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Riverside Housing Association Ltd v Revenue and Customs [2005] UKVAT V19341 (17 November 2005)

19341

VALUE ADDED TAX — buildings — zero-rating — registered social landlord — erection of new office building as headquarters — Appellant a charity — whether Appellant's activities undertaken "otherwise than in the course of business" — VATA 1994, Sch 8, Group 5, Item 2, Note (6) — criteria to be applied — Appellant providing housing at low cost to socially and economically disadvantaged tenants — assumption by Appellant of many of local housing authorities' duties — high degree of regulation by Housing Corporation — high dependence on public funds — insufficient to negate "business" character of activities — zero-rating not available

VALUE ADDED TAX — public bodies — Sixth Directive, art 4(5) — VATA s 33 — Appellant not a public body — but irrelevant to question whether building used for "business" purpose — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

RIVERSIDE HOUSING ASSOCIATION LIMITED

Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS

Respondents

Tribunal: Colin Bishopp (Chairman)

Sitting in public in Manchester on 28, 29 and 30 September 2005

Alison Foster QC, instructed by KPMG, for the Appellant

Paul Lasok QC and Ian Hutton, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

Introduction

The Appellant, Riverside Housing Association Limited ("Riverside") is a registered social landlord—that is, a body satisfying section 2 of the Housing Act 1996 (it is a company limited by guarantee and incorporated under the Industrial and Provident Societies Act 1965) and registered in accordance with section 1 of the 1996 Act. Its principal activity is the letting of housing to the socially and economically disadvantaged, and it is common ground that it is a charity. In March 2001 it sought the Respondents' approval of its intention to issue a zero-rating certificate, in accordance with Note (12) to Group 5 of Schedule 8 to the Value Added Tax Act 1994, in respect of the construction of a new head office for its Midlands division, in Leicester. The Respondents requested further information and did not immediately state, one way or the other, whether approval would be given. Riverside took the absence of approval as a refusal, and served notice of appeal. Although they did not issue a formal decision, the Respondents take the view that the construction is not properly zero-rated, and resist the appeal. I am now required to decide whether or not they are right in principle; I am not asked to deal with a number of matters of detail which arise if Riverside is successful on that issue.

Riverside's case is that the building (or, more accurately, that part of the building which it occupies—the remainder is let) is used solely "for a relevant charitable purpose" within the meaning of Item 2 of Group 5, and that Note (6) to the Group, which limits zero-rating to charitable purposes pursued "otherwise than in the course or furtherance of a business", is not offended. The Respondents accept that Riverside's purpose is charitable but say that its activities are pursued in the course of business. Alternatively, Riverside argues, it is a body governed by public law, falling within article 4(5) of the Sixth VAT Directive (77/388/EEC) and is not a taxable person. The Respondents contend that Riverside is not such a body but that, even if it is, the argument is misconceived: it does not lead to the consequence that the construction is zero-rated; nor, if the construction is standard-rated, does it entitle Riverside to recover the input tax it has incurred.

Riverside was represented before me by Alison Foster QC and the Commissioners by Paul Lasok QC, leading Ian Hutton. I had the oral evidence of only one witness, Riverside's finance director, Simon Morris, but was provided with a substantial volume of relevant documentation. The facts were not disputed to any material degree and I do not think there is any need to set out the evidence in detail; what follows condenses it and can be taken as my findings.

The facts

The principal activity of registered social landlords (which are also commonly referred to as housing associations) such as Riverside is the provision of social housing, for those in need by reason of physical or mental illness or disability, age or financial disadvantage. Riverside was formed in 1928 in Liverpool, but has expanded considerably and now owns or manages over 22,000 properties in 31 different local authority areas. Most, though not all, of its properties were transferred to it (as estates of what were commonly known as council houses) by those local authorities and Riverside has taken over most of the local authorities' obligations as landlords on the transferred estates; the local authorities nevertheless retain some residual but significant statutory duties. It has been Government policy for some years, as part of its "decent homes" strategy, that such estates should be transferred to registered social landlords and the Housing Act 1996 contains provisions specific to such transfers. Riverside is a typical social landlord. For the most part it holds the freehold or a long leasehold interest in the estates transferred to it, and to properties otherwise coming within its portfolio—usually by its having constructed them itself—and lets them on assured tenancies to residential occupiers (many of whom were sitting tenants when the estates it owns were transferred to it). In a few cases, properties are partially sold within shared ownership schemes, and some are sold to their occupiers in accordance with the "right to buy" provisions, which survive a transfer from a local authority to a registered social landlord: see section 16 of the 1996 Act. From time to time properties become surplus to Riverside's requirements and they too are sold. The aggregate proceeds of sale represent a significant part of Riverside's receipts in any year.

Riverside has two main sources of income, and three of capital. Its income is derived principally from rents received from its tenants, and from grants paid by, in the main, the Housing Corporation, which is the agency charged with the administration of the Government's public housing policy in England. Revenue grants represent only a modest portion of total annual turnover, but Miss Foster argued that the true balance between publicly and privately funded income was rather different since a large majority of Riverside's tenants do not pay rent from their own resources, but receive housing benefit which is mandated to Riverside; thus the greater part of Riverside's income is of public origin. As a matter of arithmetic, Riverside's accounts show that the proposition is correct; I will return to its significance. Riverside's capital resources are derived in part from grants, again paid by the Housing Corporation, in part from borrowing, and in part from the proceeds of sales of properties. Like other housing associations, Riverside is required to bid for grant funding which is allocated by the Housing Corporation by reference to various criteria. There is insufficient grant funding available to satisfy the needs of every housing association, and those which are unsuccessful in obtaining all the grant funding they require in any given year are required to borrow to make up the shortfall. As at 31 March 2005, the date to which its most recent accounts are made up, Riverside had total tangible assets of about £678 million of which some £397 million had been financed by grant, and it had long-term loans of about £208 million. Its surplus for the year was £4.4 million which, as in previous years, was reinvested in its activities; surpluses are not distributed.

Miss Foster laid considerable emphasis not only on Riverside's dependence on public funds, but also on the extensive regulatory framework to which it is subject, in large part as the price of obtaining support from public funds. The extent of the regulation can be gauged from a perusal of Schedule 1 to the 1996 Act, which deals mainly with the constitutions and powers of registered social landlords, and of the large volume of regulatory and advisory material produced by the Housing Corporation which is itself regulated by, in the main, the Housing Associations Act 1985. There are further provisions affecting both the Housing Corporation and registered social landlords in the Housing Act 1985, as amended. A brief description suffices for present purposes. The regulatory framework is designed to ensure that social housing is owned and managed by responsible organisations which comply with minimum prescribed standards in, for example, the condition of their housing stock and in their relations with their tenants, and that the public money which underwrites their activities is spent and accounted for properly. There are sanctions which may be imposed on a registered social landlord which fails to comply with the requirements of statute and of the Housing Corporation; grants may be withheld or clawed back and in extremis it may be required to transfer its housing stock to another registered social landlord with the consequence that it effectively ceases to exist.

Many of the rules to which Riverside and other registered social landlords are subject are of no immediate relevance, but those relating to the manner in which it is required to administer and allocate its housing stock and to prepare its accounts and budget forecasts are of importance. In addition, although the guidance issued by the Housing Corporation is not mandatory in the strict sense, material failure to comply with it may jeopardise a registered social landlord's continuing receipt of grant support. Some of that guidance emanates from the Government itself, and is adopted by the Housing Corporation.

The grants a registered social landlord is entitled to receive (assuming it complies with the statutory and other requirements imposed on it) are designed to enable it to provide low-cost housing meeting stipulated minimum standards of size and quality, and to maintain the stock to those standards. The greater part, by value, of the grant aid is of a capital nature, intended to make it possible for the housing association to finance the acquisition of the housing stock (although it is often transferred to it free of charge) and put it into suitable condition, by refurbishment. In some cases, the transferred estates may have a negative value since the houses are in poor condition, with low rental income, and the cost of refurbishment exceeds their market value. The capital grants do not usually meet the entire cost of acquisition and refurbishment, and it is mainly in relation to this aspect of their activities that it is expected that registered social landlords should borrow from commercial lenders in order to supplement the grants. Income grants, of relatively modest value—in the year to 31 March 2005 Riverside received about £900,000 of income grant, and around £14 million of capital grant—are intended in part to subsidise rents but more particularly to finance major repairs.

It comes as no surprise that a government agency such as the Housing Corporation, charged with disbursing such large sums, is also required to monitor the use of the money. The raft of regulatory provisions and guidance relating not only to its use of individual grants but also to the manner in which it conducts its activities generally which Riverside must respect is, as I am satisfied, extensive and minutely detailed. Two particular areas of regulation are significant. First, the Housing Corporation scrutinises the finances of registered social landlords closely. There is an obvious public interest in seeing not only that grant money is spent properly, but that an organisation entrusted with large estates of social housing is financially sound and will have the resources to continue with its activities. Thus Riverside, like all similar organisations, is required by the Housing Corporation and the Audit Commission to submit its accounts for scrutiny, to open its books for inspection, to provide a business plan each year, forecasting its activities and cash flow over the next five years, and to have a strategy extending as much as thirty years into the future. In addition, Riverside is required to, and does, provide for the Housing Corporation an enormous amount of detailed statistical information, relating in particular to the tenancies it has granted, the nature—by way of income, ethnic origin and otherwise—of its tenants and the rents it has charged, analysed in a variety of ways.

In addition, Riverside and similar organisations are restricted in the manner in which they may conduct their operations. There are strict upper limits on the rents they may charge, which are generally significantly below the notional market rent for the properties and are designed to be affordable, rather than set at a normal economic level (although the rents are not prescribed by the Housing Corporation and each housing association may set its own rents, within the boundaries of the limits), and the organisations are subject to some constraints, greater than those to which ordinary private landlords are subject, on the remedies which may be adopted against tenants in breach of their agreements. In particular, eviction for arrears of rent is very much a final resort. Tenancies are to be granted to applicants in accordance with priorities dictated by the Housing Corporation and the local authority (as housing authority, and retaining the statutory obligation to accommodate those within its area in need of housing), and prospective tenants nominated by the local authority are, to some extent, to be accepted in priority to those who have applied to the registered social landlord itself. Tenancies are granted only to those who are deemed to be in need of social housing, although a tenant may retain his tenancy even if his circumstances improve and he no longer satisfies the requirements.

It is, as I am satisfied, true that Riverside conducts its affairs in a manner different from an ordinary commercial organisation in that it has philanthropic objectives, does not set out to (and indeed cannot) maximise its profits, and does not distribute such profits as it earns, and that it is subject to a much greater degree of regulation than a company in the commercial sector. Nevertheless, its affairs are otherwise conducted on business-like lines. It is managed by professionals, such as Mr Morris, who is a chartered accountant. It produces detailed, externally audited accounts in much the same form as one would expect of a public company. Whatever the reason for its doing so, it prepares business plans and maintains detailed statistics about its activities. Though it may charge artificially low rents, and those rents may not be paid by many of its tenants from their own pockets, it has some freedom of manoeuvre in determining what is to be charged. It has normal contractual relations with its tenants. It does in fact make profits on its activities. Though heavily dependent on grants (and, indirectly, on housing benefit), it borrows large sums from commercial lenders at normal rates of interest, and takes prudent steps to protect itself from interest rate fluctuations. It owns assets of considerable value, and handles substantial amounts of money.

Are Riverside's activities pursued in furtherance of a business?

The reason for asking this question emerges from the relevant statutory provisions, Item 2 of Group 5, when read with Note (6). Item 2 applies zero-rating to:

"The supply in the course of the construction of—

(a) a building designed as a dwelling or number of dwellings or intended for use solely for a relevant residential purpose or a relevant charitable purpose; …

of any services related to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity."

Taken alone, that provision would have the effect of zero-rating the new construction (or, at least, so much of it as is occupied by Riverside itself) but its claim for zero-rating is defeated, the Commissioners say, by Note (6):

"Use for a relevant charitable purpose means use by a charity in either or both of the following ways, namely—

(a) otherwise than in the course or furtherance of a business;

(b) as a village hall or similarly in providing social or recreational facilities for a local community."

It is common ground that paragraph (b) of Note (6) is of no application and the first issue before me therefore is simply whether Riverside's provision of social housing is properly categorised as a business activity. It is obvious from the wording of the Note that charitable purposes and business activities are not mutually exclusive, and that business activities pursued for charitable reasons have no special status; that the motive of the activity is charitable might possibly be a factor to take into account, but it cannot be determinative. As Patten J explained, in Customs and Excise Commissioners v Yarburgh Children's Trust [2002] STC 207 at [10], the restriction is designed to ensure compliance with what is now article 28(2) of the Sixth Directive, and to respect the principle that exemptions (of which zero-rating, in the directive called "exemption with refund of the tax paid at the preceding stage" is an example) are construed narrowly (see also Stichting Uitvoering Financiële Acties v Staatssecretaris van Financiën (Case-348/87) [1989] ECR 1737).

The only indication in the VAT Act of the meaning of "business" appears in section 94(1), which provides that it "includes any trade, profession or vocation"; the remainder of the section deals with some specific cases, and is of no assistance here. The corresponding term in the Sixth VAT Directive (77/388/EEC) is "economic activity"; article 4(2) provides that the term

"… shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity."

It was common ground (and is too well-established to require authority) that the domestic provision must be construed so as to conform to the directive. It is evident from the terms of the directive that the scope of business, or economic, activities is wide, so much so that there must be a presumption that any supply, of goods or services, in return for consideration, amounts to an economic activity.

It was also agreed that the phrase "provision of social housing" is a fair summary of Riverside's relevant activities. Riverside accepts that only its making supplies of rented housing may amount to an activity pursued otherwise than in the course of business; it expressly disavows any contention that its sales, including those made within shared ownership schemes, can be so described.

In Mr Morris's witness statement appears the sentence "Any surplus that is made on Riverside's operations is reinvested back into the business" and the word "business" is used in the Housing Corporation's publications to describe the activities of registered social landlords: for example, in a document entitled "The Regulatory Code and guidance" it is stated, as item 1.1 of the Code,

"Housing associations must operate viable businesses, with adequate recourse to financial resources to meet their current and future business and financial commitments."

While I accept that the use of the word "business" in a different context may not necessarily amount to a reliable guide to the nature of the activity for the purposes of determining its liability for VAT, the perception of both Riverside's finance director and of its regulatory body can only be a significant pointer particularly where, as it seems to me is the case here, the 1994 Act, Mr Morris and the Housing Corporation are all using the word in its normal English language sense.

Miss Foster, however, set out to persuade me that there are factors which distinguish Riverside's activities from business activities in the ordinary sense. She pointed to its heavy reliance on state funding, which she described as inimical to the carrying on of a business in the ordinary sense of the word, its assumption of the local housing authority's responsibilities in several respects, its use as an instrument of government policy, the close regulation to which it is subject and the lack of true autonomy consequent on those factors. She also referred me to the well-known tests (which I do not think it is necessary to set out here) adumbrated in Customs and Excise Commissioners v Lord Fisher [1981] STC 238 and derived in the main from Customs and Excise Commissioners v Morrison's Academy Boarding Houses Association [1978] STC 1, and she gave as examples of activities which, although they consisted of supplies made in exchange for consideration, were found not to be business activities offending Note (6) the Yarburgh case, to which I have already referred, and Institute of Chartered Accountants in England and Wales v Customs and Excise Commissioners [1999] STC 398. In the former, it was held that a play group run on a voluntary basis, which charged fees to the parents of the children who attended but on a "break-even" basis, was not to be regarded as a business, and in the latter that the Institute, in carrying out a regulatory function on behalf of the state, could not be said to be carrying on an economic activity even though those regulated had to pay fees to it.

There is also one decision of this tribunal which deals with a similar situation, Cardiff Community Housing Association Ltd v Customs and Excise Commissioners [2000] V & DR 346. There too the appellant was a registered social landlord undertaking activities akin to those of Riverside, subject to a similar, though not identical, regulatory regime, and seeking to secure a ruling that its new office building was zero-rated. There are some differences between the cases—there, the appellant was found to be wholly dependent on public funds, and not partially so as here, and it was stated that "its activities were not conducted according to recognised business principles". The degree of regulation, as it is described in the decision, appears to have been greater than it is here. The tribunal took the view that the appellant "was not predominantly concerned with making taxable supplies for a consideration, but with providing social housing for socially disadvantaged people" and concluded that it was not pursuing a business.

I have considered those cases and the remainder of Miss Foster's submissions on this issue, but I am satisfied that Dr Lasok's arguments are to be preferred. His case focussed on the wide meaning of "business" and "economic activity" which emerges from an examination of the legislative provisions and upon the inclusion within article 13(A)(1)(g) of the Sixth Directive of "the supply of services and of goods closely linked to welfare and social security work, including those supplied by old people's homes, by bodies governed by public law or by other organisations recognised as charitable by the Member State concerned". Article 13 contains a list of different kinds of supply which Member States must, or may, exempt from VAT. It necessarily follows that the listed supplies are those made in the course of business, or are economic activities—if they were not, there would be no need to provide for their exemption. Article 13(A)(2)(a) goes on to permit Member States to restrict the exemption to bodies which do "not systematically aim to make a profit", and which "charge prices approved by the public authorities or which do not exceed such approved prices"; it must follow that a body which satisfies those conditions is nevertheless making supplies in the course of a business.

Those, it seems to me, are compelling arguments, entirely consistent with the conclusion in the Morrison's Academy case to which Miss Foster herself referred me. The appellant in that case was a charity which provided accommodation for the academy's pupils in return for payments which were set at a level which enabled the appellant to make neither a profit nor a loss. The Inner House determined that the absence of a profit motive was not the test; the important factors were the business-like manner in which the activity was undertaken, and its continuity. At page 6 the Lord President said:

"In my opinion it will never be possible or desirable to define exhaustively 'business' within the meaning of s 2(2)(b) [now section 4(1) of the 1994 Act]. What one must do is to discover what are the activities of the taxable person in course of which taxable supplies are made. If these activities are, as in this case, predominantly concerned with the making of taxable supplies to consumers for a consideration it seems to me to require no straining of the language of s 2(2)(b) of the 1972 Act to enable one to conclude that the taxable person is in the 'business' of making taxable supplies, and that taxable supplies which he makes are supplies made in the course of carrying on that business, especially if, as in this case, the supplies are of a kind which, subject to differences of detail, are made commercially by those who seek to profit by them."

The House was there considering taxable supplies, but the principle is of equal application to exempt supplies: a supply is neither taxable nor exempt if it is not pursued in the course of business. In Lord Fisher's case, a group of his friends paid to Lord Fisher contributions towards the cost of running the shooting facilities on his estate, where they were invited to shoot. He made neither a profit nor a loss, and sought only to defray some of the cost of maintaining the facility. Gibson J concluded that the sharing by a group of friends of the expenses of their leisure pursuit, even where the facilities were owned by one of them, did not constitute the running of a business by that one. That conclusion was applied in a case more closely resembling this, Customs and Excise Commissioners v St Paul's Community Project Ltd [2005] STC 95, where the taxpayer, a charity, was found not to be carrying on a business activity when it provided a day nursery, charging fees to the parents designed to make up the difference between its grant income and the cost of providing the nursery.

The significant difference between St Paul's Community Project and the instant case, in my judgment, is that in that case, and in Lord Fisher, the payments were made in order to defray the expense, and were set at a level which would achieve that objective alone. That is not the manner in which Riverside sets its rents. They are, it is true, controlled (ultimately) by Government policy and are artificially depressed; but the evidence showed that while covering the cost of providing the housing was a factor in calculating the level of the rents, it was not the determining factor—Riverside set out to, and did, make a profit, even if that profit was retained. While in some circumstances, of which Lord Fisher and St Paul's Community Project are examples, the absence of a profit motive may be enough to demonstrate that there is no business activity, or is at least a strong pointer to that conclusion, that is not always the case (as in Morrison's Academy). Conversely, it seems to me, the making of profits in the course of an activity carried out over a period of time, as in Riverside's case, is an almost conclusive indication that the activity has the characteristics of a business.

That a high proportion of the Appellant's capital resources, and much of income, are derived, directly or indirectly, from public funds, and that it is subject to a greater degree of regulation than other organisations does not seem to me to affect that conclusion. It is perfectly true that, without state support, Riverside would not be able to carry on its activities, at least in their present form. But that fact does not seem to me, of itself, to lead to the conclusion that its supplies are not made in the course of pursuing a business activity. The Government has decided, as I accept, that it is in the public interest that those unable to house themselves adequately, from their own resources, in the open market, should have made available to them at artificially low rents housing which they can afford, and that the organisation providing such housing should be given financial support in return for its doing so; but the subsidies do not alter the fact that Riverside, as the taxpayer in Morrison's Academy, is in the business of supplying accommodation at low cost. It is true, too, that Riverside is subject to a significant regulatory burden, but so too are many wholly commercial organisations, such as those trading in the financial services sector. If there is any difference between Riverside and other companies on that account, it is one of degree rather than of substance.

I agree too with Dr Lasok that it is difficult to see how Riverside's activities of letting houses to tenants do not amount to the "exploitation of … property for the purpose of obtaining income therefrom on a continuing basis", to quote the words of article 4(2). If find myself unable to agree with the tribunal in Cardiff Community Housing Association Ltd that there is no "exploitation" when the income so derived must be utilised in the business rather than put to any other purpose, such as the paying of a dividend. It may be that the rents are charged at less than a market rate, but they nevertheless represent income in Riverside's hands, derived from the properties it owns. The purpose to which the income is put is irrelevant to article 4(2). In principle, the letting of immovable property is exempted by article 13(B)(b); the exceptions (by which some lettings are zero-rated, and others standard-rated) do not affect that principle. There is nothing in the article which discriminates, or allows Member States to discriminate, between commercial undertakings on the one hand, and organisations such as Riverside on the other, in relation to the letting of property; the qualifications to be found in article 13(A)(2)(a) are absent from article 13(B)(b). It seems to me that the inevitable conclusion is that the letting of property in return for payment is an economic activity whether or not it is pursued for social or philanthropic reasons, and that, to use the domestic term, Riverside is engaged in business. Thus Note (6) is engaged, and the new building cannot be zero-rated.

Is Riverside a public body?

Miss Foster first put the argument that Riverside is a public body as an alternative means of securing zero-rating for the new building, but she later acknowledged that, even if the argument (that Riverside is a public body) were correct in principle, it would not lead to that result. Article 4(5) of the Sixth Directive, so far as material to this decision, provides that

"States, regional and local government authorities and other bodies governed by public law shall not be considered taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with these activities or transactions.

However, when they engage in such activities or transactions, they shall be considered taxable persons in respect of these activities or transactions where treatment as non-taxable persons would lead to significant distortions of competition."

Article 4(5) has no direct equivalent in UK domestic legislation, though it is given effect by treating as outside the scope of VAT those supplies which are made in the course of carrying on the activities described in the first paragraph of the article. That treatment does not, however, have the consequence that supplies to a public body and used by it in order to carry on such activities are zero-rated; they are taxable or exempt in accordance with the usual rules. The VAT Act does contain a special provision relating to supplies to public bodies, in section 33, of which the relevant parts read:

"(1) Subject to the following provisions of this section, where—

(a) VAT is chargeable on the supply of goods or services to a body to which this section applies, on the acquisition of any goods by such a body from another member State or on the importation of any goods by such a body from a place outside the member States, and

(b) the supply, acquisition or importation is not for the purpose of any business carried on by the body,

the Commissioners shall, on a claim made by the body at such time and in such form and manner as the Commissioners may determine, refund to it the amount of the VAT so chargeable.

(2) …

(3) The bodies to which this section applies are—

(a) a local authority;

(b) a river purification board established under section 135 of the Local Government (Scotland) Act 1973 and a water development board within the meaning of section 109 of the Water (Scotland) Act 1980;

(c) an internal drainage board;

(d) a passenger transport authority or executive within the meaning of Part II of the Transport Act 1968;

(e) a port health authority within the meaning of the Public Health (Control of Disease) Act 1984 and a port local authority and joint port local authority constituted under Part X of the Public Health (Scotland) Act 1897;

(f) a police authority and the Receiver for the Metropolitan Police District;

(g) a development corporation within the meaning of the New Towns Act 1981 or the New Towns (Scotland) Act 1968 a new town commission within the meaning of the New Towns Act (Northern Ireland) 1965 and the Commission for the New Towns;

(h) a general lighthouse authority within the meaning of Part VIII of the Merchant Shipping Act 1995;

(i) the British Broadcasting Corporation;

(j) the appointed news provider referred to in section 280 of the Communications Act 2003; and

(k) any body specified for the purposes of this section by an order made by the Treasury."

It does not seem to me that these provisions are of any direct relevance. First, though I accept that Riverside carries on activities which are in the public interest and which are supported by public money, I do not think it can be said that it is a public authority in the sense meant by article 4(5). The provision clearly contemplates government organisations which are institutions of a democratic state and the European jurisprudence on the topic shows that the concept of a public body is to be narrowly construed. I was referred to a large number of judgments, but I think I need mention only two. In Commission v Netherlands (Case 235/85) [1987] ECR 1471 bailiffs holding a public office and carrying out official functions, though remunerated by fees or commission rather than salary, were held not to be part of the public administration, but to be carrying on businesses; and in Ayuntamiento de Sevilla v Recaudadores de Tributos de las Zonas primera y Segunda (Case C-202/90) [1991] ECR I-4247 the European Court of Justice reached the same conclusion in respect of tax collectors who were similarly remunerated.

Though English law lacks the concept of public law familiar in continental jurisdictions, it is in my view clear from the legislation itself, interpreted in accordance with the jurisprudence of the Court of Justice, that the "other bodies" contemplated by the article are those of a kind similar to government bodies, carrying out quasi-governmental functions, of which examples might be the Financial Services Authority and the Housing Corporation itself, with organisations such as the Institute of Chartered Accountants when undertaking its regulatory role. Riverside, by contrast, does not have a regulatory or similar role; it is itself the subject of regulation. It is a private sector organisation which happens to undertake functions on behalf of the state, but that does not make it a public body.

Second, the list of bodies set out in subsection 33(3) is comprehensive and detailed, and none of the categories is apt to include organisations such as Riverside; nor does it come within any of the several Orders made in accordance with paragraph (k). Even if Riverside could bring itself within the section, it would be able to recover only so much of the input tax it had incurred as was attributable to its non-business activities which, as I have already found, do not include its letting of accommodation to tenants.

As the hearing proceeded, however, Miss Foster modified her position somewhat, arguing that Riverside's status as a public, or quasi-public, body was an indication that its activities were of a non-business character. But even if I were persuaded that Riverside is to be so categorised—which I am not—it would not follow that its activities were of a non-business character. Both article 4(5) and section 33 contemplate the undertaking by the bodies to which they refer of both business and non-business activities, doing so in order to restrict the benefits they confer to the latter.

In short, it is in my judgment impossible to conclude that Riverside's being a closely regulated body, by its own choice (no institution of its kind is compelled to become a registered social landlord), puts it in a special category, so that its activities are for that reason to be regarded as being carried on otherwise in the course of business, nor that it is a public body within the sense intended by article 4(5) and section 33. The Commissioners were right to conclude that the new building is not zero-rated.

The appeal is therefore dismissed. Dr Lasok sought a direction for costs in the Commissioners' favour, on the ground that this was an appeal of substance. Miss Foster did not challenge that contention, but argued that the Commissioners should not have their costs because they had not given a properly reasoned decision before the appeal was brought. I am not persuaded that any such failing on their part is sufficient reason to deprive them of their costs; their position and the reasons for it have been clear for some considerable time, and Riverside chose to pursue its appeal in full knowledge of them. Accordingly I direct that Riverside is to pay the Commissioners' proper costs of the appeal. If their amount cannot be agreed, either party may apply for further directions regarding their assessment.

COLIN BISHOPP

CHAIRMAN
Release Date: 17 November 2005

MAN/01/0745