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Pethericks & Gillard Ltd v Revenue & Customs [2008] UKVAT V20564 (01 February 2008)

20564

VAT – Supply of land – Licence to occupy in common with landlord – Whether grant of exclusive right to occupy for purposes of Article 13B(b) Sixth Directive – Other services provided – Whether single supply and if so whether single supply of land

LONDON TRIBUNAL CENTRE

PETHERICKS & GILLARD LTD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: CHARLES HELLIER (Chairman)

Sitting in public in Bristol on 23 November 2007

Ian Gillard, director, for the Appellant

Richard Smith counsel, instructed by the Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

The Appellant appeals against a decision of the Respondents that supplies made by the Appellant to three companies who share certain office accommodation with the Appellant are liable to tax at the standard rate, and also appeals against an assessment dated 15 November 2006 made on the basis of that decision.

The Appellant maintains that these supplies were exempt supplies of the licensing of land within Item 1 Group 1 Schedule 9 VATA 1994.

The Evidence and the Facts found

Mr Gillard gave oral evidence on behalf of the Appellant. Mr Smith described his evidence as honest and straightforward. I agree. I also had a bundle of documents consisting mainly of copies of correspondence between the parties.

I find the following facts:-

(i) the Appellant's business is that of a firm of chartered accountants: it is a company which provides audit, accountancy and taxation services and is regulated by the ICAEW and the FSA. The Appellant has four directors of whom three (whom I shall call the principals) are active in its business;

(ii) the three principals also provide accounting and tax services to the public through the medium of their own separate limited companies:-

(a) Mr Gillard provides services through Ian Gillard & Co Ltd;

(b) Mr Browning provides services through P&G Browning Ltd; and

( c) Mr Simonds provides services through P&G Simonds Ltd.

Each of these principals is a shareholder in the Appellant, and each works both for the Appellant and for his own limited company. When one of them is providing his services through the Appellant, the fee income derived from his activities is effectively shared between its shareholders; when the services are provided through his limited company the fee income accrues directly to that company. The allocation of work between that done for the Appellant and that done for the individual's companies is broadly on the basis of trust between the principals; by and large lower level, simpler, services were provided through the individual companies and the higher level regulated services through the Appellants;

(iii) The Appellant has offices at Midsumer Norton near Bath. There is a downstairs reception, and on the first floor an open plan office and three separate offices: one for each of the principals;

(iv) When working in his individual office, each principal may be working either for the Appellant or for his own company. There are no set times during which they work for one or the other: it depends on what has to be done, who comes to see them, or who telephones. Thus one of the principals could start the morning doing the Appellant's work, switch to work for his own company, and then switch back again several times during the course of a day.

(v) The Appellant employs staff who work in the open plan office area and has employed a receptionist in a downstairs reception area. The staff provide secretarial and accountancy support services to the Appellant and its officers and employees including the three principals when they are about the Appellant's business. The staff would be available to provide secretarial services to help any of the principals when working for their own companies. Mr Gillard told me that, save in relation to the tasks noted below, the staff did not provide assistance to him in relation to the work of his company. I received no evidence as to whether the two other principals' companies received services from the staff. Mr Gillard told me that if services were so provided it would be expected that a separate charge would be made by the Appellant to the relevant company. Whilst I accept Mr Gillard's evidence to the extent of discrete substantial services, I cannot believe that it is not the case that occasionally small tasks were performed by the staff that relate to the businesses of the principals' companies. Given the nature of the work, the physical proximity and the principals' positions in the Appellant it seems to me more likely that occasional small secretarial services were performed for the companies by the Appellant's staff without a separate change being made. There would it seems to me be many, individually small or immaterial, benefits enjoyed by the companies as a result of sharing the Appellant's premises, and that these benefits would be provided by the Appellant or its staff or at its cost. Taken together these benefits were I believe not an insignificant benefit of the arrangement for the companies.

(vi) The premises have one letterbox. The receptionist sorts the mail including the mail addressed to the three companies;

(vii) There is a photocopier and fax machine in the open plan office. They are available for use by the principals when working for the separate companies, but those companies' needs for photocopying and fax is limited;

(viii) The filing for the three companies' matters is kept predominantly in the room of the principal concerned and not in the open plan office;

(ix) The offices are cleaned by an employee of the Appellant. The cleaner comes once a week for a few hours.

(x) The premises have a kitchen. Tea and coffee for the clients of the principals' companies, and for the principals when working in the business of those companies would be made in the kitchen and so made either by the relevant principal or by an employee of the Appellant.

(xi) The heating and lighting costs of the premises are borne by the Appellant. The principals when working at the premises for their individual companies benefit from the heat and light.

(xii) The premises have lavatory facilities available for use by the Appellant's and the companies' staff and clients.

(xiii) The companies have their own notepaper which is not provided by the Appellant.

(xiv) Each principal has his own computer and pays individually for the IT costs associated with his work.

(xv) Incoming (and outgoing) telephone calls come through the Appellant's telephone system (which works on a whoever picks it up first basis), but the principals are very reliant upon their mobile phones. Although there was no direct evidence, I find that it is likely that the fixed line telephone costs are borne by the Appellant.

(xvi) The principals' companies' clients, if they come to the premises in person, after they have passed through reception, will be seen in the principals' rooms.

(xvii) The three companies do not carry out much marketing activity – most business coming through recommendations. The Appellant however does conduct separate marketing for itself only.

(xviii) The Appellant makes an annual charge of £1,800 to each of the three companies. Separate charges are made for postage (£408 p.a.), and for shared professional indemnity insurance (£403 p.a.) but no separate charge is made in respect of any of the benefits which are enjoyed by the companies under (v), (vi), (vii), (ix), (x), (xi), (xii) or (xv) above.

(xix) None of the three companies has any staff other than their principal;

(xx) The arrangement between the Appellant and the companies have not been documented. The £1,800 p.a. consideration is accounted for by entries in the loan accounts in the books of the Appellant and the companies.

(xxi) The relationship between the Appellant and the three companies is founded upon trust between the three principals and the Appellant.

(xxii) Mr Gillard says that what his company provides is the benefit of his intellectual output; it does not require sophisticated premises or facilities: he could work from home and manage the affairs of his company without recourse to the office at the Appellant's premises. I accept that, but the relevance of that to the nature of the supply by the Appellant and the nature of the inferences to be drawn is something I shall discuss later in this decision.

(xxiii) Although the arrangement between the Appellant and the companies is informal, I drew from Mr Gillard's description, the conclusion that it would be a term of that arrangement that when one of the principals was using his room for his company's business, (for example in seeing one of his company's clients in his office), the company would have the right under that arrangement to exclude others from the office: the right to require other staff of the Appellant not to enter and the right to require the Appellant to expel any third party who might attempt to enter.

The parties' arguments

The Appellant submits that in return for the annual £1,800 charges the Appellant provides services to each of the three companies which are exempt within Group 1 Schedule 9 VATA 1994 as supplies of land: namely the informal grant to each of the companies of a licences to use part of the premises. It relies in particular upon Belgium v Temco Europe SA [2004] STC 1451, Altman Blane & Co v CCE (1994) VTD 12381, and Abbotsley Golf & Sport Club Ltd [1997] BVC 2492. I shall turn to its submissions on these cases below.

The Respondents submit that the Appellant makes a single supply of `office facilities' to each of the three companies and that this supply is not a supply of land.

The issues for me are therefore:-

(i) does the Appellant make a single supply or multiple supplies?

(ii) if it makes a single supply is it one of land? And

(iii) if it makes multiple supplies is any of the supplies a supply of land?

The Respondents officer, Mr Boobyer, wrote to the Appellant on 1 March 2007 in response to the Appellant's request for a reconsideration of an earlier decision made by the Respondents. That letter considers the cases noted in paragraph 5 above together with a couple of other cases on exempt supplies of land. In his conclusion Mr Boobyer says that the Commissioners' starting point is that there is no exempt supply of land when business premises are shared and where more than one business has use of the same parts of the premises without having their own specified areas. In their statement of case the Respondents' contentions are also primarily directed to the argument that the fact that the Appellant did not grant exclusive possession of the land for any period meant that its supply could not be making a supply within Item 1 Group 1.

Mr Smith in his skeleton argument and before me broadened the argument on behalf of the Commissioners submitting that the reality was that what was being supplied was not simply a passive supply of a right to use land (whether of exclusive occupation or otherwise) but rather supplies of the right to use a room plus all the facilities of a working office – which it would be arbitrary and artificial to separate into separate VAT supplies; and that this single supply was properly classified as something other than a supply within Item 1 Group 1.

The main thrust of Mr Gillard's argument was, at least initially, directed to the exclusive possession point and the arguments in relation to the cases he had cited. It seems to me that to be fair to Mr Gillard I should consider that issue first (even though logically this question follows the first question identified at paragraph 7 above). Accordingly in the next section I consider whether if the Appellant's supply is properly described simply as a right granted to each of the three companies to use its principal's room where the Appellant also had a right to use it albeit not at the same time, that supply is a supply within Item 1 Group 1.

Lack of Exclusivity; Item 1 Group 1

Article 13B (b) of the Sixth Directive provided that subject to conditions:

"Member States shall exempt … the leasing or letting or immoveable property."

Section 31 VATA 1994 provides that supplies in Schedule 9 will be exempt from VAT. Item 1 Group 1 Schedule 9 exempts:

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

Before going further I should note that Lord Slynn in the House of Lords in Commissioners of Customs and Excise v Sinclair Collis [2001] STC 989 at paragraph 11 said that it was plain that the words "licence to occupy land" in Item 1 could not go wider than the words "letting of immoveable property" in the Sixth Directive. Lord Scott (at paragraph 58) was of a similar view. It seems to me that their reasoning also leads to the conclusion that the whole of Item 1 should not be construed so as to include the grant of rights which would not for the purposes of the Sixth Directive constitute the letting of "immoveable property". Accordingly a decision of the ECJ on the meaning of Article 13B(b) will delimit also the effect of Item 1.

Sinclair Collis proceeded to the ECJ : [2003] STC 898. The question before the Court was whether the grant by the owner of premises to an owner of a cigarette vending machine of the right to install the machine and to operate and maintain it on the premises for two years in a place nominated by the owner constituted a letting of immoveable property within Article 13B(b). The facts were therefore very far from those in this case, but the observations of the Court as to the meaning of Article 13B(b) are important. At paragraph 25 the Court held that:

"… it is also settled that the fundamental characteristic of a letting of immoveable property for the purposes of Article 13B(b) of the Sixth Directive lies in conferring on the person concerned, for an agreed period and for payment, the right to occupy property as if that person were the owner and to exclude any other person for enjoyment of such a right …"

Accordingly the Court found that the grant of the rights in relation to the siting of the cigarette machine were not within Article 13B(b).

Mr Gillard says that the Court's decision in that case was amply justified by the fact that there was no grant of something immoveable: there was no defined space granted merely a moveable space for a moveable machine. How different from the office space granted to his company by the Appellant.

In Belgian State v Temco Europe SA [2005] STC 1451, the ECJ returned to the question of the construction of Article 13B(b). The question referred to the Court was whether Article 13B(b) encompassed a transaction in which one company, through a number of contracts, simultaneously granted associated companies a licence to occupy a single property in return for payment, or, in other words, whether "letting of immoveable property" covered the grant under a licence of non-exclusive occupation in return for payment. Temco submitted that the absence of exclusive occupation meant that the grants were not exempt. (There was also an issue related to the period of the agreement which was not relevant to the argument before me).

The Advocate General said, at paragraph 22:

"The leasing of an immoveable property is characterised by the transfer of the powers of the owner – with the exception of the power of disposal – and, therefore, the capacity to exclude all others (including the owner) from enjoyment of the property. Nevertheless an exclusive tenancy is not synonymous with a sole tenancy, since thee is the possibility of joint possession [see paragraph 65 Advocate General' opinion in EC Commission v Ireland [2000] ECR 1-630]. The decisive feature is the monopoly enjoyed by the tenants, who are seen by everyone to be in possession of the leased property and are entitled to prohibit anyone else from using it.

"23. … it is immaterial whether each user has a part of building assigned to him or whether the allocation is on an individual basis, in notional shares."

Thus, in the present case, had a third party landlord let the premises both to the Appellant and to the three companies on terms that they shared occupation as they did, it seems that Advocate General Ruiz-Jarabo Colomer would have advised the Court that the supply to the companies would have fallen within Article 13B(b).

The Advocate General at paragraph 30 refers to the principle of neutrality in supporting the contention that a licence terminable at the will of the granter should not be treated differently from a tenancy.

The Court at paragraph 19 of its judgment reaffirms the concept in the Directive as that of conferring a right to occupy property as if the grantee were owner and to exclude any other person from enjoyment of such a right. At paragraph 24 it points out in relation to exclusivity that it could be restricted in the contract with the landlord: the landlord might reserve the right regularly to visit the property, and a letting might relate to certain parts used in common with other occupiers. These restrictions did not prevent the "occupation being exclusive as regards all other persons not permitted to exercise a right over the property". As a result the Court held that the grant to "associated companies of a licence to occupy a single property in return for payment set essentially on the basis of the area occupied" where the contract had "as [its] essential object the making available in a passive manner of premises or parts of buildings … for a payment linked to the passage of time [were] transactions comprising the letting of immoveable property".

Mr Gillard says the only difference between the situation on which the Court opined in Temco and the Appellant's position is that the Landlord was also in occupation. But he says what is the real difference between the supply which a landlord makes to B and C when he makes a right available to A, B and C and the supply which A makes to B and C when A makes available to B and C the same right as they would have in the first situation. The transactions were intrinsically the same : B and C receive the same thing – to treat the first as exempt and the second as taxable would infringe the principle of neutrality.

Mr Smith notes that the principals wear two hats and can be called upon at any time to wear either depending on what is in hand. He says that the companies did not have exclusive occupations and that their facts are different from those in Temco where the landlord did not occupy the building supplied to the tenants. He says that Temco is authority for the proposition that the reality of the contractual relationship must be taken into account rather than the proposition that individual factors such as exclusivity, period of occupation and rent are determinative (this last argument it seems to me is directed to the wider issue of whether what was supplied was more than a passively supplied right of occupation). He also says that joint occupation with a `Landlord' goes well beyond the common occupation of common parts, or the retention of the Landlord's right to clean, visit or inspect envisaged by the Court in Temco.

It seems to me that in relation to each of the three rooms it was the relevant principal who would decide (or whose activities would dictate) at any time whether the room was principally occupied by the Appellant or the relevant company (although the presence of the papers of each of them would indicate some residual occupation by both). That principal occupation would be exclusive in this sense: if Mr Gillard was seeing a Pethericks & Gillard client he (as agent of P&G) could exclude other members of the public from the room including his company's clients; if he was seeing one of his company's clients he as agent of his company could exclude other members of the public (or had the implied contractual right to require the Appellant to exclude them) including Pethericks and Gillard staff and clients; and whilst there was the right in the Appellant and Mr Gillard's company for their respective papers to be accommodated in his office each could exclude the papers of any of the other two companies (or of any other person).

It seems clear that a letting to two or more people jointly may be a letting of immoveable property within Article 13B(b). Where two persons are jointly permitted the use of land to the exclusion of others that permission may leave the division of the use between them or may specify or provide a means of determining the position. It seems to me that if they each have, or together have, the right to exclude other persons the method by which the occupation is shared does not affect the fact that they have together been granted possession within Article 13B(b).

Whilst the Advocate General in the passage quoted from Temco at paragraph 15 above expressly refers to the ability to exclude the owner, that express reference does not appear in the Court's judgment and is, it seems to me, directed at describing the nature of the exclusionary right rather than laying down a restriction or condition for a grant to be exclusive.

In H A Solleveld v Staatssecretaris van Financien (C-444/04 and 443/04) the ECJ at paragraph 39 of its judgment noted that it must be remembered that the principal of neutrality which was inherent in the common system of VAT precludes treating similar services (which are thus in competition with each other) differently, and, at paragraph 40, that in determining similarity it was appropriate to take into account the objective pursued by an exempting provision. It seems to me that the purpose of Article 13A(b) is to exempt the passive provision of an exclusive right to use land.

I see no commercial or economic difference between the (or "intrinsic") nature of a right to occupy jointly with another granted by a third party Landlord and a right granted by the landlord to share possession with him where the provisions for sharing with the Landlord are the same as they would be for sharing with the other joint tenant – however those provisions are imposed, save in relation to the duties owed to the Landlord. But it seems to me that generally the duties owed to the Landlord will not affect the nature of what is enjoyed – they merely prescribe the consideration for its enjoyment. It therefore seems to me that it would be contrary to the VAT principle of neutrality if the supply were exempt in one case and taxable in the other.

Mr Smith did not regard these as being any persuasive comparative to which the principal of neutrality could be applied. But it seems to me that the comparison is to be drawn by reference to what is received, and what is received by the recipient of a right to use land which he must share with A is essentially the same whether A is the landlord or a third party.

In Sweden v Stockholm Lindöpark [2001] STC 103, the Advocate General at paragraph 34 drew a distinction between the placing of a sports field at the exclusive disposal of a club for a lengthy period and an entrance fee to secure transient access such as to swim in a swimming pool: to treat the latter as leasing, he said, would be to stretch the concept beyond any reasonable limit. It does not seem to me that the grant of the right to a single person to share occupation of a room with the landlord in circumstances where others may be excluded stretches the concept of letting too far.

It seems to me therefore that this (in this part of the decision presumptively passive) right supplied to the companies would properly be described as a right to exclusive occupation with the Appellant and that it should share the same VAT treatment as a supply of the same right to the Appellant and the companies together namely that of exemption with Article 13B(b). I do not believe that informality in the grant of the right or the fact that the right may be a licence to use the land rather than a right in the land affects that conclusion.

The consideration for the right of occupation is an annual charge. That seems to me to be "sufficient link of the consideration for time to satisfy the time linking factor noted as being crucial by the ECJ in Temco (para 27).

I therefore agree with Mr Gillard on this issue. Mr Gillard also relied upon a number of other tribunal decisions which pre-dated Temco and Sinclair Collis. In the circumstances I do not need to consider them further under this heading.

But I must now turn to the question as to the proper characterisation of that which was supplied by the Appellant to the companies.

The nature of the Appellant's supply

When two or more things are done for a consideration, there may for VAT purposes be either one supply or more than one. In the discussion below I use the term "VAT supply" to mean, where one or more things are properly characterised as a single supply for VAT purposes, that single supply. In such a case the approach required is to identify the VAT supplies and then to determine whether each (where there is more than one) of those VAT supplies is exempt, standard rated or zero-rated as the case may be.

Something is done for a consideration if there is a nexus in the nature of a quid pro quo between what is done and the consideration. The first question for me is therefore what the Appellant provided to the companies, and which of those things were done for a consideration. The only consideration passing to the Appellant from the companies on the evidence before me was:-

(i) the annual fee of £1,800;

(ii) the separate charge for indemnity insurance

(iii) the separate charge for postage; and

(iv) any separate charge made for the use of the Appellant's staff for secretarial services in excess of the minor services identified in paragraph 4(v) above.

The Appellant did the following things for the companies (these include the activities identified at paragraph 4(xviii) above:-

(i) making the principal's room and the common entrance way toilets and access ways available;

(ii) occasional minor secretarial services (para. 4(v));

(iii) sorting of mail (para 4(vi);

(iv) occasional and fairly minor use of the photocopier and fax machine;

(v) cleaning of the principal's room and other shared parts of the office;

(vi) use of the kitchen facilities including tea and coffee making para 4(x); and

(vii) heating, lighting and telephone (para 4(xi) and (xv));

(viii) sending and franking post (paid for separately);

(ix) any significant additional secretarial work (paid for separately); and

(x) the provision of indemnity insurance (paid for separately).

There was no direct evidence before me on this question, but I find that the £1,800 was the quid pro quo for the provision of (i) to (vii) above. I so find because it was clear to me that the element of trust involved between the companies and the Appellant was such that the £1,800 would have had to have been a fair charge for the use made by those companies of the Appellant's facilities. I therefore find that each of (i) to (viii) were provided for a consideration.

In addition, on the direct evidence before me, (viii), (ix) and (x) were provided for a consideration : albeit separate from the £1,800.

In Tumble Tots (UK) Ltd v Revenue and Customs Commissioners [2007] STC 1171, at paragraph 11, Briggs J summarised the principles applicable to determining the nature of the VAT supply or supplies made where a number of things were done for consideration:-

(1) the identification of the VAT supply or supplies is limited to a consideration of those things done for a consideration. I have found that each of those things listed at paragraph 27 (i) to (ix) above were so done;

(2) prima facie each thing done must normally be regarded as independent;

(3) nonetheless the functioning of the VAT system would be distorted if what is in substance a single supply from an economic point of view were artificially split;

(4) the relevant transaction must be analysed with due regard to all the circumstances in which it takes place; over-zealous dissection and analysis should be avoided;

(5) the asserted features of the transaction must be ascertained to determine whether the taxable person is supplying the customer, being a typical customer with several distinct principal VAT supplies or with a single VAT supply;

(6) the fact that there is a single price may suggest that there is a single supply but this is not decisive;

(7) where elements of what is done are ancillary to another element or elements which is or are identified as the principal service, then there will be a single VAT supply of the principal service and the other elements will be treated as part of that principal VAT supply;

A service will be regarded as ancillary to a principal service if it does not constitute for customers an end in itself but a means of better enjoying the principal service supplied;

(8) it does not follow that every distinct part of goods or services produced pursuant to a transaction is a separate VAT supply unless it is ancillary. Separate non-ancillary parts of what is done may be so closely linked from an economic perspective as to constitute a single VAT supply. This he calls the test of economic indissolubility;

(9) in circumstances where the application of (8) leads to the conclusion that there is a single VAT supply its character may be one of the constituent elements if predominant, alternatively it may have a unique character;

(10) where it is necessary to identify the essential features of what is done where that consists in an opportunity to participate in a scheme conferring a number of benefits it is perhaps useful to ask why objectively people are likely to want to give it.

Mr Smith says that the things done by the Appellant are the provision of the facilities of a working office and it would be arbitrary and artificial to separate them. There is a single supply. He says that this is not a supply of land to which the other services are ancillary. He reminds me of paragraph 27 of the Court's judgment in Temco which indicated that the national court should determine whether the contracts as performed:

"have as their essential object the making available in a passive manner of premises or parts of buildings in exchange for a payment linked to the passage of time, or whether they give rise to the provision of a service capable of being characterised in another way."

He says the single supply made by the Appellant is capable of being characterised in "another way". He takes me to the decision of the High Court in Byrom v Revenue and Customs Commissioners [2006] STC 992. That case also related to the provision of a room in which to work together with the provision of other services, although for purposes somewhat different from those of the Appellant and the companies. Warren J held that even if the provision of the room was the single most important element of the overall supply, the description of the supply which reflected economic and social reality was a supply of massage parlour services not a licence to occupy land. Mr Smith urges me to adopt the same course here.

Mr Smith also took me to the decision of Briggs J in Commissioners for HM Revenue and Customs v Denyer [2007] EWHC 2750 (CL) which involved the letting of space to a hair stylist in a salon. The stylist was given the exclusive use of the space around her chair and also the shared use of washbasin and the waiting area for her clients. It was common ground that this was a single VAT supply. The question was as to its nature. Briggs J said at paragraph 41:

"The point is not that a business letting can only qualify under Article 13B(b) if the whole of the tenant's business is conducted on the demised premises. Plainly that could not be so. Nor is it that the existence of the shared facilities, however minimal, is fatal to the classification of the package as letting of immovable property. The point is that the business of the stylist in the present case, …, needed to be conducted not merely on the exclusively allocated part of the premises, but within the salon as a whole, in particular by the use of the washbasins and the waiting area. Looked at in the round, the package in this case was the supply to the stylist of all the facilities requisite for the carrying on by him or her of the business of a hairdresser, including importantly the provision of an exclusive chair and allocated area, but including significantly also the facilities shared in common with the salon as a whole."

Mr Smith says that to the extent any of the services supplied by the Appellant in addition to the room were not ancillary to the provision of the room, they were provided that the companies could better run their business, and when looked at in the round the package was the supply of office facilities; and the room was only valuable with the provision of the additional services.

Mr Gillard says that what his company sells is the output of his intellectual effort. He could work equally well at home as at the office: the office facilities were not essential: the business `needed' to be conducted only in the office.

Mr Gillard distinguishes Byrom : Byrom did not involve a long term arrangement; the rooms in Byrom were not occupied by the same masseuse each day; business visitors in Byrom were effectively allocated to a masseuse on arrival: there, the reception facility performed an allocation function, whereas here a principal's clients came to see that principal and went of their own accord or were directed to the principal with whom they dealt. In Byrom there was a supply of a whole service; in the Appellant's case everything that was done was incidental and subsidiary to the supply of the room. What was important was the supply of the room; everything else was ancillary to that.

Discussion

It seems plain to me that, of the things done by the Appellant for consideration listed above, cleaning and heating and lighting are ancillary to the provision of the room. It also seems to me that the use of common entrance ways, toilets and kitchen facilities are properly regarded as being ancillary : each, as would the right to use a lift in an office block, provide means better to enjoy the use of the office and not an end in itself.

And, on balance, it seems to me that the sorting of incoming mail, and the provision of telephones, photocopies and fax services may well be ancillary to the right to use the room because they provide a means by which the companies could better enjoy their use of the room..

On the other hand the sending of the post, the minor and the additional secretarial services and the professional indemnity insurance do not clearly seem to me to provide better ways of enjoying the use of room although the provision of the sending of post and the minor secretarial services may be subordinate to the provision of the room.

But leaving aside the provision of professional indemnity insurance it seems to me that all those supplies which are not plainly ancillary to the supply of the room are part of a single indivisible economic supply to the companies: they are integral to the use of the room for the provision of accountancy services, and it would be artificial in these circumstances to dissect the provision which the Appellant makes into those different constituent elements: they are, in my view, elements of the single supply made by the Appellant. It is not the case that these elements were essential to the companies but they were a real convenience and part of a single package provided to the companies by virtue of their sharing the Appellant's premises under the arrangement. The provision of the room was the dominant element of that package but the room had a telephone; the photocopier and the fax machine were nearby and an integral part of the overall benefit provided; the telephones were answered by all those present in the office: messages would no doubt be taken when a principal was unavailable; the companies' post was sorted; coffee was made; the additional discrete secretarial services, although paid for separately, were there and available because the room was in the Appellant's premises. It seems to me that practically it would have been very hard to deny the companies the use of these benefits: the relationship between the companies and the Appellant was too close. This was not the letting of a room for storage where the room happened to be in the Appellant's premises, but the letting of a room in circumstances physically and economically integrated with the Appellant's business whose facilities were shared with the companies.

In the quotation from the judgment in Denyer set out above Briggs J makes the point that it was the fact that the business of the stylist needed the additional facilities which meant that the package was economically dissoluble. The same is not the case here, the occasional minor secretarial services, the sorting of mail, the photocopies and the post were useful and desirable but not necessary. Mr Gillard could have worked at home. He did not need these facilities; what he needed was the room. These services he says are separate and not indivisible from the room. But when Mr Gillard was in his room acting for his company it is to my mind impossible to view him as operating without the knowledge that he could and would use those services: they were an integral part of the benefit of being able to be there even though their provision at those premises may not have been absolutely necessary to the business of his company.

I therefore find that, apart from the professional indemnity insurance, which seems neither ancillary to any other supply nor integral to or economically indissociable from the other supplies, that there was a single VAT supply by the Appellant to the companies.

That leaves the question as to the determination of the VAT character of that VAT supply. Its dominant feature was clearly the provision of the room but that is not the determining feature (see para 48 of Byrom). The issue for me here is not to find a description for that composite supply, but to ask whether it falls within Article 13B(b). And in that regard I ask whether it has:

"as [its] essential object the making available in a passive manner, of premises … or whether [it gives] rise to the provision of a service capable of being characterised in another way." (See para 20 of Temco).

It seems clear to me that the mere existence of a non-passive element in a supply will not cause it to be a supply of land: the provision of a concierge in a block of flats will not turn the letting of the flats into standard rated supplies. And at the other end of the scale, when the active elements clearly predominate – as they may in the supply of hotel accommodation – the supply cannot fall within Article 13B(b).

In Byrom the elements of the supply other than that of the room were significant and important and, albeit that the provision of the room predominated, wee enough to make the supply sufficiently active not to be a supply of land.

Here the other elements of the supply were, on the evidence before me, less significant than they were in Byrom: what Mr Gillard's company wanted was a room to work in and in which to see his clients. That was what it got – but together with other benefits. He worked mainly in his room not in the outer office, but the benefits arose from the proximity of the outer office and its facilities.

I have found this a difficult question but, on balance I find that the supply was not a passive supply of land to the company because, although I accept that the provision of the additional services was not necessary to any of the companies' business, it was in practice an important enough part of what it received to be able to say, in the context of an exemption which should be strictly construed, that this was not simply a passive supply of land: that passive supply did not dominate the package sufficiently for it to fall within Article 13B(b): the Appellant was sharing all its office facilities in some measure with the companies, not just supplying the use of the room.

I therefore dismiss the appeal. I make no order as to costs.

CHARLES HELLIER

CHAIRMAN

RELEASED: 1 February 2008

LON 2007/0610