United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2007] UKVAT V20120

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Kenneth Richard Daunter v Revenue & Customs [2007] UKVAT V20120 (26 April 2007)

20120

VAT – ZERO-RATING - international services - place of supply - whether supplies of services of UK solicitors relating to court case in UK to be treated as made in UK or Jersey - held place of supplies was UK - whether supplies of services related to land - yes - supplies held to be correctly standard-rated - appeal dismissed

LONDON TRIBUNAL CENTRE

KENNETH RICHARD DAUNTER Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: MICHAEL JOHNSON (Chairman)

ANGELA WEST FCA

Sitting in public in Bristol on 8 March 2007

The Appellant appeared in person

Mrs Phyllis Ramshaw, of the Solicitor's office of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The Appellant is a Jersey resident. He is appealing against a decision of H M Revenue and Customs ("Customs") that he is not entitled to treat supplies of services made to him by a firm of UK solicitors as zero-rated for value added tax.

Section 7(10) of the Value Added Tax Act 1994 ("the Act") provides that a supply of services shall be treated as made in the UK if the supplier belongs in the UK. This is subject to variation by order – see s 7(11). The Value Added Tax (Place of Supply of Services) Order 1992 SI 1992/3121 ("POSSO") contains rules for determining the place of supply of services for VAT.

Article 5 of POSSO states that where a supply of services consists of " … services such as are supplied by estate agents, auctioneers, architects, surveyors, engineers and others involved in matters relating to land" it shall be treated as made where the land in connection with which the supply is made is situated. Supplies by solicitors are not expressly mentioned.

Article 16 of POSSO states that where a supply consists of any services of a description specified in any of paragraphs 1 to 8 of Schedule 5 of the Act and the recipient of that supply belongs in a country other than the Isle of Man which is not a member state, it shall be treated as made where the recipient belongs. It is common ground in this appeal that the Appellant, as recipient of the supplies in issue, belongs in Jersey which is not a member state.

Schedule 5 of the Act, headed "Services supplied where received", includes in paragraph 3 "Services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services … (but excluding from this head any services relating to land)". So in contrast with article 5 of POSSO, the services of solicitors (being lawyers) are here expressly mentioned.

The Appellant represented himself in this appeal, gave oral evidence and produced documents relevant to his appeal. He was the only witness heard by the tribunal. In addition we had the benefit of a folder of relevant documents put before us by Mrs Phyllis Ramshaw, representing Customs. She also submitted a typewritten skeleton argument and a bundle of authorities.

We find the following facts.

The property 19 Loxton Square, Hengrove, Bristol is a flat that was purchased from Bristol City Council by the tenant, the late Mrs Haynes, under the statutory "right-to-buy" provisions. The purchase was funded by the Appellant.

At the time of the purchase Mrs Haynes entered into a Deed of Trust with the Appellant whereunder it was envisaged that she would have the occupation of the flat for her lifetime, after which the Appellant would be entitled to vacant possession of the flat. The deed recognized the Appellant as being absolute owner of the flat. The deed provided that Mrs Haynes would transfer the title of the flat to the Appellant on demand. This reflected the fact that, following completion of the purchase from Bristol City Council, the flat was registered in the name of Mrs Haynes as proprietor at H M Land Registry. The property is long leasehold.

We have not been shown the original of the Deed of Trust nor a certified copy of it. The Appellant produced an incomplete copy of the deed for us to see. The status and effect of the deed appear however to have been confirmed by the Bristol County Court on 11 April 2003 following the death of Mrs Haynes. We have seen a copy of a sealed court order of that date declaring the Appellant to be sole beneficial owner of the flat and requiring the personal representative of the estate of Mrs Haynes to transfer the flat to the Appellant and deliver up vacant possession.

The court order was made in proceedings commenced by the Appellant in the county court against the estate of the late Mrs Haynes which were carried through to judgment. Prior to issuing proceedings, the Appellant had demanded the flat from the personal representative of the late Mrs Haynes, using the services of non-litigation solicitors, but to no avail. He was then recommended to consult litigation solicitors, namely Phillips & Co of 36 High Street, Salisbury, Wiltshire, who acted for him throughout the court case.

It is not clear to us what viable potential defence to the claim there might have been. It appears from the court order that the Defendant sought to allege fraud or undue influence on the part of the Appellant as Claimant, but the order shows that the Defendant was expressly debarred by the court from adducing such evidence. It appears to us that the court must have had little or no difficulty in entering judgment for the Claimant.

The appeal before us concerns the value added tax that might or might not be due in respect of the bills for services rendered by Phillips & Co to the Appellant for acting for him in the court proceedings. When the appeal hearing began, Customs had yet to have the opportunity of inspecting these bills or copies of them. The Appellant was unable to produce the bills or copies for us to consider.

The court order of 11 April 2003 ordered the Defendant to pay the Claimant's costs of the court proceedings to be the subject of detailed assessment if not agreed. Mrs Ramshaw took the point before us that it was not apparent, if the Appellant's costs had been paid by the estate, that the Appellant had been liable for payment of VAT in any event. In that case, Mrs Ramshaw submitted, the appeal should be struck out. Customs made an application by notice to that effect to come on before the tribunal and to be considered immediately before the hearing of the appeal.

We dismissed the application. We considered that it was probable that there would be solicitor and own client costs payable by the Appellant as Claimant in addition to the assessed costs that might have been paid by the Defendant in the court proceedings, and that, without having heard from the Appellant, the VAT in issue (if any) could not be quantified. So we allowed him to proceed with his appeal.

We adjourned for a short period in order for the Appellant to telephone Phillips & Co and arrange for particulars of the costs and VAT in dispute to be "faxed" to the tribunal centre. This was done. The information provided indicated that the VAT due from the Appellant, after taking account of sums eventually paid on behalf of the Defendant when the costs order in the court proceedings was enforced, amounted to £1,143.15, if the supplies made to him by his solicitors were correctly standard-rated. The parties agreed that that appeared to be the amount of tax in dispute.

The Appellant presented his appeal on the basis that Customs' Notice 741 indicates that the supplies made to him by his solicitors did not relate to land, at least in part. Paragraph 4.7 (third bullet) of Notice 741 expressly states that the legal administration of a deceased person's estate which happens to include property is regarded as not land related. Paragraph 12.4.6 (first bullet) expressly states that legal services in the general administration or winding up of the estate of a deceased person are not in relation to land even where the estate includes land.

The propositions contained in those paragraphs seem to us to be well founded so far as the law of England and Wales is concerned. Until the completion of administration, any item of freehold or leasehold property comprised in the estate of a deceased person constitutes no more than an asset available for the purposes of administration. No beneficiary can assert that he has any legal or equitable interest in any of the assets which are still unadministered; the beneficiary has merely a right to require the deceased's estate to be duly administered: see Lord Sudeley v A-G [1897] AC 11 at 18, 21; Re Leigh's Will Trusts [1970] Ch 277.

The Appellant further submitted that the decision of the European Court of Justice in Rudi Heger GmbH v Finanzamt Graz-Stadt Case C-166/05 was supportive of his case that the services supplied to him by his solicitors did not relate to land. The question arising for a preliminary ruling in that case was whether the transmission of fishing rights in the Gmundner Traun river constituted a supply of services connected with immovable property within the meaning of article 9(2)(a) of the EC Sixth Council Directive and hence took place where the river was situated. Advocate-General Sharpston gave it as her opinion at [36] – [38] that the connexity (sic) required under article 9(2)(a) was that the service supplied was directed to the immovable property rather than a service derived from it. On that basis, the connexity between the sale of fishing permits and the river was, she thought, a type of connexity falling outside article 9(2)(a).

In the same way, the Appellant submitted, the services provided to him relating to the court proceedings were not directed to his interest in the flat but derived from, or in consequence of, his interest in the flat.

However Mrs Ramshaw pointed out that the actual decision of the court in the Rudi Heger case was reasoned differently. The court stated, at [25]:

"The fishing rights at the centre of the dispute in the main proceedings can be exercised only in relation to the river in question and on the stretches of that river mentioned in the permits. The stretch of water itself, therefore, makes up a constituent element of the fishing permits and, accordingly, of the transmission of the fishing rights. Since a supply of services such as that in question in the main proceedings consists in the transmission of an actual right of use of the property, in this case the river, that immovable property constitutes a central and essential element of that supply. Furthermore, the place where the immovable property is situated is the place of final consumption of the service."

Mrs Ramshaw cited the tribunal decisions of Brodrick, Wright & Strong Ltd v The Commissioners of Customs and Excise (VAT Decision No 2347); Mechanical Engineering Consultants Ltd v The Commissioners of Customs and Excise (VAT Decision No 13287) and Aspen Advisory Services Ltd v The Commissioners of Customs and Excise (VAT Decision No 13489). As none of these cases concerned the supply of services of the sort that we are considering, we have not been assisted by these decisions.

Mrs Ramshaw submitted that the services supplied to the Appellant were not related to the administration of the late Mrs Haynes' estate as he contended. She said that this was because the instructions given to the solicitors were not given on behalf of the estate. She submitted that the only persons empowered to take part in court proceedings on behalf of the estate were those duly appointed as personal representatives (or, it might be added, where there is no personal representative or representatives, someone else specifically appointed by the court to represent the estate in the proceedings – see Part 19.8 of the Civil Procedure Rules 1998). The Appellant had no standing before the court, she said, other than in his own right.

We can see the point of view of the Appellant. The court proceedings concerned the estate of a deceased person, because the issue was whether the flat was properly included within the estate or not. If it was, then subject to the payment of the late Mrs Haynes' debts and liabilities, the flat or its value would fall to be distributed to those inheriting her estate. If, on the other hand, the flat was outside the estate, then this would be because the flat belonged to the Appellant.

However the proceedings were not proceedings initiated by the personal representative or a beneficiary to resolve a problem arising in the administration. Rather they were proceedings commenced by the Appellant against the estate. His position was quite simply that any assertion that the flat fell into the estate was without foundation. The Appellant did not want the course of the administration to be assisted by the court. He only wanted to establish that his flat was not part of the estate. He was obliged to take proceedings to achieve that result.

In our view, the Appellant was asserting his entitlement to the flat. We think that there can have been little or no doubt, having regard to the contents of the Deed of Trust, that the flat belonged to him. However the registered title had been in the name of the late Mrs Haynes. On the face of the registered title, her personal representative or the person in whose favour an assent might be made in her estate should now become registered proprietor. The Appellant was obliged to go to court against the estate when the estate failed to accept that title should be transferred to him.

Given that the proceedings were for the perfection of the Appellant's title, which is in our view what the proceedings amounted to, it is in our view impossible to say that they did not relate to land. Adopting the reasoning of Advocate General Sharpston in the Rudi Heger case (although, as mentioned above, her reasoning differed from that of the court), the supplies of legal services in this case could be characterized as having been made in order to further the successful outcome of the proceedings, so that the supplies were directed towards the flat rather than derived from it. Adopting the reasoning of the court, at [25] of its judgment, the flat was a "central and essential element" of the making of the supplies, because the supplies were directed to bringing about the transfer of the flat to the Appellant.

We think that the wording of POSSO is not ideal. We find it odd that article 5 of POSSO does not expressly refer to lawyers, in addition to the other professionals therein mentioned. But we hold that lawyers are included in the article, as "others involved in matters relating to land".

Lawyers are expressly mentioned in paragraph 3 of Schedule 5 of the Act, in the context of services categorised as not relating to land. In that paragraph, the words in brackets show that lawyers who give services relating to land are excluded. So in respect of such services, article 16 of POSSO is excluded. It follows, we think, that lawyers supplying such services must have been intended to be covered by article 5, although, as we say, it is unclear why they are not mentioned by name there.

This is not a straightforward area of law, and we can well understand how the Appellant has come to believe that his appeal stood to succeed. However for the reasons expressed, we are satisfied that the supplies in question related to land in the UK, made by a supplier belonging in the UK, so that VAT was properly payable at the standard rate in respect of the supplies. We therefore dismiss this appeal.

It is unnecessary for us to consider whether Customs as the successful party in the appeal should receive an award of costs, as Mrs Ramshaw indicated at the conclusion of the hearing that costs would not be pursued.

MICHAEL JOHNSON

CHAIRMAN

RELEASED:26 April 2007

LON/2006/671