Philip Simpson, Q.C., has successfully represented the appellant taxpayer in the Supreme Court case of Balhousie Holdings Limited v. HMRC, persuading the Supreme Court to reverse the decisions by the Upper Tribunal and the Inner House in the case. The case concerned VAT on a newly-constructed care home. The purchase of the care home by the operator was zero-rated for VAT purposes. But zero-rating would be withdrawn if the purchaser ‘disposed of its entire interest’ in the care home within ten years. In the case, the purchaser financed its acquisition by a sale and leaseback to a finance company. The question was whether the sale element of the sale and leaseback counted as the disposal of the taxpayer’s entire interest in the care home. All of the Justices held that zero-rating was not to be withdrawn. The reasoning of the majority was, in short, that the statutory words had to be interpreted in the usual way for UK legislation: a purposive interpretation of the legislation as applied to a realistic view of the facts. In context, this involved a broad approach to what were not otherwise technical legal terms (‘dispose’ and ‘interest’) with clearly defined meanings. The sale and leaseback took place simultaneously, so there was no moment when the taxpayer had no interest in the care home; and after the sale and leaseback the taxpayer had a significant interest that showed commitment to operate the care home as such. On a realistic view of the facts, accordingly, the taxpayer still had an interest after the sale and leaseback had taken place; and that meant zero-rating was not to be withdrawn. It did not matter that the sale element, taken on its own, was a separate supply. The question was being asked for a different purpose, namely the tax treatment of the earlier acquisition by the taxpayer. On that basis, the appeal was allowed.
A copy of the judgement can be assessed here
