In Fairway Lakes Ltd v HMRC [2015] UKFTT 0605 (TC), the First-tier Tribunal (FTT) has applied the single versus composite, or multiple supply, analysis to ascertain whether the nature of the supplies made by the taxpayer in connection with the development and construction of holiday lodges were a single zero rated supply of construction services, or a composite taxable supply  of construction services and procurement of a lease.

Background

Fairway Lakes Village is a development site comprised of a number of designated plots of land. The freeholder of the land (a third party) successfully applied for planning permission to construct holiday lodges on the site. The taxpayer was responsible for the construction of the lodges and the infrastructure.

From 2007, the sale arrangements required the landowner to grant a lease to the customer, who also entered into an agreement with the taxpayer (the Agreement). It was this Agreement that was central to the case. The Agreement not only provided for construction of the lodges, but also required the taxpayer to ensure that the third party landowner granted a lease of the built-on land to the customer.

In the majority of cases the lease was granted, and the Agreement signed, on the same day. However, in several instances the lease was granted after the Agreement had been signed.

The dispute between the parties was in relation to the nature of the services provided by the taxpayer. The taxpayer argued that it had made a zero rate supply of construction services. HMRC disagreed and contended that there was a composite supply of construction services and procurement of a lease.

The FTT’s decision

The FTT dismissed the taxpayer’s appeal and held that there was a single composite supply of construction services and procurement of a lease, which was subject to VAT at the standard rate.

The case concerned a single contract and the parties accepted that the Agreement should be construed in accordance with the principles laid down in Investment Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28, under which it was necessary to ascertain the meaning of the Agreement as understood by a reasonable man.

There was no argument that the terms of the Agreement were consistent with it being a construction agreement. However, the FTT agreed with HMRC’s contention that the terms were not inconsistent with it being a contract to complete the building and ensure the landowner granted a lease.

The FTT analysed key clauses in the Agreement and the accompanying Standard Conditions of Sale and concluded that the supply extended beyond the provision of construction services.  In particular, it noted that Clause 4.1.1 of the Agreement required the taxpayer to provide a customer with proof of title to the property and its ability to “procure its transfer” and clause 6.8 of the Agreement entitled a customer to issue a “notice to complete” within 10 days which would require the taxpayer to ensure the grant of the lease.

The FTT found further support for its conclusion from the fact that the Agreement referred to the parties as “Buyer” and “Seller”, provided for the payment of rent and service charges to the taxpayer and required the taxpayer to give the Buyer vacant possession on completion.

Comment

The FTT did not need to consider the case law on the correct analysis to be applied when considering a multiple or composite supply, as the parties had accepted that if the contract concerned more than mere construction services, then the supply would be subject to VAT at the standard rate. The main issue before the FTT was the interpretation and construction of the Agreement.

The FTT’s decision is available to read here.