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HMRC internal manual

VAT Land and Property

Option to tax - anti-avoidance test:what is the meaning of 'occupation'

The meaning of occupation has been considered in two notable appeals. The first, Brambletye School Trust Limited (VTD 1768) concerned a preparatory school. In 1999 the school constructed a new sports hall and in May 2000 it granted a lease in the hall to a subsidiary company. The school had previously opted to tax but argued that this should not be disapplied under paragraph 12 of Schedule 10 as it was not their intention that the land would be exempt land as defined in paragraph 15 of Schedule 10.

In their view, it was their subsidiary company that was in occupation (for the purpose of making taxable supplies of sports club membership) and not the school. We argued, that because the pupils used the hall as part of the curriculum activities, the school occupied the building, and it therefore had the status of exempt land. At the hearing, the tribunal took the view that ‘occupy’ meant ‘to be present in’ and went on to consider how the use of hall was organised.

Key factors in the tribunal’s decision were: (i) the pupils were given priority over other users, (ii) they used it for the purposes of their physical education and, crucially, (iii) whenever they used it they were under the supervision of the teachers, who were employed by the school. Consequently, it was the teachers who exercised control over the sports hall. The Chairman decided for these reasons that the school was in occupation of the school hall and dismissed the appeal.

In a more recent case, The Principal and Fellows of Newnham College in the University of Cambridge [2008] UKHL 23, the House of Lords took a different view on what was a similar arrangement. The College wished to renovate its library and in order to recover input tax put in place a complex scheme. In short, this consisted of opting to tax and then granting a lease and seconding library staff to a subsidiary company. In a majority decision the House of Lords concluded that the College was not in occupation. In doing so it distinguished the earlier Brambletye decision (Lord Hoffman observed that ‘a decision as to whether acts attributable to a body like the school or college amount to occupation of premises is a question of degree, sensitive to the particular constellation of facts’). In the case of Newnham, the fact that library staff were seconded and were no longer under the direct control of the college was seen as crucial. Lord Hoffman took the view that for the purposes of paragraph 15 of Schedule 10 ‘occupation’ should be defined as ‘the right to occupy property as if that person were the owner and to exclude any other person from enjoyment of such a right’. The arrangements that Newnham College had adopted meant that the College no longer had possession and control of the library premises.

Following Newnham we take the view that for a person to be in occupation they must have both a physical presence on the land and the right to occupy it as if they are the owner.