BPP University College of Professional Studies Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 21 June 2018 |
| Neutral Citation | [2018] UKFTT 454 (TC) |
| Date | 21 June 2018 |
| Court | First-tier Tribunal (Tax Chamber) |
[2018] UKFTT 0454 (TC)
Judge Barbara Mosedale
Mr S Grodzinski QC, instructed by Simmons & Simmons LLP, appeared for the appellant
Value added tax – Supply of tuition by one company and supply of printed material by another company in same corporate group, but different VAT group – Whether VATA 1994, Sch. 8, Grp. 3, Notes (2) and (3) apply to remove printed material from zero-rating – Not on facts – Company's appeal allowed.
The First-tier Tribunal (FTT) allowed the company's appeal against HMRC's decision that zero-rating did not apply to supplies of books.
Having already been barred, HMRC had no right to be represented at the hearing, as they could take no further part in the proceedings (R & C Commrs v BPP Holdings Ltd [2017] BVC 36). However, the burden of proof was still on the company. The FTT used its discretion to consider HMRC's skeleton argument, which had been produced for the interim hearing, which was before HMRC were barred, in so far as it stated HMRC's case on the substantive appeal (para. 17 of the decision).
BPP Learning Media Ltd (LM) was a member of a VAT group, of which BPP University College of Professional Studies Ltd (BPP) was the representative member. LM made the disputed supplies. Both LM and BPP were part of a corporate group, which included other companies, some of which belonged to a different VAT group to the one of which BPP was representative member. BPP Professional Education Ltd (PE) was a member of a different VAT group to that of BPP and LM. When the business of the corporate group was first established, it comprised the provision of tuition courses for professional examinations and the production of study texts and tuition material for use with the tuition courses. A group reorganisation in 2006 resulted in LM taking over the publishing side of the business, while PE took over the tuition side of the business. At the time at issue, LM's business was to develop, produce, publish and distribute learning materials in print and in electronic format. It sold its products to students and tuition providers (e.g. universities) and it sold them wholesale to retailers (e.g. Amazon and Waterstones). Also, it sold licences to print its tuition materials. A student purchasing a tuition course from PE almost invariably purchased learning materials to accompany the tuition course, but he would not necessarily purchase them from LM. PE did not require its students to buy the tuition materials from LM. Although PE's students could purchase the printed materials from LM (with the invoice stating that PE acted as an agent for LM), they could purchase them for the same price from a retailer, such as Amazon. Alternatively, they might purchase second-hand copies. There was a secondary market in LM's learning materials on eBay and Amazon. Also, a person could choose to purchase the tuition materials from LM without purchasing a tuition course from PE. The price of the tuition materials was unaffected by whether the customer also bought a tuition course from PE. In 2012-13, approximately 40% of LM's turnover was derived from sales of materials to persons who had not also purchased a course from PE.
When the change to the law on zero-rating of books came into effect on 19 July 2011, there was no material change to the way PE and LM carried on the businesses.
BPP had been concerned that the change in law on 19 July 2011 made it liable to standard-rate LM's supplies, so it commenced to account for such VAT. Its query of the position with HMRC led to the decision on 6 December 2012, which was the subject of the appeal. That decision was that from 19 July 2011, BPP must account for VAT on LM's supplies of learning materials.
The change in law on 19 July 2011 introduced Notes (2) and (3) into Grp. 3 and removed zero-rating from supplies of books where VAT law would have treated it as being part of a single supply together with other goods and/or services had they all been supplied by the same person.
BPP argued that Notes (2) and (3) did not apply to LM's supplies, because even if the supplies made by PE and LM had been both made by LM, they would not be treated as a single supply of services (para. 38 of the decision).
The FTT considered whether the various elements of the supplies were of any practical use to the consumer if supplied separately. Looked at from the point of view of a typical consumer, a significant number of LM's customers bought the printed material without buying tuition from PE. The facts did not make it clear whether this was because the consumer intended to buy tuition from someone else, or whether he intended to use the printed materials other than in combination with a tuition course. Thus, for many typical consumers the printed material was an end in itself. This factor was a major distinction with College of Estate Management v C & E Commrs [2005] BVC 704 (CEM), where the printed material was found not to be an end in itself, but always purchased with the view to obtaining the qualification offered by CEM. Also, a student could take a PE course without purchasing printed materials from LM. Consumers could buy LM's printed materials without purchasing a course from PE.
Although LM's printed material specifically supported PE's tuition course so that purchasing both would allow the consumer to pass an exam, this was not enough by itself to mean they were a single, indivisible economic supply which it would be artificial to split (para. 61 of the decision).
There was genuine freedom of choice, because the price of the tuition from PE, and the price of the printed materials from LM, did not alter whether purchased separately or together.
The FTT upheld BPP's appeal, because if LM had supplied both the tuition and the printed materials, under the same conditions as they were supplied by PE and LM, there would have been two separate supplies, one of tuition and one of printed materials. Thus, so far as Notes (2) and (3) of Grp. 3 were concerned, the supply of the printed materials by LM was not “connected” with the supply of tuition by PE because, if those two supplies had been made by a single supplier they would not have been treated as a single supply of services.
The FTT did not need to determine whether, if it had reached the opposite conclusion, that supply would have been standard-rated, but it seems that it would have been, because it would have been a supply of services.
If HMRC are dissatisfied with this decision, the FTT noted that they may have a right to apply for permission to appeal. HMRC were barred from taking further part in the proceedings, which may not only mean that they have no right to apply for permission to appeal, but also may mean that they are not even permitted to make representations on whether they have a right to apply for permission to appeal.
The provision of a number of different goods and/or services are seen as a single supply for VAT purposes, if for example:
- one or more elements of the supply comprised a principle element and the other elements were ancillary to it in the sense that they were not an end in themselves but a means of better enjoying the principle element; or
- two or more elements of the supply were so closely linked that objectively they formed a single indivisible supply which it would be artificial to split.
However, no test provides by itself a conclusive answer to the question of whether a supply is single or mixed. All factors must be considered, and a conclusion reached on the overall picture. It seems likely that, if HMRC had been able to present their case, the FTT would have reached the same decision.
[1] A short outline of the dispute the subject of the appeal, and a rather fuller history of the procedural history of the appeal, was set out at paragraphs 2–14 of my interim decision dated 1 July 2014 and reported at [2014] TC 03768. My interim decision was to bar HMRC from taking further part in the proceedings.
[2] That decision was appealed and ultimately reached the Supreme Court who on 26 July 2017 issued their decision, reported at [2017] BVC 36, upholding my decision to bar HMRC from this appeal under rule 8(3)(a) combined with rule 8(7). HMRC had also applied in 2014 to be reinstated but the application was refused and not appealed.
[3] Rule 8(8) provides that:
If a respondent has been barred from taking further part in proceedings under this rule and that bar has not been lifted, the Tribunal need not consider any response or other submissions made by that respondent, and may summarily determine any or all issues against that respondent.
[4] I understand a summary determination of the appeal to be one where the Tribunal does not consider the evidence or representations of either party but simply allows the appeal. I was referred to my own decision in Whitehill Pelham Ltd [2017] TC 06188 where I had done just that.
[5] In Whitehill Pelham HMRC had failed to serve any statement of case and indeed had failed to communicate with the Tribunal over the appeal at all. It seemed appropriate to treat that as a case where the respondent had chosen to offer no defence to the appeal and summarily allow the appeal without requiring the appellant to make out its case.
[6] The same is not true here. HMRC had served a statement of case and a Reply (albeit they were found my me in 2014 to be inadequate to set out HMRC's case). HMRC had also sought to remedy the defects in their statement of case in the skeleton argument served for the interim hearing in 2014 (paragraphs 67–70 of my 2014 decision). This was not a case where HMRC had chosen to offer no defence.
[7] Moreover, BPP did not invite me to summarily allow its appeal. Mr Grodzinski explained that it was an HMRC decision rather than an assessment which was under appeal: since the decision was...
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