In HMRC v Finnamore (t/a Hanbridge Storage Services)11 the Upper Tribunal upheld HMRC’s appeal against a decision12 of the First-tier Tribunal (Tax Chamber) (the FTT) which had found that the supply of storage facilities by Mr Finnamore were an exempt supply by reason of item 1 of group 1 of schedule 9 to the Value Added Tax Act 1994 (being the grant of an interest in or right over land, or any licence to occupy land ...).
Mr Finnamore trades from a site at Hanbridge Marina in West Sussex. The self-storage facilities are in the form of metal shipping containers (as typically transported by ship or lorry) located upon open land, usually resting on the ground under their own weight. Whilst movable, the containers require specialist lifting gear to move them from place to place.
Mr Finnamore’s customers can store their goods in a container on site at a cost (as at 1 October 2010) of £28.58 per unit per week. Alternatively, they can choose to rent a container only and take it away from the premises to use at another location, for around a quarter of that cost. The site is surrounded by a fence, and there is a security team present, although the provision of a security team does not form part of the contract between Mr Finnamore and his customers. The security team is in fact employed by a neighbouring family enterprise, and patrol the storage site as a matter of practice and convenience.
The FTT found that the supplies made by Mr Finnamore should be viewed as a single supply for the purpose of VAT. However, that supply contains more than one element of service to each customer, because there was both a licence to occupy the plot on which the customer’s storage unit sits and the also the use of the storage container itself. The Upper Tribunal (UT) found that the FTT also appeared to consider there to have been a supply of security services, but the UT doubted this was correct due to the extra-contractual circumstances of that supply, noted above.
The FTT went on to then characterise the single supply, which was to become the central issue which fell to be considered by the UT. The FTT found that the “reasonable man in the street” would think, when entering into the agreement, that he has “simply rented storage space”. However, the FTT went on to consider that “…the view of the reasonable man in the street must be that of the reasonable man well versed in the applicable legal concepts…” and that:
“…from the perspective of a property lawyer, there can be no doubt that the contract between [Mr Finnamore] and a customer involves [Mr Finnamore] granting a right to occupy a defined parcel of land.”
The UT considered it to be an error to seek to “imbue the typical user with the attributes and knowledge of a lawyer”. Although this should make no difference to the classification, the UT could not be certain that the error had not influenced the FTT’s decision.
The FTT had also sought to identify the predominant element of the supply. Economically, this appeared to be the licence over the land (when compared to the cost of renting a container but taking it off site). The FTT found that the storage was “parasitic upon the customer’s ability to occupy the land”, whilst the reverse could not be the case.
The UT held that it would not be correct to say that the overall transaction takes its VAT classification from the corresponding classification of the predominant part, following College of Estate Management v Customs and Excise Commissioners 13, in which the predominant element was the provision of printed material but the “ overarching supply was of educational services”.
The FTT had erred in law in its classification of the supply. The correct classification of the supply was one of the provision of storage services. HMRC’s appeal was therefore upheld. This case is indicative of the approach which will be adopted by the tax tribunals when faced with characterising a single supply which is itself comprised of multiple elements. Here this meant considering what the typical user would consider he or she was obtaining by entering into the agreement. It is not necessarily the predominant supply.
Click here to read the FTT decision.
Click here to read the Upper Tribunal decision.