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The recent case of Diana Bryce (t/a ‘The Barn’) highlights a shift in the attitude of HMRC to supplies of licences to occupy land when supplied in conjunction with additional facilities.

The significance is straightforward:

  • The supply of a licence to occupy land is an exempt supply whereas a supply of facilities will almost certainly be taxable.
  • But what happens when land or space is supplied with facilties, as is the norm at children’s playcentres or sports halls?
  • Case law has developed over many years and has suggests that for any supply of a right over land to be exempt it should involve passive letting i.e. the use of the land should be an aim in itself rather than the use of any facilites on that land.
  • The judgment in Card Protection Plan, and the tests it laid down, have been instrumental in clarifying the position where land and facilities are sold as a package.

Suppliers of land and facilites need to ask the following questions when considering the VAT poisition of packaged supplies:

  1. What are the essential features of the supply?
  2. Is there a predominant supply?
  3. Is any part of the supply ancillary to another component?

In the case of Diana Bryce, it was found that the supply of a hall for children’s parties complete with party facilities and catering constituted a single taxable supply.

This is perhaps unsurprising but in many other cases the position will be less clear and arrangements may be put in place to mitigate VAT due on supplies.