VAT LIABILITY AND THE IMPLICATIONS OF COMMERCIAL PROPERTY TRANSACTIONS ppt

A SPECIALLY COMMISSIONED REPORT
VAT LIABILITY AND THE
IMPLICATIONS OF
COMMERCIAL PROPERTY
TRANSACTIONS
Tim Buss AITT
THOROGOOD
PROFESSIONAL
INSIGHTS
THOROGOOD
PROFESSIONAL
INSIGHTS
A SPECIALLY COMMISSIONED REPORT
VAT LIABILITY AND THE
IMPLICATIONS OF
COMMERCIAL PROPERTY
TRANSACTIONS
Tim Buss AITT
Thorogood Publishing Ltd
10-12 Rivington Street
London EC2A 3DU.
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f: 020 7729 6110
e:
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© Tim Buss 2005
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Other Thorogood
Professional Insights
Applying the Employment Act 2002
– Crucial Developments for

Employers and Employees
Audrey Williams
Commercial Contracts – Drafting
Techniques and Precedents
Robert Ribeiro
Damages and other Remedies for
Breach of Commercial Contracts
Robert Ribeiro
Technical Aspects of Business Leases
Malcolm Dowden
Tax Planning Opportunities for
Family Businesses in the New Regime
Christopher Jones
Trade Secrets of Successfully
Acquiring Unquoted Companies
Barrie Pearson
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DEDICATION
To my family and in memory of Peter, my dad and
Joan, my mother in law.
THOROGOOD PROFESSIONAL INSIGHTS
The author
Tim Buss is a VAT director in the Guildford office of accountants and business
advisors PKF and specialises in VAT and property issues. However, he advises

clients on all aspects of VAT. Tim has represented clients at VAT tribunals including
SEH Holdings referred to in this book.
Prior to joining PKF in 1989, Tim spent 16 years in H.M. Customs & Excise
(Customs) as a VAT inspector and later as a classroom trainer of new entrants.
His departure from Customs coincided with the introduction of VAT on new
commercial buildings.
Tim is an associate and council member of the Institute of Indirect Taxation and
in 2002 was appointed the Institute’s Director of Education. This entails respon-
sibility for the Institute’s examinations.
Tim regularly writes on a range of VAT issues. He lectures and presents workshops
for a number of organizations including the Association of Accounting Techni-
cians, Institute of International Accountants and IBC Global Conferences.
Contents
INTRODUCTION
VAT and property – a marriage made in Europe 1
1 VAT GENERAL PRINCIPLES 3
The VAT regime 4
VAT legislation 4
Registration 5
Rates of VAT 5
Scope of VAT 5
Output tax 7
Input tax 7
Time of supply 8
2 VAT LIABILITY OF COMMERCIAL
PROPERTY TRANSACTIONS 9
UK legislation 10
European legislation 10
Exceptions from exemption in the UK 12
Freehold sales of commercial buildings or civil engineering works 13

Definition of an RCP building 13
Gaming and fishing rights 14
Hotel accommodation 14
Holiday accommodation 15
Caravan and tent pitches or camping facilities 16
Parking facilities 16
Sports facilities 18
THOROGOOD PROFESSIONAL INSIGHTS
3 LAND AND LICENCE TO OCCUPY LAND 19
Definition of land 20
Buildings 20
Scope of the exemption for land and buildings 21
Immovable property 21
Licences to occupy 22
Licence to use facilities 23
Customs’ examples 24
4 OPTION TO VAT 26
Introduction 27
Why opt? 27
Commercial considerations 27
Interaction with stamp duty land tax 28
Option ineffective 28
Scope of an option to tax 29
Who can opt? 30
How is the option exercised? 32
Option to tax – national unit 33
Problems with notifications/acknowledgements 34
Adding VAT to rents 34
Informing tenants 35
Subsequent works 35

Is an option valid? 36
Permission to opt regime 37
Revocation of an option 41
5 VAT ON TRANSACTIONS RELATING
TO LEASES 42
Introduction 43
Lease surrenders 43
Variation of the terms of a lease 44
Reverse premiums 44
CONTENTS
THOROGOOD PROFESSIONAL INSIGHTS
Assignment of a lease 45
Dilapidation payments 46
Rent free periods 46
6 CALCULATING RECOVERABLE VAT IN THE
PROPERTY SECTOR 47
Introduction 48
Partial exemption 48
Standard partial exemption method 49
Annual adjustment 49
Special methods 50
Partial exemption de minimis limits 51
VAT recovery – change of use 51
Abortive and speculative developments 52
Recovery of VAT prior to an option to tax 52
7 CAPITAL GOODS SCHEME 54
Why have a Capital Goods Scheme? 55
Application of the scheme 55
Additions to the scheme 56
Definition of a capital item 56

Where CGS does not apply 57
Initial VAT recovery 57
Value 58
Intervals 59
Example 60
CGS effect on other disposals 61
Record keeping 62
8 TRANSFERS OF GOING CONCERNS 64
Introduction 65
The UK legislation 65
Consequences of TOGC treatment 66
CONTENTS
THOROGOOD PROFESSIONAL INSIGHTS
Seeking Customs confirmation 67
European dimension 68
Interaction between the TOGC and property rules 69
Relevant date 70
Customs’ views 71
TOGC benefits 71
A capital goods scheme issue 72
Recovery of VAT on costs of TOGC transactions 72
9 VAT AVOIDANCE 73
Introduction 74
Option for VAT planning 74
Customs efforts to combat avoidance 75
Anti-avoidance legislation 75
Disclosure rules 78
10 CONVERSIONS TO DWELLINGS
AND RRP BUILDINGS 79
Introduction 80

Examples of conversion from non-residential 80
Disapplication of the option to tax 81
Relevant residential purpose 82
11 OPTION TO TAX – PAST, PRESENT
AND FUTURE 84
Introduction 85
The past 85
The present 87
The future 87
APPENDIX 90
Ten tips and ten traps 91
CONTENTS
THOROGOOD PROFESSIONAL INSIGHTS
Introduction
VAT and property – a marriage made in Europe
Most people can remember where they were when news broke of a world-
shattering event, e.g. the assassination of President Kennedy or the death of
Princess Diana. As testament to a ‘sad life’ as a VAT consultant, I can remember
precisely where I was on 21 June 1988 (in my car and on my way to address a
meeting of the West Wycombe Women’s Institute) when the European Court
of Justice (ECJ) released its judgement against the UK’s zero rated treatment
of commercial property transactions.
The judgement of the ECJ heralded the most significant changes in the history
of VAT in the UK. The necessary legislative amendments came into effect on 1
April 1989. The main areas of change were as follows:
• Zero-rating for new construction was restricted to dwellings and
buildings for a relevant residential purpose (RRP) or a relevant
charitable purpose (RCP).
• Zero-rating for approved alterations to listed buildings was similarly
restricted to dwellings, RRP and RCP buildings, and churches.

• Zero-rating for the grant of a major interest, i.e. freehold sale or grant
of a lease for a term of over 21 years was also confined to dwellings,
RRP and RCP buildings.
Freehold sales of new commercial buildings and of new civil engineering works
became standard rated.
The option to tax was introduced; however, the option to tax rules did not come
into effect until a few months later on 1 August 1989. Significantly there were
no anti-avoidance regulations introduced in connection with the option to tax
facility.
This report is written at a time of uncertainty in the VAT and property world.
At the time of writing important decisions of the ECJ are awaited, particularly
the Halifax case (see Chapter 9). This report deals with the complexities of UK
and EU legislation, and provides an overview of the implications of commer-
cial property transactions. Residential property transactions are not within the
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THOROGOOD PROFESSIONAL INSIGHTS
scope of the report with the exception of conversions to residential from non-
residential property.
The VAT rules, procedure and interpretation of the legislation are constantly
changing. Every property transaction should be considered on its merits. This
report is not a substitute for professional advice.
Tim Buss
PKF
INTRODUCTION
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THOROGOOD PROFESSIONAL INSIGHTS
Chapter 1
VAT general principles
The VAT regime 4
VAT legislation 4

Registration 5
Rates of VAT 5
Scope of VAT 5
Output tax 7
Input tax 7
Time of supply 8
THOROGOOD
PROFESSIONAL
INSIGHTS
Chapter 1
VAT general principles
In order to appreciate the VAT implications of property transactions it is neces-
sary to be aware of certain basic principles of the tax.
The VAT regime
VAT was introduced into the UK on 1 April 1973 as a condition of the UK joining
the European Single Market. VAT is an indirect tax, under the care and manage-
ment of H.M. Customs & Excise (Customs). VAT is a multi-staged tax which is
imposed at each stage of a chain of supplies of goods or services.
VAT legislation
The UK law is contained in the VAT Act 1994 which is supported by numerous
statutory instruments. Customs publish public notices and certain parts of the
notices (always highlighted) have the force of law. Where a section does not
have the force of law, the notice represents Customs’ interpretation and
opinion of particular VAT issues.
Notwithstanding the terms of the UK legislation the UK Government is obliged
to implement the provisions contained in EU Directives. The principal directive
is the Sixth Directive. If the UK has not implemented EU provisions a UK taxpayer,
but not Customs, can rely on the European directive where this would be to his
or her benefit.
In effect EU law overrides domestic law. An example is the proceedings taken

against the UK in 1988. The ECJ ruled that the UK had not upheld the provi-
sions of the Sixth Directive by allowing zero rating of commercial buildings (and
water, news services, fuel and power).
Where a question of European law is raised in the UK Courts or tribunals the
matter can be referred to the ECJ for a preliminary ruling on the interpretation
of the European law involved.
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THOROGOOD PROFESSIONAL INSIGHTS
Judgements of the ECJ must be followed in the UK even where the cases
concerned are those of another member state.
Registration
The UK has adopted a registration threshold which is currently £60,000 with
effect from 1 April 2005. The threshold is by far the highest in any of the member
states of the European Union. Businesses whose turnover does not reach the
registration threshold are not required to register for VAT, but can register volun-
tarily. Once registered, a business has to charge VAT (where applicable) on income
and subject to certain rules can recover VAT on related costs and expenses.
Group registration
Subject to certain conditions in respect of control, two or more companies estab-
lished in the UK can, if they wish, register for VAT as a single entity. The principal
advantage of choosing to group register is that most supplies between VAT group
members are ‘disregarded’ for VAT purposes. Group registration means that
only one VAT return is submitted for the group.
Rates of VAT
The rate of VAT is currently 17.5%. There is a reduced or lower rate of 5% and
a zero rate (nil %) which applies to certain goods and services. The zero rated
goods and services concerned are listed in the VAT Act 1994, Schedule 8, and
those at the lower rate are specified in VAT Act 1994, Sch 7A. In addition, other
supplies are exempt from VAT (VAT Act 1994, Schedule 9) and others are outside
the scope of UK VAT.

Scope of VAT
In order to fall within the scope of UK VAT a supply has to meet the following
conditions:
• it is a supply of goods or services;
• it takes place in the UK;
1 VAT GENERAL PRINCIPLES
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THOROGOOD PROFESSIONAL INSIGHTS
• it is made by a taxable person; and
• it is made in the course or furtherance of any business carried on by
a taxable person.
A transaction which does not meet the conditions is outside the scope of VAT.
Supply
In broad terms a supply of goods occurs when the ownership of the goods is
transferred. The freehold sale of a property is therefore a supply of goods.
A supply of services is anything which is not a supply of goods but is done for
a consideration. The letting of property is a supply of services. A free supply of
services is outside the scope of VAT, generally referred to as non-business.
Place of supply
There are complex rules for determining where a supply takes place. As far as
property is concerned the place of supply is the UK if the property is located in
the UK. The UK includes England, Scotland, Northern Ireland, Wales and the
territorial waters of the UK. The Isle of Man, whilst not strictly part of the UK,
is treated as though it is part of the UK for VAT purposes. This treatment does
not extend to the Channel Islands.
Taxable person
A taxable person is defined in UK law as anyone who is or is required to be regis-
tered for VAT. However, the definition in the Sixth Directive is far broader. Article
4 paragraph 1 states:
‘“Taxable person” shall mean any person who independently carries out

in any place any economic activity specified in paragraph 2, whatever the
purpose or results of that activity.’.
The economic activities specified in paragraph 2 of Article 4 crucially for the
purposes of this report include:
‘The exploitation of tangible or intangible property for the purpose of
obtaining income there from on a continuing basis shall also be consid-
ered an economic activity.’
1 VAT GENERAL PRINCIPLES
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THOROGOOD PROFESSIONAL INSIGHTS
Business
The definition of business in UK law is in the VAT Act 1994, Section 94. This
states that business includes ‘any trade, profession or vocation’. However, the
term ‘business’ is far wider and covers activities not normally treated as a business
under direct tax law, e.g. the letting of property.
Output tax
The tax charged on supplies is known as output tax. Output tax is calculated at
either 17.5% or 5% (as appropriate) of the value of the supply. The value on which
VAT is chargeable on a supply is determined in accordance with rules in the
VAT Act 1994, Section 19:
‘If the supply is for a consideration in money its value shall be taken to be such
amount as, with the VAT chargeable, is equal to the consideration.’
The effect of this is where the consideration does not specify VAT; the consid-
eration shall be taken to be VAT inclusive.
Input tax
Input tax is defined in the VAT Act 1994, S24 (1), as the tax on goods or services
supplied to a person, tax on the acquisition of goods from a member state (and
the tax payable on importation) being, in each case, goods or services used, or
to be used, by a person for the purpose of any business carried on, or to be carried
on, by the person concerned.

A business can recover VAT on costs relating to taxable transactions (at the
standard rate, lower rate and zero rates). A claim for input tax must be supported
by a tax invoice unless Customs agree or direct otherwise.
It is critical to land and property transactions to remember that VAT cannot be
recovered on costs relating directly or indirectly to exempt supplies. Where a
business makes both taxable and exempt supplies, there are particular rules known
as partial exemption rules (see Chapter 7) which may restrict the amount of VAT
that a business can reclaim.
1 VAT GENERAL PRINCIPLES
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THOROGOOD PROFESSIONAL INSIGHTS
Time of supply
VAT becomes chargeable at a specific time (known as the tax point). VAT must
be accounted for by reference to the VAT return period in which the tax point
occurs (unless the business is operating a special cash accounting scheme). The
rules for determining the tax point differ depending on whether the supply is
a supply of goods or a supply of services. The tax point rules with an emphasis
to property transactions are described below.
Goods
Where the supply is of goods the tax point is the date the goods are removed.
For property transactions the tax point is the date the property is made avail-
able to the purchaser, normally the completion date. However, this tax point
known as the basic tax point is overridden by what are termed actual tax points.
Actual tax points are payments received (i.e. deposits) or invoices issued in
advance of the basic tax point, or the date of invoice provided the invoice is issued
within fourteen days of the basic tax point. The facility exists to agree with Customs
an extension of the fourteen day period, e.g. if the business concerned normally
issues invoices monthly.
Services
The basic tax point for a supply of services is when the services are performed.

Customs generally interpret this as meaning the date on which all the work,
except invoicing, is completed. The basic tax point is overridden by actual tax
points as described in the previous paragraph.
Continuous supplies of services
There are special tax point rules for what are termed continuous supplies of
services. The rules are necessary because for continuous supplies there is no
performance tax point as the services are never completed. The leasing and letting
of property falls within the continuous supply rules. For leasing and letting the
tax point is the earlier of date of issue of tax invoice or receipt of payment.
1 VAT GENERAL PRINCIPLES
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THOROGOOD PROFESSIONAL INSIGHTS
Chapter 2
VAT Liability of commercial
property transactions
UK legislation 10
European legislation 10
Exceptions from exemption in the UK 12
Freehold sales of commercial buildings
or civil engineering works 13
Definition of an RCP building 13
Gaming and fishing rights 14
Hotel accommodation 14
Holiday accommodation 15
Caravan and tent pitches or camping facilities 16
Parking facilities 16
Sports facilities 18
THOROGOOD
PROFESSIONAL
INSIGHTS

Chapter 2
VAT Liability of commercial
property transactions
UK legislation
The VAT legislation (VAT Act 1994, Sch 9, Group 1) exempts:
‘The grant of any interest in or right over land or of any licence to occupy
the land, or, in relation to land in Scotland, any personal right to call for
or be granted any such interest or right.’
Note (1) to Group 9 states that ‘Grant includes an assignment or surrender and
the supply made by the person to whom an interest is surrendered when there
is a reverse surrender’.
Note (1A) defines a reverse surrender as ‘one in which the person to whom the
interest is surrendered is paid by the person by whom the interest is being surren-
dered to accept the surrender’.
The inclusion of reverse surrenders (a term which appears to have been invented
by Customs) within the exemption may be incorrect under European law (see
chapter 5).
European legislation
The UK legislation expresses the exemption by employing English land law termi-
nology. It is interesting that the over-riding law on VAT, the EC Council Sixth
Directive, expresses the exemption rather differently. Grant of an interest and
licence to occupy is not mentioned. Instead there are three distinct categories
of exemption:
• the leasing or letting of immovable property;
• the supply of buildings; and
• the supply of land.
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THOROGOOD PROFESSIONAL INSIGHTS
Leasing and letting
Article 13B(b) of the Sixth Directive exempts the ‘leasing or letting of immov-

able property’. There are specific exclusions which broadly the UK has followed
(see below).
Article 13B (b) excludes the following from the exemption:
• The provisions of accommodation, as defined in laws of the member
states, in the hotel sector or in sectors with a similar function, including
the provision of accommodation in holiday camps or on sites
developed for use as camping sites;
• The letting of premises and sites for parking vehicles;
• Lettings of permanently installed equipment and machinery;
• Hire of safes.
The Article allows member states to apply further exclusions from the scope of
the exemption.
The UK has followed the exclusions referred to above with the exception of hire
of safes. There is no specific exclusion in UK legislation for the hire of safes.
The UK’s position is that specific exclusion is unnecessary as exemption does
not apply to articles not fixed to the land.
Supply of buildings
Article 13B (g) exempts ‘the supply of buildings and parts thereof and land on
which they stand’. The supply before occupation of buildings or parts of build-
ings and the land on which they stand is specifically excluded from the
exemption. This exclusion therefore provides that the supply of new commer-
cial buildings is liable to VAT.
Land
Land is subject to a separate exemption under Article 13B (h) which exempts
the supply of land which has not been built on other than ‘building land’. However,
Article 28 of the Sixth Directive allows member states to retain exemption for
building land, and most member states including the UK have done so.
2 VAT LIABILITY OF COMMERCIAL PROPERTY TRANSACTIONS
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THOROGOOD PROFESSIONAL INSIGHTS

Building land
The UK rule on the VAT liability of building land was challenged in the case of
Norbury Developments Limited v C & E Commissioners, CJEC (1999) STC511
(TBC21.307). The VAT tribunal held that the sale of building land is taxable rather
than exempt, unless the exemption was authorised by Article 28(3) (b) of the
Sixth Directive. The VAT tribunal referred the case to the ECJ which held that
the UK was entitled to exempt the supply under Article 28(3) (b). The exemp-
tion for building land is however transitional and at some stage the UK will have
to tax sales of building land. The obvious question will then be how to define
building land.
Exceptions from exemption in the UK
The specific exceptions to the exemption in the UK are contained in the VAT
Act 1994, Sch 9, Group 1, Item 1. In broad terms the exceptions, which are liable
to VAT, are as follows:
• Freehold sales of new or uncompleted commercial buildings or civil
engineering works. New is defined as completed within the three years
before the grant concerned.
• Rights to take game or fish.
• The provision in a hotel, inn, boarding house or similar establishment
of sleeping accommodation.
• The grant of interest in, right over or license to occupy holiday
accommodation.
• The provision of seasonal pitches for caravans and the grant of facilities
at caravan parks.
• The provision of pitches for tents or of camping facilities.
• The grant of facilities for parking a vehicle.
• The grant of any right to fell and remove standing timber.
• The grant of facilities for housing or storage of an aircraft or for
mooring, or for storage of any ship, boat or vessel.
• Sports facilities.

• Viewing accommodation at sports grounds, theatres etc.
2 VAT LIABILITY OF COMMERCIAL PROPERTY TRANSACTIONS
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THOROGOOD PROFESSIONAL INSIGHTS
• The grant of any right including an equitable right, a right under an
option or right of pre-emption or in relation to Scotland, a personal
right, to acquire an interest in land which would be taxable under one
of the exceptions described above.
The more common exceptions are considered in detail.
Freehold sales of commercial buildings
or civil engineering works
The freehold sale of new or uncompleted buildings or civil engineering works
is subject to VAT at the standard rate, currently 17.5%. The standard rate is applied
to every, ie not just the first, sale of the freehold of a new or uncompleted building
until three years after the earlier of the certificate of practical completion or first
full occupation.
In the case of a civil engineering work the standard rate applies to all sales within
three years after the earlier of the certificate of completion or the first full use
of the work.
Standard rating does not apply to a building designed as a dwelling or a number
of dwellings, or to an RRP or RCP building. The grant of a major interest (freehold
or lease of over 21 years) in a dwelling, RRP or RCP building is zero-rated. Zero-
rating is subject to a number of conditions in the case of RRP and RCP buildings.
(There is a definition of RRP buildings in Chapter 10.) Where a new building is
mixed, eg a shop with a flat above, standard rating only applies to the shop. It
is therefore necessary to apportion the sale price.
Definition of an RCP building
An RCP building is a building for use by a charity for a non-business purpose,
e.g. where charities are supported by grants and donations or as a village hall
or similar, providing social or recreational activities for a local community. The

term business is widely drawn and includes activities which do not make a profit.
An analysis of non-business activities of a charity and the concept of a ‘village
hall or similar’ is outside the scope of this report.
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Gaming and fishing rights
The grant of any interest, right or licence to take game or fish is standard rated.
However, standard rating does not automatically apply to the sale of freehold
land containing gaming or fishing rights. Where a landowner grants or trans-
fers the freehold of land over which the right to take game or fish is excisable,
the supply of the land is exempt (subject to the option to tax). An apportion-
ment to the sale price has to be made when land is transferred and the right to
take game and fish is valuable.
Hotel accommodation
The provision in a hotel, inn, boarding house or similar establishment of sleeping
accommodation, or accommodation in rooms which are provided in conjunc-
tion with sleeping accommodation or for the purposes of supply of catering is
standard rated.
Reduced rate
Where guests stay for a continuous period of four weeks or more, VAT is charge-
able on a reduced value from the 29th day. The effect is that from the 28th day,
VAT has to be accounted for on a minimum of 20% of the total charge for the
room and facilities. VAT remains due on meals, drinks and service charges. The
charge for the room and related facilities can be reduced by excluding the value
of the right to occupy the accommodation. However, the value ascribed to the
facilities must not be less than 20% of the total amount due for facilities and
accommodation. Hotel providers frequently make the mistake of including the
reduction in value in the total of exempt income. The difference in value is not
exempt so by itself does not give hoteliers any partial exemption problems.

Similar establishment
Similar establishment includes premises held out as being suitable for use by
visitors or travellers, which contain sleeping accommodation, whether or not
there is provision of board or facilities for the preparation of food. The vague
term ‘similar establishment’ has lead to a number of disputes between taxpayers
and Customs, particularly in establishments providing shelter for the homeless,
hostels and student accommodation. The question a tribunal frequently has to
answer is whether the establishment concerned is in competition with hotels,
inns etc.
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THOROGOOD PROFESSIONAL INSIGHTS
Leasing/licensing hotel buildings
The exception from exemption does not apply to leases or licences of hotel build-
ings. If H plc lets a hotel to O plc and O plc operates the hotel, the supply by H
plc is exempt (subject to the option to tax). O plc will make taxable supplies of
hotel accommodation to users.
Holiday accommodation
The grant of any interest in, right over or licence to occupy holiday accommo-
dation is standard rated. This includes any accommodation which is held out
as holiday accommodation or is suitable for holiday or leisure use. Standard
rating does not apply to the grant of a freehold or a lease for a premium in a
building held out for holiday accommodation which is not a new building (i.e.
the building is more than three years old). Payment for the purchase of the freehold
or premium for a lease in ‘old’ holiday accommodation is exempt.
Dwelling or holiday accommodation
Difficulties can arise in deciding whether or not a new building is a dwelling or
holiday accommodation. In this context it is necessary to consider the VAT Act
1994 Group 5. Item 1 (a) (i) of Group 5 zero rates the first grant of a major interest
in a dwelling. However, Note (13) to Group 5 reads as follows:

‘The grant of an interest in, or in any part of:
1. A building designed as a dwelling or a number of dwellings; or
2. The site of such a building.
It is not within item 1 (ie it is not zero-rated) if:
i) The interest granted is such that the grantee is not entitled to reside
in the building, or part, throughout the year; or
ii) Residence there throughout the year, or use of the building or part as
the grantee’s principal private residence is prevented by the terms of
a covenant, statutory planning consent or similar permission.’
The consequence of the note is that the grant of a freehold or a lease over 21
years by a person constructing a new dwelling is subject to VAT at the standard
rate if the grantee is not entitled to reside in the building or part of the building
throughout the year.
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The case of Barbara Ashworth
Whether or not ‘restricted occupancy’ means that the grant of a major interest
in a new building is standard, rather than zero rated, has been the subject of a
number of disputes between taxpayers and Customs. There was an important
victory for the taxpayer in the case of Barbara A Ashworth (LON/94/221). The
appellant owned a long lease in a waterside lodge at a Marina. The lease prohib-
ited occupancy of the lodge during the month of February. The appellant occupied
the lodge as her home for the rest of the year. The VAT tribunal decided that
the discontinuing nature of the appellant’s leasehold interest did not place the
property in the same category as a hotel or similar accommodation. The supply
was exempt rather than standard rated.
Customs’ change of view
Following the tribunal’s decision, Customs changed their view of the liability
and their current opinion is set out in leaflet 709/3/93. The relevant extract is as

follows:
‘However, the sale or lease of a flat or house which can be used as a person’s
principal private residence but which cannot be occupied throughout the
year due to a time break or restriction on occupancy is exempt, if the devel-
opment on which it is situated is not a holiday development and it is not
advertised or held out as such. This also applies to any periodic charges
such as rent and service charges.’
Caravan and tent pitches or camping facilities
The provision of seasonal pitches for caravans and the grant of facilities for
caravan parks are standard rated. A seasonal pitch is a pitch which is provided
for less than a year, or is provided for more than a year but where there is a
restriction on occupation. The provision of pitches for tents or camping facili-
ties is also standard rated.
Parking facilities
The grant of facilities for parking vehicles is standard rated. There is normally
a standard rated supply of parking facilities if a specific grant is made and facil-
ities are designed for, or provided specifically for, the purpose of parking vehicles.
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