Immovable property and the supply of land – complexities of VAT
Tax legislation is littered with concerns over who occupies land. Likewise, when land is being supplied what is actually being provided with that supply of land and what is the VAT and tax treatment thereof? Many would argue that such complexities make the task of the rural business to cope with administration and achieve profit almost impossible. The continued tax ambiguity of the supply of land is highlighted by a recent VAT case on the subject of “prefabs” (prefabricated buildings), in this case classrooms.
What Constitutes Immovable Property?
EU law dictates that the leasing of ‘immovable property’ is essentially exempt from VAT. Such a ruling is designed to exempt the supply of letting of land and buildings thereon. Occasionally, disputes arise as to what constitutes ‘immovable property’. The recent tribunal decision in Sibcas (TC05253) deals with the distinction between land and buildings. HMRC argued that the leasing of “prefab” classrooms was exempt whereas the hirer argued that the supply was standard rated. Such decisions can have a huge impact on farming and diversified rural businesses and organisations.
In this case the units were leased to a school and sited (following minor civil engineering preparations) in the hirer’s grounds. The decision of the tribunal examines the detail about how the units related to each other and to their site, and how they were assembled and disassembled. It was found that the classrooms were only attached to the ground by their weight. The preparation involving foundations and a slab were needed to level the site, and the units simply sat on the slabs, and leaned against each other. The taxpayer argued that they were moveable.
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Such facts were enough to allow the tribunal to conclude that the supply was not the letting of immovable property and thus not an exempt supply for VAT, instead the supply was standard rated, thus supporting the argument of the taxpayer. It is curious that HMRC took the view that the supply was exempt given that the underlying land already belonged to the school, and all they were doing was hiring the “prefab classrooms” to be situated on their land, not leasing the land themselves. In this case, even though the land needed to be prepared, its ownership never changed.
At a very general level the ruling in this case shows the need for all supplies involving land and immovable property, to be analysed carefully. For the rural community there are many complexities involving the tax and VAT treatment of buildings and land. For example, the supply of land for pheasant shooting rights is standard rated. By comparison, the supply of stables can be an “exempt” supply. The practical action point is always to consider the facts and the evidence surrounding marginal supplies of land and buildings and find out what is really happening.
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