant derived the majority of the benefit from this arrangement, as it used the lion's share of the supplies but in order to ensure that Bexley and Tower paid their way, they were charged by the Appellant with the cost of providing them with those services. The correct categorisation of this arrangement is not as a cost sharing system, but as a supply to one legal entity with an onward supply to two separate legal entities.

The Appellant could have achieved the desired tax neutrality of supplies to the Group as a whole by means of an application for group registration, which was not done until April 2001. Prior to that date the Appellant was a separate legal entity distinct from its subsidiaries. Both the Appellant and its subsidiaries were separately registered for VAT. The consequences of this were that the Appellant was properly considered by the Revenue to be engaged in making supplies of services to its subsidiaries. The position is no different from the situation which would have pertained had the Appellant been making the same supplies to a third party at arms length. A different conclusion cannot be reached simply because the Appellant and its subsidiaries form part of a single corporate group, absent an application for group registration.

We do not accept that there was an agreement reached for each of the three separate legal entities to share in the joint acquisition of certain services and provide some support services from a central source. There was no clear evidence as to when and where any such agreement was reached, or between whom it was made. It was stated that it had arisen from long standing practice. This was at odds with the written documents which the Group produced over the years to satisfy the requirements of the Housing Corporation as the industry regulator. These documents were, in particular, the business plan for Bexley of August 1997 and the Procedure Agreement of 1998. The key provision in the business plan was to be found at clause 2.9.1 where it is stated:

"It was intended to use staff and facilities at LQHD to help LQBHA discharged its functions as a RSL;

9.3 It was envisaged that LQHD would provide a number of services under the Procedure Agreement;

10.1 A centralised team would provide financial and IT services for the subsidiary;

10.2 LQHD would also provide management statutory accounting services.

It was implicit that the subsidiary would not be given those support services for free, to avoid any tacit cross-subsidy. It was a reasonable inference that Bexley when formed could be expected to bear the cost of the provision of those services.

We accept Mr Beale's argument that, had there been no charge made by the Appellant to Bexley and Tower for the use of a central computer server, Bexley and Tower, as separate legal entities, would derive a benefit from the business assets of another taxable person without payment. This would give rise to a deemed supply of services under paragraph 5(4) of Schedule 4 to the VATA 1994 and/or under the VAT (Supply of Services) Order 1993 (SI 1993 No.1507). By virtue of paragraph 7 of Schedule 6 to the VATA 1994, the value of the supply would then be taken to be the cost of providing the service. The fact that in the present case the subsidiaries pay the proportion of costs attributable to their actual consumption of those services means that those costs which are paid are the consideration for the service provided, and are therefore taxable.

There were no invoices in which each of the three entities were named as a contracting party, and there was no evidence at all of a joint procurement approach. The evidence was that the Appellant took charge of a centralised procurement exercise for goods and services. The costs were not "joint" in circumstances where the goods or services supplied were in fact split three ways on a variety of different bases. The reality was that the Appellant acted as a central hub for purchasing goods and services, which then formed the cost components of onward supplies of IT, personnel and training, financial and other administrative services to both the Appellant itself, Bexley and Tower. Had there been a true cost-sharing agreement involving joint purchases by the three legal entities of joint supplies of goods and services made to them jointly, it would be expected that a company of the Appellant's size would deal with the input tax in the correct manner, that is, by splitting it between the three purchasers. This was not done, all the input tax over the material period was claimed by the Appellant. Whilst this was explained by Mr Montague as an error, this was a very large and basic error for a company with a specialised financial division. We find it to be more likely that the treatment of the input tax reflected the reality of the situation: the Appellant was pooling supplies of goods and services in a central source before making an onward supply of services to Bexley and Tower. It was this act of centralising purchases which prompted the Appellant to reclaim all of the relevant input tax.

Whilst Mr Montague said in evidence, and in correspondence the Commissioners accepted, that the SLA was quickly abandoned, nonetheless when in cross-examination he was taken through the agreement, it was clear that there were only specific aspects of it which had in fact been abandoned, and it had not been abandoned in its entirety. We consider that the Commissioners acceptance of its abandonment related only to that part of it which related to the abandonment of a notional basis for charging the costs of the services, it was accepted that the Appellant had chosen to adopt an actual basis for charging in its place.

We do not find it necessary to comment on the position of the Appellant with regard to the Housing Corporation following its abandonment of the SLA, beyond saying that we would find it surprising if the SLA had been abandoned in its entirety and the Housing Corporation had chosen to ignore that fact.

Whilst the Durham case is heavily relied upon by the Appellant, it might be expected that if there were a form of implied agreement to share costs, as in the Durham case, there would be a pro rata recovery of input tax by Bexley and Tower. The Appellant had claimed all of the input tax incurred. If the Appellant were acting as no more than an agent, then there should have been invoices raised in accordance with section 47 of the Value Added Tax Act 1994. The Durham case can also be distinguished because in the present case all the working assets were held by the Appellant; there were no claims for relevant input tax made by the subsidiaries and the SLA showed clear evidence of a contractual supply of services.

The House of Lords in Commissioners of Customs and Excise v Plantiflor Ltd (supra) held that Plantiflor had not been acting as an agent in the supply by Parcelforce of delivering services to Plantiflor's customers. Lord Slynn criticised the conclusion of the tribunal that Plantiflor had solely been acting as an agent or intermediary for the customer when dealing with Parcelforce and, at paragraph 29 in which he criticised the conclusion of the tribunal that Plantiflor had solely been acting as an agent or intermediary for the customer when dealing with Parcelforce, he said as follows:

"This conclusion however does not take into account the terms of the agreement between Plantiflor and Parcelforce. It is plain from the terms of that agreement to which I have referred that Parcelforce was to deliver parcels "for Plantiflor". Parcelforce was to "charge Plantiflor" and Plantiflor was to pay invoices from Parcelforce by direct debit transfer. There is nothing in that agreement to express or even indicate that the two contracting parties were not acting as principals, in other words that Plantiflor was acting as agent for its customers. There is no link between Parcelforce and the customer. Since all that Parcelforce knew was the name of the addressee on the parcel (or perhaps even only the address), it might well not know the identity of the customer. Plantiflor agreed to pay postal charges; Plantiflor and not the customer was liable to pay Parcelforce. Even though Parcelforce supplied the service for delivery of the goods there was no consideration passing from the customer to Parcelforce. Plantiflor agreed to arrange delivery including paying Parcelforce for the postage and the customer paid Plantiflor for that."

Lord Slynn refers to the situation in which a builder obtains from a particular supplier at a known price a tap for which he pays in advance and which is included in the overall charge for the work, there under article 11(A)(3)(c) of the Sixth Directive the price of the tap does constitute repayment of an expense "paid out in the name and for the account of the[customer] and which [is] entered in his books in a suspense account". Lord Slynn continues:

"31. In the present case it is not possible to say that £1.63 was paid out "in the name and for the account of the customer" even if the moneys here can be treated as entered in Plantiflor's books as a separate account. Even if, by the time Parcelforce got the periodic direct credit for all parcels delivered during the relevant period, it knew the name and address of the customers from the parcels or even from a list, it would not be sufficient to constitute each part of the global direct debit or credit as being in the name or for the account of the individual customer."

Finally his Lordship noted:

"63. Plantiflor advertises that it `deliver[s] every order, whether large or small, direct to your home'; and its undertaking to arrange delivery by Parcelforce and to advance all postal charges to Parcelforce is an undertaking to make all necessary arrangements to have the goods delivered. The customer's acceptance of Plantiflor's terms does not authorise Plantiflor to bring him into a direct contractual relationship with Parcelforce so that, if Plantiflor defaults in payment of postal charges to Parcelforce, the customer, who has already paid postage to Plantiflor, could find himself liable to pay it over again to Parcelforce. None of the parties to these arrangements had any such intention."

In the present case none of the providers of the services which are subject to this assessment were aware that the Appellant was forwarding the charges on to Bexley and Tower. There was no contractual relationship between the providers of the services and Bexley and Tower.

The Appellant was not merely acting as an agent for the supply of goods and services to Bexley and Tower. The relevant invoices supplied by the Appellant for the material period all show that the charges were being levied against the Appellant. Each was a contractual document and the suppliers would consider themselves to have been contracting with the Appellant and not with Bexley or Tower. Nor was the Appellant acting as an agent for an undisclosed principal, as part at least of the relevant supplies were made to the Appellant for the benefit of the Appellant. Furthermore the Appellant has not established that it satisfied the requirements for any expenses which it had incurred to be classified as a disbursement paid on behalf of Bexley or Tower – see Clowance Owners Club Ltd v Commissioners of Customs and Excise [2004] Decision No.18787.

In all the circumstances this appeal is dismissed. There is no order for costs.

MISS J C GORT

CHAIRMAN

RELEASED: 25 July 2005

LON/03/269