20105

Land - exemptions Item 1 Group 1 Schedule 9 VATA - letting of sports facilities (hockey pitches) within paragraph (m). Application of Note 16: meaning of continuous period of use - meaning of ‘interval between each period of use’ - whether letting from 8.00 a.m. to 9.30 p.m. each day within Note 16 - held no: the letting was standard rated.

LONDON TRIBUNAL CENTRE

	POLO FARM SPORTS CLUB	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	CHARLES HELLIER (Chairman)
					MRS R.S. JOHNSON

Sitting in public in London on 26 February 2007

Graeme MacDonald, member of the Appellant, for the Appellant

Sarabjit Singh of Counsel instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	This appeal relates to whether the supply by the Appellant of a licence to use hockey pitches between 8.00 a.m. and 9.30 p.m. each day was an exempt or a standard rated supply. The resolution of the appeal depends upon the proper application and construction of Note 16 of Item 1 Group 1 Schedule 9 VAT 1994.
2.	The Respondents in letters dated 26 April and 10 May 2006 decided that it was an exempt supply. The Appellant contends that it should be standard rated.
Period of Issue
The Facts
3.	There was no disagreement about the relevant facts. It was agreed between the parties that they were as follows:
4.	The Appellant holds land at Polo Farm on which a number of artificial hockey pitches have been constructed. There are other sporting facilities on its land including cricket pitches, tennis courts and changing rooms.
5.	By a licence agreement made in June 2001, the Appellant gave The Association of Canterbury Hockey Clubs (ACHC) permission to use or let these hockey pitches. The licence agreement is short and we set out below its provisions:
“Whereas the Club leases or owns land on which the artificial hockey pitches at Polo Farm are situate (“the pitches”).
NOW IT IS AGREED as follows:
1.	LICENCE
The owner gives to the Licensee permission to use or let the pitches daily between the hours of 8. 00 a.m. and 9.30 p.m.on terms set out in the Clauses below.
2.	CONSIDERATION
In consideration of the permission granted under the Licence and duties performed by the Club under Clause 4 below the Licensee shall pay to the Club on 30 April each year such amount as may be agreed being not less than £11000 together with VAT thereon, the first payment being due on 30 April 2002.
3.	CHARGES TO BE LEVIED BY THE LICENSEE
The Licensee may charge persons using the pitch any price which at its discretion it considers appropriate but such charges must be set at a level which would reasonably be expected to generate in aggregate sufficient income after costs to pay the rental required under this licence.
4.	DUTIES OF THE CLUB
The Club undertakes to maintain the pitch and its equipment including the floodlights in a state of good repair and to supply electricity and water as required and reserves the right to enter the pitch for such purpose at any time subject to having given the Licensee one week’s notice.
5.	DETERMINATION
This licence shall continue until terminated by twelve month’s notice in writing given by either party to the other or by mutual agreement without written notice.
6.	PRIOR AGREEMENTS
This licence replaces any other prior agreements as to the use of the pitches between the Club and the Association or its members and it is hereby confirmed that no rentals are due under any such agreements after 30 April 2001.”
6.	The Appellant lets its sporting facilities to associated sporting clubs.
7.	ACHC is an unincorporated association of three other bodies: Canterbury Hockey Club, Canterbury Ladies Hockey Club, and the Polo Farm Sports and Recreation Association (PFSRA).
8.	Canterbury Hockey Club and Canterbury Ladies Hockey Club play hockey on the pitches; PFSRA licences the Hockey pitches to third parties.
9.	The Appellant is an unincorporated association.
10.	Mr MacDonald has occasionally undertaken routine maintenance work on behalf of the Appellant on the hockey pitches in the hours before 8.00 a.m. in the morning or after 9.30 p.m. at night.
11.	The planning consent for the building of the hockey pitches was subject to a condition that the floodlights should not be used after 9.30 p.m.
12.	The hockey pitches are in a residential area. Hockey practice can be noisy, and the Appellant generally wishes to avoid complaints from its neighbours.
The Legislation
13.	Schedule 9 of VATA sets out the goods and services which are exempt from VAT. The relevant provisions of Group 1, Item 1 of Schedule 9 provide as follows:
“The grant of any interest in or right over land or of any licence to occupy land [is exempt] ….other than -
“(m) the grant of facilities for playing any sport or participating in any physical recreation…
“Notes
(16)	Paragraph (m) shall not apply where the grant of the facilities is for:
	(a)  a continuous period of use exceeding 24 hours; or
(b)  a series of 10 or more periods, whether or not exceeding 24 hours in total, where the following conditions are satisfied -
(i)	each period is in respect of the same activity carried on at the same place;
(ii)	the interval between each period is not less than one day and not more than 14 days;
(iii)	consideration is payable by reference to the whole series and is evidenced by written agreement;
(iv)	the grantee has exclusive use of the facilities; and
(v)	the grantee is a school, a club, an association or an organisation representing affiliated clubs or constituent associations.”
14.	There was no dispute that the licence was the grant of an interest in or right over land within the opening words of Item 1.
15.	Neither was there any dispute that the licence was the grant of facilities for playing a sport within paragraph (m).
16.	The only issue before us was whether Note (16) had effect. It will be seen that if the licence satisfied the conditions in either Note 16(a) or (b) then the supply under the licence was exempt.
17.	In relation to Note 16 paragraph (b) there was agreement before us that the conditions (i), and (iii) to (v) were satisfied. The debate before us therefore turned on whether Note 16(a) was satisfied, and upon whether the condition in paragraph (b)(ii) was met. The Respondents submitted both conditions were satisfied. The supply was exempt if they are correct on either count.
Case Law
18.	Mr MacDonald referred us to In re Railway Sleepers Supply Co [1885] 29 Ch 204 for the meaning of “day” in a statutory provision. The issue in that case was whether a resolution of the company was properly passed as a special resolution. Whether or not it was to be treated as a special resolution depended on section 51 Companies Act 1862 which deemed a resolution to be a special resolution where the resolution was passed at one general meeting and confirmed at a subsequent general meeting “held at an interval of not less than fourteen days”  from the date of the first meeting.
19.	Chitty J stated the general rule: that fractions of a day were not reckoned in the computation of time. He noted that there could be exceptions, but, given the use of the word “at”, and the fact that the interval was to be taken from the date of first meeting (which must have meant the whole of the day of that meeting) he found that this was not an exceptional case. The expression required 14 days to lapse between the two dates. He then said:
“Now supposing the statute had said at an interval of not less than one day; if the meeting had been held say on the 1st of January, the second meeting could not properly be held on the 2nd of January, for one day must intervene…” [Mr MacDonald’s emphasis].
and later quoting Alderson B in Young v Higgin 6 M&W 40: 
“Where there is given to a party a certain space of time to do some act, which space of time is included between two other acts done by another person, both the days of doing those acts ought to be excluded.”
20.	He concluded that the rule that “day” meant a clear day was a “settled rule” and he was not at liberty to depart from it.
21.	Mr MacDonald also referred us to C&E Comms v Electronic Data Systems Ltd [2003] STC 688, for the proposition that exemptions are to be restrictively interpreted. In that case Jonathan Parker LJ referred to the general approach to be taken to the exemptions in Article 13B of the Sixth Directive: that they should be interpreted strictly and must not exceed what is strictly provided for, although a purposive approach to interpretation was to be followed in the concepts embodied in the individual exemptions. He quoted at paragraph 26 the judgment of Chadwick LJ in Expert Witness Institute v C&E Comms [2002] STC 42 in relation to Article 13A(1)(1) of the Directive where he said at paragraph 17:
“…it is for the supplier, whose supplies would otherwise be taxable, to establish that it carries within the exemption, so that if the court is left  in any doubt whether a fair interpretation of the words of the exemption covers the supplies in question, the claim to exemption must be rejected. But the court is not required to reject a claim which does come within a fair interpretation of the words of the exemption because there is another, more restricted, meaning of the words which would exclude the supplies in question.”
22.	We shall deal with the arguments in relation to Railway Sleepers later but this is a convenient point at which to deal with Mr MacDonald’s general point that the exemption for the supply of a grant of land must be construed strictly in the light of the jurisprudence on exemptions.
23.	Mr Macdonald notes that it is the Respondents not the Appellant who are claiming that the exemption applies. The Respondents should therefore have the burden of establishing exemption, and should do so in the context of a strict construction of the exemption. He notes in particular that the proposal for the Sixth Directive expressed a need to keep the number of exemptions to a minimum inter alia to avoid the inconveniences (mainly in the form of the irrecoverability of output tax) caused by exemptions.
24.	The Respondents point out in their skeleton argument that Article 13B(b) of the Sixth Directive provides for the exemption of the leasing or letting of immovable property subject inter alia to exclusions created in the member states’ discretion. The standard rating of the supplies of grounds goods is an exclusion from the exemption which the UK has chosen to apply within the discretion granted by the Directive. As a result the interpretation of the exclusion is a matter of domestic law only.
25.	We agree. The licencing is within Article 13B(b). There is no question relating to the construction of that Article before us. The strict interpretation of an exemption is the proper approach to the construction of the Directive, but in the context of the interpretation of domestic legislation relating to a category of supplies manifestly within the ambit of the exemption in Article 13, that approach seems to us to be irrelevant.
26.	We therefore approach the construction of Note 16(a) and (b) solely as a matter of the interpretation of domestic provisions unaffected by principles relating to the construction of the Directive.
The Note 16 paragraph (a) issue
The parties’ arguments
27.	The Respondents submit that as a matter of substance and reality of the licence agreement afforded to the licensee continuous use of the playing facilities for many years. The reality was that the hockey pitches had never been hired out to anyone for use before 8.00 a.m. or after 9.30 p.m. on any day. For all practical purposes the licensee had the exclusive right to use the pitches for the entire duration of the licence agreement. It had control over the use of the pitches for all periods when such control mattered or when the pitches were really available for use. The Respondents say that if the Appellant is right then an agreement to let a sports pitch can always be worded so that Note 16(a) makes its letting standard rated: an agreement to let a sports pitch between 2.00 a.m. to midnight for any number of days would not be continuous use for more than 24 hours.
28.	The Respondents note that clause 5 of the licence provides that “[t]his Licence shall continue” for a period which will be at least 12 months. This licence was for more than 24 hours and gave continuous practical use for many months. They say that if clause 1 had provided that the “owner gives to the licensee permission to use the pitches continuously”, the result would have been exactly the same as it is under the licence as drafted.
29.	Mr MacDonald’s response to this substance and reality argument is to say that in substance and reality the licence was for consecutive periods of 131/2 hours and no more. Those are the terms of the licence and they were so determined by the Appellant for good reasons:
(i)	because the Appellant wished to keep the peace with its neighbours it wanted to avoid noise and lights before 8.00 a.m. and after 9.30 a.m;
(ii)	in the winter the courts needed floodlights and the planning permission for the floodlights  required that they were switched off at 9.30 p.m.
30.	These were not said Mr MacDonald artificially contrived restrictions, but real restrictions imposed by the Appellant for good reasons.
31.	We discussed whether the Respondents might formulate their argument in this way: even if this was not a continuous grant of the land, it was a continuous grant of the facilities; and the question asked by Note 16(a) is whether “the grant of the facilities is for… a continuous period of use exceeding 24 hours”. The facilities were effectively available or usable only between 8.00 a.m. and 9.30 p.m. so such use as was available was continuously granted.
Discussion
32.	So far as the Respondents’ primary argument goes, whilst we can see that successive periods of 23 hours, 59 minutes, 59.5 seconds separated by 1/2  a second might fairly be described as a continuous period of more than 24 hours - because in reality the cessation of use over the 1/2 second would in almost all cases be wholly illusory, we cannot convince ourselves that if there are 2 hours - or  81/2   hours - each day during which the licensor could obtain an injunction to prevent the licensee using the land, this could possibly give rise to a conclusion that the licensee was given 24 hours continuous use. “Continuous” means without a break, and such use would be with a real and substantial break.
33.	In our view as a matter of substance and reality the licensee did not have continuous use of the land for more than 24 hours.
34.	So far as the secondary formulation goes, it seems to us that the problem with it is that a “grant of facilities” in (m) must be a sub-set of “grant of any interest in land” within Item 1. Thus the “grant of facilities” is short for “the grant of an interest in land which constitutes facilities for playing sport”, and that means that, read properly, the test in Note 16(a) is whether the grant of the interest in the land so constituted is for more than 24 hours continuous use. And for the reasons in the preceding paragraph the grant of the interest in the land is not for a continuous period of use of more than 24 hours.
35.	If Note 16(a) had merely said “a period of use” the Respondents’ arguments might have had some substance, but the use of the word “continuous” seems to us to negate this.
36.	We find that the Condition in Note 16(a) is not satisfied.
The Note 16 paragraph (b)(ii) issue
The parties’ arguments
37.	Mr MacDonald’s first submission was that “day” in paragraph (b) (ii) meant calendar day. That was the normal statutory meaning of day. That was what Chitty J had said in Railway Sleepers. It was settled law. The passages from Chitty J’s judgment quoted above made the position abundantly clear and in words which closely paralleled those in (b) (ii). Not only, however, was that the settled legal meaning of “day”, but the draftsman of Note 16 had clearly appreciated that it was. Where he wanted to refer to 24 hours he had done so: in the words of the immediately preceding paragraph. The distinction between “24 hours” in paragraph (a) and “one day” in paragraph (b) was clearly deliberate. For paragraph (b) (ii) to be satisfied the interval had to be at least one calendar day.
38.	Mr Singh says that Railway Sleepers is not relevant. The language in (b) (ii) is different: it speaks of the interval between each period, not dates “at an interval of”.
39.	Mr MacDonald’s alternative submission is that even if one day merely means 24 hours, the interval between each period of use was the interval from 9.30 p.m. to 8.00 a.m.: 101/2  hours which was clearly less than 24 hours. He points us to the Oxford Compact English Dictionary definition:
interval: an intervening time or space; or a pause or break 
between: at into or across the space separating (two objects, places, or points); in the period separating (two points in time).
40.	He says that an interval is a span of time between two things and does not include in its normal meaning either of those two things. The interval to be measured is between two periods; periods are not points in time but are bounded by points in time: the intervening time is between the points at the end of the first period and at the beginning of the second. Lastly, he highlights the language used by Chitty J quoted at paragraph 19 above: usage which clearly assumes the ordinary meaning of “interval between”.
41.	The Respondents’ first submission was that the interval between each period of use was 24 hours. The relevant interval they say should be calculated from the beginning of one period of use to the beginning of the next. The interval between each period of use was from 8.00 a.m. one day to 8.00 a.m. the next.
42.	In the alternative the Respondents say that the purpose of (b) (ii) is to catch a succession of similar single lets on different days and to make such a series exempt. Thus ten one hour lets on Monday each separated by 1/2   hour should be standard rated, but ten lets of one hour each on Monday, Tuesday, Wednesday etc. or even on each Monday, Wednesday and Friday of succeeding weeks should be exempt. Properly understood the condition in (b) (ii) is that “each period of use falls into a different calendar day.”
Discussion: paragraph (b)
43.	Assuming that the conditions in Note 16(b)(i) and (iii) to (v) are satisfied, the letting of sporting the facilities will be exempt if:
either 
(a) the grant is for a continuous period of more than 24 hours;
or    
(b) the grant is for a series of 10 or more periods and the interval between each period not less than one day and not more than 14 days.
44.	We have found it difficult to find a paraphrase of the condition in (b)(ii) which expresses it in a manner which illuminates its purpose. The following lettings have, in the views of both of the parties, the same standard rated or exempt categorisation:
Example 1
A games field is let to a local school for use on Thursday afternoons. The letting is renewed each term. This is exempt.

Example 2

A games field is let to a local school for use on Monday, Wednesday and Friday afternoons, The letting is renewed each term. This is exempt.

Example 3

A squash court is let to a local school for 1 hour sessions between 10.00 a.m. and 11.00 a.m., and 3.00 p.m. and 4.00 p.m. on every day of the working week during term time.
	This is standard rated.

Example 4

A swimming pool is let to a school for two swimming galas: one at the beginning of each term and one at the end of each term for 6 successive terms.
This is standard rated (The holidays last for more than two weeks!).

45.	We do not find it possible to discern in these examples any clear purpose behind the conditions for the granting of exemption or standard rating. The legislative policy appears to be that there should be some exemptions from the standard rating of games facilities for lettings to schools and the like, and it appears that fairly rough and ready rules have been set which permit exemption for the weekly use of a games pitch by a school or of a rugby pitch by an amateur rugby club, but that there is no clear policy discernable from the legislation in relation to the extension of the exemption beyond that simple case.
46.	It seems clear that there is no link between the purpose of paragraph (a) and that of paragraph (b). Paragraph (a) addresses the period of use only and appears to be intended to avoid long or lets qualifying for standard rating (i.e. to maintain the exemption for longer lets). Paragraph (b) on the other hand is directed to lettings to schools etc and is not an extension of (a) or a form of anti-avoidance provision in relation to the 24 hour rule. (If it were such a provision, one would have expected it to deal with aggregation, and the condition in (b) (ii) would surely have been by reference to periods succeeding each other at intervals of less than a day rather than more than a day). Thus (a) throws no light on the proper construction of (b) (ii).
47.	It may be that these provisions were designed to provide some limited relief from the cost of input VAT for schools etc. whose outputs were exempt: the exemption of the inputs reduces the net cost of providing sports facilities. It might have been considered that some limitation was desirable but a measure of latitude provided on the understanding that those who wished to take the benefit of the exemption could cut the cloth of their letting to suit their purpose. 
48.	In the absence of any discernable policy for the boundaries of the exemption in (b) (ii) one is thrown back to considering the meaning of the words in their context.
49.	It seems to us that both at first sight and on later reflection the words “interval between each period” refer to the time between the end of one period and the beginning of the next. The word “period” seems clearly to refer back to “period of use” in paragraph (a): the question is what is the interval between each period of use. If one made regular visits to one’s grandmother the interval between each visit would be the time between leaving her and seeing her again; and if a light went on for a period and then off, the interval between each period for which it was on would be the length of the period when it was off.
50.	This we accept is tantamount to reading the phrase as “the interval between one period and the next” or “the interval in between one period and the next”, but we do not believe that because the phrase could also be written that way it must mean something different.
51.	The Respondents’ first approach to its meaning: that it means the interval between the beginning of one period and the beginning of the next suffers from the question: “why not between the end of one period and the end of the next?” or between the middle of one period and the middle of the next. And the problem is that each of those formulations could give a different result. For example, a letting from 9.00 a.m. to 11.00 a.m. on Monday followed by a letting of 9.00 a.m. to 12.00 a.m. on Tuesday and one from 9.00 a.m. to 10.00 a.m. on Wednesday, would have intervals of 24 hours and 24 hours on the “beginning basis”, of 25 hours and 22 hours on the “ending basis”, and intervals of 241/2 hours and 23 hours on the average basis. The very fact that there is no reason to choose one basis rather than another on the words of (b) (ii) suggests strongly that something more certain than this was intended by the draftsman.
52.	This approach also suffers from the submissions of Mr MacDonald that “interval” means something intervening between two other things, and that “between” indicates a space between two things into which neither of the things intrudes. The natural meaning of “interval between” seems to us to exclude the things before and after the interval. 
53.	For those reasons we find that the Respondents’ first approach to the meaning of the phrase is not that intended by parliament.
54.	The Respondents’ second approach has the merit of simplicity of statement: there must be no more than one period of use in any day and the periods of use must be no more than 14 days apart. Conceptually though it remains difficult to see why a letting to a school between 9.00 a.m. and 11.00 a.m. and then between 4.00 p.m. and 6.00 p.m. each day for a month should be taxable whereas a letting between 9.00 a.m. and 11.00 a.m. only for each day of the month would not be. But the greater difficulty with this construction is that the language of (b) (ii) simply does not embrace it. If a policy could be divined which clearly indicated this construction, then it might be possible to treat (b) (ii) as having a meaning which ran with the grain of that policy; however there is no such apparent policy. The concept of an interval of one day or more in the language (b) (ii) may have the result that subsequent periods must begin in a new day, but the converse (which is in essence this second construction) is plainly not required by the words of the statute.
55.	We therefore find that the condition in b(ii) is satisfied where the interval between the end of one period of use and the beginning of the next is not less than one day nor more than 14.
56.	That leaves us with the question of whether the “day” must be a period of 24 hours or a complete calendar day. We do not have to decide between the two in order to reach a conclusion on this appeal since in each case Mr MacDonald succeeds. The arguments between the two come down to a balancing of the seemingly deliberate use of the settled term “day” rather than “24 hours”; as against the language: “interval… is not less than one day” when, if what was in mind was a calendar day, the more natural phrase would have been the “interval… encompasses at least one day”. We lean towards the conclusion that one day means in this context one calendar day, but since we do not have to make a decision on the issue to dispose of the appeal we do not.
57.	We conclude that the licence did not satisfy the condition in paragraph (b)(ii): the relevant interval was 10 1/2   hours which is less than one day.
Conclusion
58.	We find that the licence granted by the Appellant fell within neither Note 16(a) nor Note 16(b) and that as a result in granting the Licence the Appellant made a taxable supply.
59.	We therefore allow the appeal. Our decision was unanimous.
60.	We decided not to award costs. The matters at issue had been refined as the hearing approached and the residual issue before us was not an easy one.

CHARLES HELLIER

CHAIRMAN
RELEASE DATE: 13  April  2007

LON/2006/0585