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Summit Electrical: zero-rating of student accommodation

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Given the uncontested view that HMRC faces huge burdens, occasioned by Brexit, making tax digital and other ‘flagship’ projects, one can be forgiven for expecting HMRC to withdraw from all but the most necessary effort in protecting the tax base. But any faith I may have had in that view was torpedoed by reading HMRC’s Upper Tribunal appeal against Summit Electrical Installations [2018] UKUT 176.
I do not suggest that HMRC should never appeal adverse First-tier Tribunal decisions. Quite the contrary. I have publicly criticised cases where HMRC did not appeal, yet does not accept their outcomes (Healthwatch Hampshire [2017] UKFTT 325 and Will Woodlands [2017] UKFTT 578 appear to fall into that category). However, where it decides to appeal, I wish it would be on a sensible point, where there is more than opportunistic revenue-grabbing in view.
HMRC’s failed appeal in Summit had all the wrong ingredients. It wanted to win on a technicality in a case where, absent a difference over procedure, no tax would be due. The point argued seems so surreal that one wonders how HMRC convinced itself of it. The only possible justification would be to add strength to other, probably hypothetical, alternative scenarios.
The issue was whether a sub-contractor could zero-rate work on new ‘students accommodation’. There was no dispute that the main contractor’s supply in this case was zero-rated; nor that, had VAT been correctly charged on the supply to the main contractor, it would have been deductible input tax. So, the scheme of VAT in this case does not envisage a ‘sticking’ tax cost. But the dispute was about whether the new building was also ‘dwellings’, in which case Summit’s supply to the main contractor is zero-rated after all, and the main contractor has no VAT to claim. It is a case about a hair-splitting distinction. Its only material potential impact would be on cases where a building was neither a dwelling nor used for an institutional residential purpose, which was not in point here.
Having abandoned the more surreal of two surreal arguments proffered at the FTT, HMRC’s retained ‘joker’ was to argue that the occupation restriction was so tight that this failed the test (applicable to dwellings) that they must not be prohibited from ‘separate use’. Note: no such condition applies to student accommodation. The planning consent restricted use to students of either of two local universities. As this did not restrict the occupants’ association to one teaching establishment, it appeared to mean that there was no single thing from which the accommodation could not be separated in usage terms. The FTT had said that this meant that the occupation restriction was not narrow enough to trigger the ‘separate use’ spoiler for the ‘dwelling’ definition.
HMRC saw a similar way through this that Alice had observed in her looking glass. It reasoned that the use of the accommodation was not allowed to be separate from the actual buildings of the universities, and that this was a geographic restriction which was sufficient to engage the spoiler. This was based on cases where there had been acceptance by judges that connections with other premises were more likely to fall within its ambit.
Given that was its point, it is curious that HMRC presented no evidence of the location of the said university buildings and how that related to the student accommodation’s location. It assumed, it seems, that as the two universities were local, geographic proximity could be inferred. And it further argued that the planning restriction – that the students must be those of the two universities – could only mean to refer to the buildings of the universities that the students were to attend, despite not referring to a requirement to attend at the university buildings. (This is because the planning officers would know where the buildings were, so would not be bothered to write them into the consent.) The contention was that these planning officers were merely expressing the concept of using particular teaching buildings via the shorthand of tying the use to the status of the students as being enrolled with those universities.
How, the judge queried, could this deal with students who attended other institutions’ premises on an outsourced basis arranged by their university? And what happened if the university moved premises, or built a new one several tens of miles away? Would the planning consent have to be interpreted as then forbidding its students from living in the accommodation, and how could that be enforced in the light of the wording of the consent?
There was no answer to that, so HMRC lost the appeal. It also lost precious time in dealing with major challenges. This is not the form of escapism which serves the public interest. 
Issue: 1402
Categories: In brief