Introduction

HMRC v. The Honourable Society of Middle Temple FTC/45/2012 ([2013] UKUT 250 (TCC)) is a significant case adjudicated by the Upper Tribunal (Tax and Chancery Chamber) on May 24, 2013. The dispute centered on whether the Middle Temple, an Inn of Court in London, made a single composite supply or two independent supplies under the Value Added Tax (VAT) Act 1994 when it granted leases of its commercial premises with the provision of cold water.

The key issue was whether the leasing of immovable property and the provision of cold water constituted a single supply chargeable to VAT at the standard rate or two separate supplies with different VAT treatments.

Summary of the Judgment

The First-tier Tribunal (FTT) originally ruled in favor of the Middle Temple, determining that the lease and the provision of cold water were separate supplies. However, HMRC appealed this decision to the Upper Tribunal, arguing that the FTT erred in its legal reasoning.

After considering relevant jurisprudence, particularly from the Court of Justice of the European Union (CJEU), the Upper Tribunal allowed HMRC's appeal. The court concluded that the leasing of premises and the supply of cold water constituted a single, indivisible economic supply, which should be charged VAT at the standard rate. The historical provision of water and the inseparability of the two services from the tenants' perspective were pivotal in this determination.

Analysis

Precedents Cited

The judgment heavily relied on several CJEU cases to determine whether multiple supplies should be treated as a single composite supply or as independent supplies for VAT purposes. Key cases include:

• Tellmer Property sro v Financni reditelstvi v Usti nad Labem [2009] ("Tellmer")
• Card Protection Plan Limited v HM Customs and Excise [1999] ("CPP")
• Levob Verzekeringen and OV Bank v Staatssecretaris van Financien [2006] ("Levob")
• Deutschland Bank AG [2012] ("Deutsche Bank")
• Field Fisher Waterhouse LLP v HMRC [2013] ("Field Fisher Waterhouse")
• BGŻ Leasing sp. z o.o. v Dyrektor Izby Skarbowej w Warszawie ("BGŻ")
• Purple Parking and Airparks Services v HMRC ("Purple Parking")

These cases helped establish the principles regarding the economic inseparability and the potential artificiality of splitting services for VAT assessment.

Legal Reasoning

The Upper Tribunal assessed whether the two services—the lease of the premises and the provision of cold water—were economically inseparable from the tenants' perspective. The court applied the CJEU's framework, which involves examining all circumstances surrounding the transaction to determine its nature.

Key points in the legal reasoning included:

• The lack of practical alternatives for tenants to obtain water separately.
• The inseparability and mutual indispensability of the lease and water supply for the functionality of the premises.
• The historical arrangement of water supply within the Middle Temple's infrastructure.

The court concluded that treating the lease and water provision as separate supplies would diverge VAT treatment from similar, standalone services, thereby distorting fiscal neutrality.

Impact

This judgment reinforces the principle that bundled services, which are economically inseparable and indispensable from the consumer's viewpoint, should be treated as a single supply for VAT purposes. It clarifies the application of fiscal neutrality in VAT assessments, ensuring consistent tax treatment of similar services regardless of how they are bundled.

Future cases involving bundled leases and ancillary services can reference this judgment to argue for or against single supply classification based on economic reality and consumer perspective.

Complex Concepts Simplified

Conclusion

The Upper Tribunal's decision in HMRC v. The Honourable Society of Middle Temple sets a clear precedent for determining when bundled services should be treated as a single supply under VAT law. By emphasizing the economic inseparability and indispensability of the services from the consumer's perspective, the judgment aligns VAT treatment with fiscal neutrality principles.

This case underscores the importance of evaluating the economic reality over formal contractual arrangements, ensuring that VAT assessments reflect the true nature of the supply relationships. As VAT regulations continue to evolve, such judgments provide essential guidance for both tax authorities and entities structured with bundled services.