The issue was whether the sale of two plots of land at The Bridge, Dartford amounted to the transfer of a going concern.

The appellant owned land in respect of which it had elected to waive exemption from VAT. It entered into a number of agreements. The first was a development agreement with Prologis Developments Ltd (Prologis) to develop the site and included the grant of a right to Prologis to require the appellant to dispose of the plots by joining in the contract for their disposal by freehold sale or lease. The second agreement was a conditional agreement for lease between the appellant and Prologis on the one hand and Sainsburys on the other for the construction of a distribution warehouse on one plot and maintenance and recycling units on the other. Subsequently, the agreement for lease became unconditional and the appellant agreed to sell the freehold of the plots, subject to the agreement for lease, to GP Nominees Ltd (GP). The buyer warranted its intention to continue to let the property immediately after the completion on the terms of the existing agreement for lease. The final agreement was a development and funding agreement between GP, Prologis and the appellant which absolved the appellant of any liability or obligation in relation to works to be carried out by Prologis. The commissioners were asked to confirm that the sale of the plots by the appellant constituted the transfer of a going concern falling outside the scope of VAT. However, the commissioners refused to give such confirmation, ruling that there was no transfer of a going concern and issuing an assessment to the appellant for VAT in the sum of £4,303,845. The case for the appellant was that it carried on business on the building plots and that following the sale, GP stood in its shoes and so must have carried on the same kind of business. The fact that the sale was subject to the agreement for lease was sufficient to constitute the transfer of a going concern. Alternatively, the appellant contended that the extent of the development works carried out coupled with the agreement for lease must lead to the same conclusion. As a second alternative, the appellant submitted that the guidance in Notice 700/9 applied, namely that if a tenant has been found for a property but no lease entered into when the property is transferred to a third party, then there is sufficient evidence of the existence of a property rental business capable of being transferred as a going concern.

The commissioners submitted that the sale of land was not the transfer of a going concern, because the land was not to be used by the transferee in carrying on the same kind of business as that carried on by the transferor. They stated that the appellant always intended to sell the plots rather than receive rent from them, whereas GP intended to retain the plots and receive rent. In the commissioners’ view, for there to be a going concern it is necessary that the assets ‘are to be used’ by the transferee to carry on the same kind of business, thus requiring an intention to do so. This intention was lacking. Further, for there to be a going concern there must be actual development taking place and this was absent in the present case. Finally, the commissioners submitted that they had made no prior decision in respect of guidance contained in the VAT notice and so any point on this guidance was outside the jurisdiction of the tribunal. It was common ground that at the time of sale the appellant was carrying on a business in relation to the plots. The nature of that business was that there was a contract under which the site would be developed and an agreement for lease with Sainsbury's which bound the parties to lease the completed buildings to that company. The tribunal was required to decide whether that business included an intention to sell the plots before rent was realised on completion of the building and, if so, whether it was a different business from GP's in which there was an intention to hold the plots and receive rent from them.

The tribunal allowed the Council's appeal.

1. The development agreement provided for a ‘disposal’ of the plots, which was defined to include the grant of leases as well as the freehold sale. There was nothing in the agreement that required the appellant to sell its interest in the plots.
2. When the agreement for lease with Sainsburys became unconditional, the sale became a viable option, but there was nothing to suggest that a sale was necessarily intended. As a matter of fact, the appellant did not have the intention of disposing of its interests in the plots before completion of the buildings and the receipt of rent.
3. Even if the appellant had intended to sell its interests before completion of the buildings, then, assuming GP intended to receive rent, there would still have been a transfer of a going concern.
4. Taken to its logical conclusion, the commissioners’ argument was that a dealer in land could never transfer land as a going concern to an investor before actual development takes place. This did not appear to have been the commissioners’ practice in the past.
5. Although it was not necessary to consider the appellant's alternative arguments to determine the appeal, the tribunal held, in respect of the first alternative contention, that once the development agreement and agreement for lease were in place, the amount of physical development carried out at the time of transfer was irrelevant. In respect of the second alternative contention, the tribunal held that there was no prior decision that the commissioners made or needed to make before deciding there was no transfer of a going concern.
6. The tribunal expressed its concern about the commissioners’ misunderstanding of the concept of ‘agreement for lease’. In the chairman's view, the author of the commissioners’ statement of case had no idea what an agreement for lease was and failed to recognise that such agreement was as good as a lease. The tribunal urged the commissioners to give legal advice to their officers and clarify the published guidance in Notice 700/9.
7. The sale of land by the appellant was a going concern and was neither a supply of goods nor a supply of services.

No. 20,423