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Cold Water Poured on Middle Temple’s VAT Exemption Hopes

In a ruling of interest to properly landlords and tax advisers, the Honourable Society of Middle Temple has failed to convince the Upper Tribunal (UT) that cold water it supplies to barristers’ chambers through a centuries-old network of pipes should be treated as a separate supply and exempted from Value Added Tax (VAT).

The society is one of the four historic Inns of Court and owns land at the heart of ‘legal London’ which is home to many of the country’s leading barristers’ chambers. It has historically charged tenants for the supply of cold water, which is zero-rated for VAT purposes, separately from rent, which is subject to the standard rate of VAT.

At first instance, the First-Tier Tribunal (FTT) accepted the society’s arguments that the granting of a lease of land and the provision of cold water to chambers were separate supplies. The FTT considered that the principle of fiscal neutrality required that the provision of accommodation and water be treated independently because tenants could have obtained premises and cold water from alternative suppliers had they entered into a lease outside the Inn of Court.

In allowing an appeal by Her Majesty’s Revenue and Customs against that decision, the UTT ruled that the letting of land and the provision of cold water could only rationally be viewed as a single composite supply. It noted that both accommodation and water were essential elements of occupation of the premises and that tenants in practice had no option but to obtain water from the society.

The leasing of the premises and the supply of water formed a single economic supply which it would be artificial to split because, from the point of view of the typical tenant, both the premises and the water were equally indispensable and inseparable in enabling the premises to fulfil their economic purpose.