The Appellant, the Afro Caribbean Housing Association (ACHA), provides accommodation and associated services for aged, sick or physically or mentally disabled persons. The ACHA lease 25 properties from housing associations which they let and manage. As part of this work it contracts with a number of public bodies including the British Refugee Council (BRC) and the National Asylum Support Services (NASS) (who assist refugees and asylum-seekers in finding accommodation). ACHA agreed to provide accommodation services for asylum seekers and refugees in consideration of payments to be made by BRC. The asylum seekers and refugees were referred after review by the BRC and accommodation was supplied to individual applicants. It was a condition of the agreement that ACHA would give a ‘licence to occupy’ to the actual occupant of the room provided.
Transactions relating to land are ordinarily exempt from VAT although the provision of ordinary hotel accommodation is excluded from that exemption. Under paragraph 9 Schedule 6 Value Added Tax Act 1994 (VATA) a further derogation from that exclusion from exemption for hotel accommodation provides for a reduced rate of VAT where accommodation is provided to an individual for a period exceeding four weeks. The ACHA sought the repayment of overpaid VAT of £227,073 relating to the supply of accommodation to the BRC for periods exceeding 4 weeks. (ACHA had mistakenly failed to apply the reduced rate under paragraph 9 Schedule 6 VATA.) The Respondent, the Commissioner for Her Majesty’s Revenue & Customs (HMRC) refused to apply the derogation and repay the VAT, stating that in order to qualify for the reduced rate, the supply had to be to the individual occupying the premises i.e. the derogation only anticipates the relief being available when the hotel accommodation was occupied by the individual who was also the recipient of the taxable supply of services. Any derogation to the general rule had to be strictly interpreted and could not exceed what had been expressly provided for. SUFA (1991)
The ACHA argued that it was not a requirement under VATA that the supply of accommodation had to be made to the individual occupying the premises and there was a distinction between the supply and the provision of accommodation. This was a tripartite relationship where the taxable supply of services was made to one person but the provision was made to another. The ACHA submitted that the rationale behind the derogation provision was to allow for a reduced rate of VAT in the case of longer term hotel accommodation. It did not require the person to whom the taxable supply of accommodation was made and the persons physically occupying the room to be one and the same. It only required that the taxable supply be for longer than for 4 weeks.
The Tribunal agreed. The recipient of the supply of services in this case was the BRC because they paid for the accommodation placement service. The supply of services consisted of the provision of accommodation which was provided to asylum seekers and refugees on an individual basis. The only contractual relationship which the asylum seeker refugees had with the ACHA was through the licence, which was not a supply of services at all. WHA Ltd v Customs & Excise Commissioners (2003) considered. Article 13(b) of the Sixth Directive (implemented by s31 and item 1, group 1 of schedule 9 VATA) allows a margin of appreciation for Member States in defining the provision of accommodation which is to be taxed. The State is given the power to define the relevant criteria to distinguish between the taxable provisions of hotel accommodation and the exempted transactions of leasing and letting of immovable property. These are distinguished by length of stay. The derogation provides for reduced VAT to be payable where the accommodation was not transitory (as in a typical hotel setting, when full VAT is to be paid) but longer term and so similar to an ordinary letting. The period of 4 weeks demarcates short and longer term provisions of accommodation.
HMRC submitted that the provision of accommodation was synonymous with the supply of services and as such was a single transaction. Also, the derogation only allowed the VAT relief to be available where the hotel was occupied by the individual who was the recipient of the taxable service. The Tribunal held that this was not correct. There was nothing in the legislation which precluded a tripartite relationship where one party paid and another benefited from the accommodation services which were provided. No supply was made to the asylum seekers and refugees since no consideration was given by them and the grant of the licences to individuals was not therefore a supply of services. Elga & Askar Co Ltd and Another v Customs and Excise Commissioners (1983) followed.
This case may have some relevance for the nature of the arrangement when a local authority contracts for accommodation with a landowner, in order to be able to provide it onwards to a client owed a duty under the National Assistance Act (such as in adult placement or supported housing arrangements where although incapacitated in relation to taking a tenancy or a licence directly from a landlord, the client does not need actual assistance with bodily functions, and can thus be placed legally under the NAA, in unregistered, ordinary accommodation, by the local authority).
In so far as the absence of consideration passing to the landlord from the occupant means that it is not a ‘supply’ of services, it would suggest that the Mental Capacity Act 2005 provisions regarding the ability of carers to pledge credit for goods or services on behalf of incapacitated adults, will not be able to be used by parents, or local authorities, for instance, to organise valid tenancies for incapacitated adult clients or relatives, where the parent or LA is the actual signatory on the lease. Deputyship or its short order form will still be required, after receivership is re-configured.