UT (Tax & Chancery) UT/2023/000091 - [2025] UKUT 00014 (TCC)

We have allowed the appeal on Ground 1 and set aside the Decision. HMRC invited us to remake the decision and Mr Bremner did not suggest that the matter should be remitted to the FTT. In the circumstances we consider that it is appropriate for us to re-make the decision.

We have described under Ground 1 the error which the FTT made in considering whether Sonder’s supply to travellers of holiday accommodation involved a material alteration or further processing of the interests in land supplied by landlords for a term of years, because it did not have regard to the question of whether what was bought-in by Sonder was supplied for the direct benefit of the traveller.

Mr Bremner simply submitted that, if there was such a requirement, in light of the FTT’s findings at [62] – [67] and [71] the services acquired by Sonder were clearly for the direct benefit of travellers.

Mr Macnab simply submitted that Sonder acquired interests in land which were supplied for the indirect benefit of all travellers throughout the term of years for which Sonder’s interest subsisted. There was therefore no direct benefit to individual travellers.

The FTT had been referred to a number of decisions of the VAT and Duties Tribunal, but at [75] it stated that it did not find those decisions particularly useful because cases will all turn on their own facts. We were also referred to those cases and have similarly concluded that they do not provide any real assistance. In particular, we do not accept Mr Bremner’s submission that the present case is no different from Independent Coach Travel v HM Customs & Excise [1994] 2 CMLR 257. In that case, the taxpayer made block bookings of ferry crossings and hotel accommodation. The ferry bookings were made for the carriage of a particular number of people travelling by coach. The hotel bookings were made for a particular number of people for stays of varying lengths. The block ferry bookings were then sold to coach travel businesses, with or without appropriate hotel block bookings. On occasion the hotel block bookings would be sold on their own. The term “block booking” therefore referred to blocks of specific individual bookings on specific ferry passages or of specific hotel rooms for specific nights.

One argument on appeal to the VAT Tribunal was whether the taxpayer was a travel agent. The tribunal rejected an argument of the taxpayer that it was not a travel agent because it was not selling to individual travellers. An alternative argument that the taxpayer was not making supplies of designated travel services because the bought-in supply was being further processed was also rejected. In rejecting that argument, the tribunal stated at p265:

We have no reason to doubt the correctness of the decision of the tribunal in that case. However, the reasoning does not in our view apply to the facts of the present case. The bought-in supply in that case was a supply of travel facilities from ferry and hotel operators. In the present case, Sonder was acquiring rights to use and occupy apartments for a term of years. Sonder was therefore acquiring rights in land from which it could then make its own in-house supplies. That was the economic reality. Sonder was not acquiring specific nights (whether in bulk or individually) which were then supplied on to travellers.

Looking at the facts as a whole, we are satisfied that the service which was supplied by Sonder to the traveller was materially altered from that which was supplied by the third party landlord to Sonder having regard to the direct benefit requirement. Sonder acquired an interest in land for a term of years. The terms on which it did so were described by the FTT at [28] to [35] of the Decision which we have summarised above. We have taken into account all those terms, and give particular weight to the fact that Sonder entered into internal repairing and insuring leases for a term of years between two and ten years.

The supply which Sonder then made was a short term licence to the traveller to occupy property it had leased as holiday accommodation. We have summarised the FTT’s findings above, although the FTT does not describe in any detail the terms on which Sonder entered into licences with travellers. The evidence before the FTT included an overview of the “customer journey” which included signing up to Sonder’s terms and conditions. The material terms and conditions simply required payment by the traveller including authorisation to charge a credit card in the event that any damage was caused to the apartment in consideration of the grant of a temporary right of occupation to the traveller. Overall the way in which the traveller’s licence to occupy is described indicates that there is no reason to think that those terms would be any different to the basis on which a hotel or similar establishment might offer accommodation for the benefit of travellers, which is the basis on which the TOMS Order is said to apply in the first place. It is a very different bundle of rights from those which were granted to Sonder by the landlords.

The services received by the traveller in consequence of the grant of a licence to occupy are described in [36] to [42] of the FTT’s decision and are markedly different to the services which Sonder itself acquired on entering into the leases with the landlords. In our view, it is relevant even if not determinative, that these marked differences were themselves reflected in the difference in the VAT treatment of the supply to Sonder and Sonder’s supply to the traveller. The fact that both Sonder’s rights under its leases with the landlords and a traveller’s rights under its licence from Sonder both gave rights of occupation does not mean that what Sonder acquired was supplied to the traveller without material alteration or further processing such that it was supplied for the direct benefit of the traveller. In our view the services supplied by the landlord to Sonder were not for the direct benefit of Sonder’s own customers and the services were not supplied by Sonder for the benefit of the traveller without material alteration and further processing. In short, the services supplied by Sonder to the traveller were its own in-house supplies, which therefore fall outside the ambit of TOMS.

It is not necessary for us to deal with Mr Macnab’s submission that the bought-in supply must in the present context be a supply of travel accommodation. On the present facts we can simply say that the term of years purchased by Sonder was not supplied without material alteration or further processing such that it was for the direct benefit of the traveller.

The position is even clearer in relation to the unfurnished apartments. Sonder acquired an interest in land for a term of years in an unfurnished apartment. It furnished the apartment and then supplied a short term licence to a traveller to occupy as holiday accommodation. What was supplied to the traveller was materially different to what was supplied to Sonder.