The High Court held that the supply of annual caravan pitches subject to a prohibition on occupation during February each year was the provision of ‘seasonal pitches’ as defined in the Value Added Tax Act 1994, Sch. 9, Grp. 1, item 1, Note (14). Both the contractual and planning restrictions on occupation during February applied during the relevant period, with the result that the taxpayer was providing ‘seasonal pitches’ and VAT was chargeable on the grant of the pitch licences.

Facts

The taxpayer operated a leisure complex and granted licences to owners of static caravans to occupy concrete pitches. Clause 7 of the licence allowed owners to occupy their caravans for private residential purposes and stipulated, in accordance with the planning permission, that the caravans could not be occupied during February. The taxpayer made a voluntary disclosure for a repayment of VAT on the basis that the supply of the caravan pitches was an exempt supply of land for VAT so that no VAT was payable in respect of the pitch rents.

Customs took the view that the taxpayer's supply of pitches was standard-rated for VAT purposes because the licence stopped the accommodation from being occupied during February each year, and that that was consistent with the planning condition applied by the local authority. In Customs’ opinion, the site was a seasonal/holiday park as opposed to a permanent residential park and the pitch hire was therefore standard-rated for VAT purposes. In addition to the licence and planning permission, Customs relied on the facts that the taxpayer supplied the pitches on an annual basis, the appellant paid non-domestic rates on the site and the site was advertised or held out for holiday use.

The taxpayer accepted that the accommodation was seasonal, but submitted that, despite the clause in the licence, the owners were not stopped from occupying their caravans at all times throughout the year. The taxpayer urged the tribunal to look at the reality of the situation, which was that the occupation restriction applied to only a minor part of the site and that it had never been enforced. In this case, the caravans could be used as a principal private residence and, as a matter of fact, were so used.

The taxpayer maintained that Customs were confusing the term ‘holiday homes’ with ‘holiday accommodation’. The thrust and purpose of the law was to render VAT payable on the provision of holiday accommodation and Customs’ decision to extend this to those who chose to live in a caravan went beyond the legislation.

The VAT tribunal held that the licence, insofar as it related to a restriction of occupation during February, was at no time enforced by the taxpayer or the local authority and a large number of occupiers treated the caravans as their private residence. The local authority was bound by a four-year enforcement period under the Town and Country Planning Act 1990, s. 171B(1) and would be unable to take any action to correct the breach of planning conditions. On the balance of probabilities, the planning condition had lapsed and, since it was likely that the authority was aware of the situation, it must be deemed to have acquiesced in the lapse. The effect of the lapse was that, although the words remained on the local authority's records, it could not be said that the occupiers of the pitches were stopped by the planning consent or the site licence from occupying their caravans throughout the year, as would be required for the exception to the exemption to be effective (Decision No 19,972; [2007] BVC 4,058). Revenue and Customs appealed.

Issue

Whether the tribunal had erred in law in failing to construe and apply correctly the definition of seasonal pitch as set out in the Value Added Tax Act 1994, Sch. 9, Grp. 1, item 1, Note (14) and made findings of fact which could not be supported on the evidence; and whether the February restriction formed part of the terms and conditions applicable to the licences granted to the taxpayer in the relevant periods.

Decision

David Richards J (allowing the appeal) said that the legislation contained in the Value Added Tax Act 1994, Sch. 9, Grp. 1 was derived from art. 13(B)(b) of Council Directive 77/388 (‘the sixth directive’) which exempted supplies by way of leasing of ‘immoveable property’. In Colaingrove Ltd v C & E Commrs [2004] BTC 5,149, the Court of Appeal had held that the closing words of art. 13(B)(b) (the ‘tailpiece member state option’) entitled the UK to provide for the supply of ‘seasonal pitches’ to be an exclusion from the general exemption for the leasing or letting of land from VAT.

Customs had accepted that the presence of the words of the February restriction in the terms and conditions of the licences was not conclusive. If the evidence established that on the grant of a licence there had been an oral variation to exclude the February restriction, the licence would not be subject to it. Likewise, if the prior conduct of the parties led to the conclusion that the renewal of a licence had to have been on terms that the restriction was excluded, the licensee would not be subject to any contractual restriction on occupation. In such circumstances, it would be the reverse of the true state of affairs to say that the licensee was ‘prevented by the terms of any covenant’ from living in a caravan on the pitch during February.

It was a vital feature of the planning conditions that they were enforceable for a limited period of time, four years in some cases (s. 171B(1), (2) of the 1990 Act) and ten years in others (s. 171B(3)). Once the period for enforcement had expired, without enforcement action being taken, the planning condition was a dead letter. It remained on the face of the planning permission, but ceased to have any effect. In such a case, it would be the reverse of the true state of affairs to say that the licensee of a pitch was ‘prevented by the terms of any planning consent’ from living in a caravan on the pitch in February. That condition did not open the way to complex factual investigations. Either enforcement action had been taken in the relevant period or it had not. The knowledge or attitude of the planning authority was irrelevant.

In the present case, in all the circumstances, breach of the planning condition prohibiting occupation during February in any year did not fall within s. 171B(1) or (2) of the 1990 Act and was therefore subject to the 10-year period specified in s. 171B(3). In the case of a recurring periodic condition such as the present, there was not a new breach each year that occupation in February occurred contrary to the condition. The limitation period expired at the end of ten years of recurring breach. It followed that during the relevant period, the planning condition remained enforceable as regards those areas of the site to which it applied. Leaving aside the standard terms and conditions, and looking only at the planning condition, all pitches in those areas were seasonal pitches within note 14(b) during the relevant period (R (on the application of North Devon District Council) v First Secretary of State [2004] EWHC 578 (Admin) applied).

Further, the standard terms and conditions, including clause 7, applied to all licences granted to occupy pitches, irrespective of the part of the site on which a pitch was situated. There was no indication that the February restriction, unlike the rest of clause 7 and the remaining clauses, was to apply to only some mobile homes, depending on their exact location. The reference to ‘no mobile home’ in the February restriction meant just that. The words ‘in accordance with the planning permission’ did not qualify the restriction that followed, but explained the reason for it.

Essentially, the court was identifying the parties’ common intention and where the only reasonable inference from their conduct was an unspoken decision or assumption that a particular term should not apply, the term would not form part of the contract. It would not, however, be a reasonable inference if the deletion of the clause would be prejudicial to one party and their prior conduct was explained on some other basis. In the present case, it would be highly prejudicial to the taxpayer to lose the benefit of the February restriction in clause 7 while still being subject to the planning condition. If enforcement action was taken against it, it would be unable to remedy the breach of the planning condition without being in breach of contract to the relevant licensees. It was not readily to be inferred that the taxpayer would intend to put itself in that position. The taxpayer's prior conduct in not enforcing the February restriction was readily explicable by the absence of any enforcement action. Therefore the tribunal's decision could not stand and Customs’ appeal was allowed.

Chancery Division.
Judgment delivered 10 August 2007.