In Craft Carnival v HMRC [2015] TC04428, the First Tier Tribunal (FTT) agreed with the taxpayer that the supply of pitches to stallholders at craft fairs is an exempt supply of a licence to occupy land.
This decision has since been overturned by the Upper Tribunal: see Stallholder pitches are subject to VAT: Upper Tribunal
Background
Craft Carnival is a sole trade business that organises craft and garden fairs in the West Country. Some fairs are held indoors, but most are held on land close to a stately home or historic property.
The business offers allocated indoor and outdoor pitches to stallholders and charges members of the public an entry fee to the fair.
Craft Carnival arranges the following in connection with the fair:
- erection of marquees
- portable toilets
- electrical generators
- security fencing
- car parking
- ticket sellers and marshalls
- children's entertainer
- press releases and advertising in local newspapers
Craft Carnival charges VAT on the entry fees but treats the supply of pitches to the stallholders as an exempt supply of land.
HMRC argument
HMRC contended that the supply of pitches was taxable.
- It was a package of services which provided the stallholders with an opportunity to trade.
- The licence was for permission to use the land rather than to occupy it.
- As part of the agreement between the parties Craft Carnival was required to organise a craft fair.
- The supply is therefore more than merely making space available to stallholders and includes the provision of other services and commercial activities.
Tribunal decision
The FTT considered that although the craft fair is mentioned in the terms and conditions of the agreement between the parties, this did not impose any obligation on Craft Carnival to organise a fair. Instead it sets out the context of the agreement, i.e. that there will be a craft fair.
If there is no such obligation included in the agreement then the FTT decided that the purpose, effect and economic reality of the arrangement was to grant the stallholder a licence to offer for sale goods at the craft fair on the dates specified.
Specific pitches were allocated to particular stallholders by the owner for their exclusive use and for a defined period of time.
They concluded that a stallholder occupies a pitch at a craft fair, allocated to them by Craft Carnival, as owner to the exclusion of all other people, and that this constitutes an exempt supply of a licence to occupy land.
Comment
This at first appeared to be an important victory for the taxpayer as had HMRC been successful in arguing their case this would have represented a significant shift away from current understanding and practice, and indeed contradicted HMRC's own guidance in VAT notice 742 (land and property) which quotes "granting traders a pitch in a market or at a car boot sale" as an example of an exempt licence to occupy land.
This decision has however since been overturned by the Upper Tribunal: see Stallholder pitches are subject to VAT: Upper Tribunal
It is interesting to note that both HMRC and the FTT placed great emphasis upon the contents of the terms and conditions in the agreement between the two parties, particularly with regard to whether there was an obligation for Craft Carnival to organise the craft fair and therefore to provide additional services above and beyond the passive provision of land. Had these not been worded so precisely it is possible that a different conclusion could have been reached.
The published decision in this case provides a useful summary of a number of earlier cases which dealt with the issue of the leasing or letting of immovable property and the exempt supply of land.
Case reference Craft Carnival v HMRC [2015] UKFTT TC04428
