In this edition we take a look at a new VAT reverse charge on construction services; the implications for landowners of registration as a “town or village green”; proposed reforms to the Electronic Communications Code; and a case illustrating its complexities.
VAT reverse charge on construction services about to go live
The twice delayed VAT reverse charge on construction services is due to come into effect from March 1, 2021.
The measure is designed as an anti-fraud protection, requiring the recipient of supplies of relevant building and construction services to account for the VAT, and not the supplier. Businesses will need to consider carefully whether the supplies that they make or receive fall within the scope of the new rules, and understand the impact on their own invoicing administration and cash flows.
The new rules will apply to supplies made on or after March 1, 2021, which means that supplies made under an existing contract but which are invoiced after this date will fall into the new regime and the way in which VAT is charged and accounted for may need to change. In addition, certain recipients may need to make notification of their status to the supplier.
The scope of the construction services which fall under the new rules largely mirrors those within the scope of “construction operations” under the Construction Industry Scheme (CIS) and materials will also be included. In simple terms, the reverse charge applies where a VAT registered business supplies construction services to another VAT-registered business customer who is registered under the CIS and who has not confirmed in writing to the supplier that they are an “end user” or “intermediary supplier”.
There are two key exceptions. First, where the customer uses the construction services for its own use, as a final customer; and secondly, where there are intermediary suppliers (for example where a landlord procures works on behalf of its tenant). Where an exception applies the reverse charge provisions are switched off, provided that the customer has served a written notice on the supplier before the time of the relevant supply.
HMRC have indicated that, while the new regime beds in, they will take a light touch approach to errors. However suppliers and consumers of construction services need to ensure that their accounting systems and compliance processes are updated to reflect the changes to ensure that supplies are properly categorised and VAT is charged, or self-accounted for, as appropriate.
Please contact Tax Partner Julia Lloyd or another member our Real Estate Tax Team if you would like further information.
Supreme Court considers the implications of registration as a “town or village green”
In T W Logistics Ltd v Essex County Council and another  UKSC the Supreme Court was asked to decide whether registration of land as a “town or village green” (TVG) criminalised the landowner’s commercial activities on it.
The definition of a TVG in this context is much broader than one might expect and has been held to include an area of rocks used for mooring boats and partly submerged scrubland. In this case the land in question (the Land) was an area of concrete forming part of a working port. The landowner operated the port as a commercial concern while local inhabitants also used the Land to walk dogs, socialise and for general recreation. The Land was registered as a TVG.
Registration as a TVG is dealt with by Section 15 of the Commons Act 2006, the statutory criteria for registration being that the land has been used “as of right” for lawful sports and pastimes by significant numbers of local inhabitants for the preceding 20 years. Registration restricts the landowners’ use of the land – there are numerous examples of applications for registration being made to thwart development – but how far does that restriction go?
The central question in this case was whether the registration of the Land as a TVG had the consequence of criminalising the continuation of the landowner’s pre-existing commercial activities on it, in particular under two Victorian statutes which enacted criminal offences designed to protect the public’s use of TVGs.
The Supreme Court concluded that it did not. Local inhabitants have to exercise their rights over a TVG in a fair and reasonable way, so as to respect the concurrent reasonable and established use of the landowner. The landowner can continue to undertake activities of the same general quality and at the same general level as before and may also undertake new and different activities provided that these do not interfere with the right of the public to use the land for lawful sports and pastimes.
The decision is significant given the potential commercial consequences for the landowner had the decision gone the other way and brings welcome clarity to other landowners in a similar predicament. The Supreme Court also issued a warning to prospective purchasers: the mere fact of registration of land as a TVG does not inform them what the precise nature of their entitlement to use the land might be and it should put them on notice to investigate the extent to which the activities and use of the land by the landowner are established.
Reforming the Electronic Communications Code
The Electronic Communications Code (The Code) governs the relationship between network operators and site occupiers in respect of access rights to install and keep electronic communications apparatus on public and private land.
The Code, which was substantially reformed in December 2017, seeks to encourage such access by way of commercial negotiation and voluntary agreements, with the imposition of agreements by a tribunal as a back-stop. The aim of the 2017 reforms was to make the whole process more efficient and cost-effective. However, the recent proliferation of cases on the operation of the Code indicates that this has not been achieved.
Acknowledging that the reforms have not had their intended effect, the Government published a consultation on January 27, 2021 proposing further changes to the Code. This identifies three main problem areas:
- Issues relating to negotiations and the operation of completed agreements. These include failures to respond to requests from operators and failures to negotiate constructively and collaboratively. A 2020 report indicates that the average time for agreements to be completed is 11 months and that nearly a third of negotiations stall.
- Rights to upgrade and share. Landowners, occupiers and operators all report that the current law in relation to these rights is not sufficiently clear to achieve its intended purpose. It also does not apply to agreements entered into before December 2017.
- Difficulties relating to the renewal of expired agreements, many due to a lack of clarity in the legislation.
One controversial and problematic area that is explicitly excluded from the consultation is the valuation framework introduced in 2017 which has generally resulted in a significant reduction in the amounts paid to site providers under Code agreements.
The consultation does not include detailed proposals for reform but sets out a range of potential solutions for discussion and comment. The closing date for comments is March 24, 2021 and once it has considered the responses, the Government intends to publish its final policy position and any proposed legislative changes.
Any changes will complement those in the Telecommunications Infrastructure (Leasehold Property) Bill, which had its third reading in the House of Lords on January 28, 2021. This proposes amendments to the Code to provide a right for telecoms network operators to apply to the court for the right to access “multiple dwelling units” to install, upgrade or maintain broadband connections.
Electronic Communications Code v. Landlord and Tenant Act 1954
Cornerstone Telecommunications Infrastructure v Ashloch Ltd and another  EWCA Civ 9 is an illustration of the complexities of the Electronic Communications Code as reformed in 2017 (The 2017 Code).
The Court of Appeal was asked to consider the transitional provisions in the 2017 Code, in particular the relationship between the 2017 Code and the Landlord and Tenant Act 1954 (1954 Act) in the context of a tenancy granted before the 2017 Code took effect.
The operator in this case occupied a rooftop site on which it had installed telecommunications apparatus. Occupation was under a business tenancy granted in 2002 which had expired but the operator was “holding over” under the 1954 Act. The operator requested a new agreement under the 2017 Code, which would be more advantageous to it than a renewal tenancy under the 1954 Act. The landlord did not agree, so the operator referred the matter to the Upper Tribunal.
The Court of Appeal held that the Upper Tribunal did not have jurisdiction to impose a new Code agreement on the landowner because the operator was already in occupation under a tenancy granted before the 2017 Code and continuing under the 1954 Act. The 2017 Code was not intended to have such retrospective effect. In such a situation the operator could only apply to the court for a new tenancy under the 1954 Act.
The Court of Appeal stressed however that this particular problem only arises in transitional cases. If the operator were to renew its lease now under the 1954 Act, the transitional provisions would not apply to the new lease so that on its expiry the operator could apply for a new agreement under the 2017 Code.
The decision is of importance as it sheds light on a complex aspect of the Code that affects a considerable number of existing arrangements. Landowners in a similar position will be heartened, not least as the rent payable under a new Code agreement will be substantially lower than that under a 1954 Act renewal tenancy, assessed as it is on a “no network” assumption. On the other hand, operators now know that all is not lost and that there will be an opportunity to switch to a Code agreement in the future.