The issues were whether the sale of ‘serviced’ plots of land to housebuilders constituted a single supply or multiple supplies for VAT purposes and the liability to VAT of the supply or supplies.

The appellants owned land in Berwickshire and formed the intention to install services and roads within the site and to sell various plots to private individuals for the construction of houses. After obtaining outline planning permission for 15 plots, the appellants engaged contractors to carry out site preparation and infrastructure works. This involved carrying out preparatory works including earthworks, creating a spine road and constructing drainage. The local authority installed lighting for the site. The appellants did not install any services within the boundaries of any of the individual plots. Scottish Water, either by themselves or through their own contractors laid an arterial water pipe, and sewerage pipes along the edge of the spine road. Scottish Power laid electricity cables in similar fashion. In due course, the plots were marketed for sale at a price of £95,000. No separate sum was charged to reflect the fact that the site was serviced and no amount was identified within the selling price to reflect the fact that facilities existed to enable services to be led from the site to the dwelling to be erected on the plot.

Following a routine visit, the commissioners queried the VAT treatment of the sale of the plots, ruling that the land sales were exempt and the services were standard-rated. The appellants requested a reconsideration of that decision, but the commissioners upheld it stating that where the freehold sale of land is ancillary to the supply of new or partly completed civil engineering works, there was a single standard-rated supply, but where the new or partly completed civil engineering works were incidental to the supply of land, there were two supplies: an exempt supply of land and a standard-rated supply of civil engineering works. The commissioners informed the appellant that it could not treat as zero-rated the supply of the civil engineering works and confirmed their view that the supply of serviced plots of land comprised two supplies: one of exempt land and one of standard-rated civil engineering works. The appellants submitted that there was a single exempt supply of land; a single price was charged and the land could not be dissociated from the civil engineering works which were necessarily carried out in the course of construction of houses. In the appellants’ opinion, the civil engineering contractor had correctly treated his supply to the appellants as zero-rated. The appellants submitted, in the alternative, that if the supply of the serviced plots was not a single exempt supply then there it was a mixed supply of exempt land and zero-rated services.

The commissioners relied on Card Protection Plan Ltd v C & E Commrs (Case C-349/96) [1999] BVC 155, submitting that the supply of engineering works by the appellants was not a means of better enjoying the principal supply of land but rather was an aim in itself for the buyer. However, if the tribunal were to find that there were two supplies the engineering works fell to be standard-rated, since they did not relate to a supply in the course of constructing a dwelling or dwellings. The commissioners maintained that the essential features of the transaction were the supply of land and the discrete supply of engineering works; the fact that the plots were sold at a single price was irrelevant. In response to the appellants’ alternative contention that the civil engineering work was a zero-rated service supplied in the course of construction of dwellings, the commissioners submitted that the sale to individual purchasers broke the chain of causation so that there was no ongoing ‘course of construction’ within items 2 and 4 of Grp. 5 of Sch. 8 to VATA 1994.

The tribunal identified three issues to be determined: first, the nature of the supply made in consideration of the sum paid, that is the essential features of the transaction; secondly, whether the features constituted a single or composite supply, or multiple supplies; and thirdly, the correct tax treatment of the supply or supplies made.

The tribunal considered that the starting point for identifying the essential features of the supply was the contract between the appellants and the buyers of the plots. This was essentially a contract for the sale of heritable property. In relation to the sale of a plot for the construction of a house, part of what is normally supplied is the obligation to provide access and the facility to enable essential services to be led to and from the plot. All of these made up the essential features of the transaction. Apart from possibly minor earthworks, no services were installed within the boundaries of any individual plot. Turning to the second issue, the tribunal decided that the principal element of each transaction was the supply of land. That supply involved a wide range of obligations on the part of the seller, but the commercial reality was that there was a single supply of land and that the other elements were ancillary to that supply. The installed facilities or services were a means of better enjoying the principal supply. The tribunal held that, even if it were wrong in describing the supply of the plots as the principal supply and the obligation to provide access and services as ancillary thereto, it would still be entirely artificial and contrary to the commercial reality of the situation to split the supplies. On the third issue, the parties were agreed that if there was a single supply of plots, they were exempt for VAT purposes.

In the event that the tribunal was wrong in its findings, it considered it necessary to deal with the appellants’ alternative argument that if the supply of the serviced plots was not a single exempt supply, then the civil engineering services supplied to the appellants were zero-rated as being in the course of construction of a building designed as a dwelling, within items 2 and 4 of Grp. 5. From the authorities cited by the parties, the tribunal derived three propositions: (1) that the services must be connected with the construction of the building; (2) that services which facilitated or had a substantial connection with the construction, such as preparatory works or site clearance were connected with the construction of the building and (3) that there must be a temporal connection between the services and the construction. In the judgment of the tribunal, the first two propositions were established in this case and the third would also be established unless unusual circumstances prevailed. However, the tribunal was unable to identify any such circumstances. The services carried out before the sale of the plots were part and parcel of the overall project and there was plainly a temporal link. Each plot owner, as a condition of acquiring the land, was obliged to build a house on the plot.

The tribunal allowed the taxpayer's appeal.

1. The supply of serviced plots was a single supply for VAT purposes and was exempt from VAT.
2. In the event that the supply of serviced plots was found not to be a single supply but a multiple supply, then the land element was exempt and the services were zero-rated.

No. 20,259