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This was a case where a property owning company granted long leases of building plots to individuals and at the same time a separate company (owned by the same individual who held the shares in the landowning company) contracted with the purchasers to build holiday home on each plot.  VAT was charged on the grant of each lease, but the taxpayer contended that the separate building costs were zero rated as supplies of construction services in the course of the construction of a dwelling.

The FTT rejected HMRC's main argument - that this was really a single standard rated supply of a completed holiday home - on the basis of the Telewest decision (two separate supplies made by two separate suppliers), but held that the structure was abusive in Halifax terms and should be redefined so VAT was due on the whole consideration paid by the purchasers.

Like the FTT, the Upper Tribunal also rejected the single supply argument (concluding that, absent "abuse", the ECJ's decision in Part Service did not overrule Telewest).  However, the Upper Tribunal was strongly critical of the standard of the decision of the FTT saying "even if their actual conclusion is one which a properly directed tribunal could have reached, we consider that the Decision does not provide that level of analysis and reasoning, and appropriate fact-finding, which a litigant is entitled to expect".

More importantly, the Upper Tribunal holds that the transaction is not materially different to the lessees contracting with an independent company for the construction works after taking the lease, which would be zero-rated, and so is not contrary to the purpose of the VAT rules (the first limb of the Halifax decision).  The Upper Tribunal says it would not be correct to compare this to a case where a person buys a house from a house builder.  The Upper Tribunal also says that its conclusion on the first limb of Halifax suggests that the second limb (whether the transaction has the essential purpose of securing a tax advantage) is not satisfied either.

This appeal was heard before the ECJ decision in Weald Leasing was handed down, though the judgment makes reference to the Advocate General's opinion in that case.  The two cases together (Lower Mill and Weald Leasing) provide helpful guidance on the domestic and European approach to the Halifax abuse doctrine, each giving comfort to taxpayers that mitigating VAT liabilities is not, of itself, necessarily abusive.

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