Commisioners for HM Revenue and Customs v David Baxendale Ltd
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE MORGAN |
| Judgment Date | 05 February 2009 |
| Neutral Citation | [2009] EWHC 162 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CH/2008/APP/0647 |
| Date | 05 February 2009 |
[2009] EWHC 162 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before: Mr Justice Morgan
Case No: CH/2008/APP/0647
Nicola Shaw (instructed by H M Revenue and Customs) for the Appellants
Alun James (instructed by Charles Russell LLP) for the Respondent
Hearing dates: 22 and 23 January 2009
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
INTRODUCTION
This is an appeal and cross-appeal against the decision of the VAT and Duties Tribunal released on 30 th July 2008. The Appellant is Her Majesty's Revenue and Customs (“HMRC”) and the Respondent is David Baxendale Limited (“the Taxpayer”).
The Taxpayer is one of a number of persons who operate under a form of licence from LighterLife Limited. The appeal and cross-appeal relate to the correct VAT treatment of the supply (or supplies) made by the Taxpayer to persons who participate in the LighterLife weight loss programme.
The Tribunal recorded that there were some 300 other taxpayers in similar factual circumstances to those of the Taxpayer and the VAT position in relation to those others would effectively be determined by the outcome of these proceedings.
Ms Nicola Shaw appeared for HMRC both before the Tribunal and on this appeal to the court. Mr Alun James appeared for the Taxpayer both before the Tribunal and again on this appeal. I am grateful to both counsel for their assistance.
The Tribunal gave an outline of the LighterLife programme in the following terms:
“In bald outline the LighterLife programme is a programme for rapid weight loss for those who are seriously overweight. It enables them to lose about one stone a month, and aims to enable them not to put that weight back on again. The physical aspect of the programme is the total replacement (in the initial months) of normal food with LighterLife food packs; this is accompanied by counselling and advice in weekly group sessions run by the Appellant. The participants pay the Appellant for the special food packs but make no specific payment for the support services provided at the Group sessions.”
There were four questions argued before the Tribunal. Those questions were set out in the decision of the Tribunal as follows:
“The questions this appeal raises are these:—
(i) does a participant give consideration for the provision of the support services: when he pays for the food packs is that payment also consideration for the support services, or are they provided free?
(ii) if consideration is given for the support services, is the Appellant making two separate supplies, one of support services and the other of food, between which the consideration should be apportioned, or one single composite supply?
(iii) if the Appellant is making a single composite supply is that supply zero-rated (as a supply of food) or standard rated?
(iv) if the Appellant is making multiple supplies for consideration, how should the consideration be split between the supplies?”
On the first of the questions before the Tribunal, the Taxpayer argued that the participant did not give consideration for the provision of the support services. HMRC argued to the contrary. The Tribunal accepted the argument for HMRC. There is no appeal by the Taxpayer against this decision.
On the second of these questions, the Taxpayer argued that there was one supply. This was on the basis that the supply of support services was ancillary to the supply of food. HMRC also argued that there was one supply. However, HMRC's argument was on a different basis, namely, that the supply of food and the supply of support services constituted the supply of two elements, neither of which was ancillary to the other, but so that the two elements together constituted a single composite supply which it was artificial (and therefore wrong) to split into two supplies. The Tribunal held that there were two supplies, one of food and the other of support services. HMRC has appealed that decision, contending as before for a single composite supply. The Taxpayer has not cross-appealed the Tribunal's finding that there were two supplies.
In view of the Tribunal's decision on the second question before it, it held that the third question posed above did not arise. However, the Tribunal indicated that if that third question had arisen, i.e. if the correct analysis were that there was a single composite supply, the Tribunal would have held that such a supply would be a standard rated supply and, in particular, it could not be described as a supply of food. HMRC supports that view of the Tribunal. The Taxpayer contends that if the court on this appeal holds that there was a single composite supply, then such a supply would be a supply of food and therefore zero rated.
On the fourth question posed by the Tribunal, it held that the consideration should be apportioned between food and services in the proportion of 2 to 1. HMRC had contended for a 60/40 split but does not now seek to disturb the apportionment of the Tribunal (in the event of the court upholding the Tribunal on there being two supplies). The Taxpayer had contended before the Tribunal for a 91/9 split and that contention is repeated in this court by way of a cross-appeal.
THE QUESTIONS FOR THE COURT
There are three questions which have been argued on this appeal and cross appeal.
The first question is whether the Tribunal was right to hold that there were two supplies or whether HMRC is right that there was a single composite supply: (“the first question”)
The second question arises if HMRC is right on the first question. The second question is whether such a single composite supply is a standard rated supply or whether it is a supply of food and therefore zero rated: (“the second question”)
The third question arises if HMRC is wrong on the first question. The third question is as to the correct apportionment of the consideration between the supply of food and the separate supply of support services: (“the third question”)
THE FIRST QUESTION
The Tribunal's findings of fact
The Tribunal made detailed findings of fact. The appeal to this court is only available on a point of law. Accordingly, both parties accept the Tribunal's findings of primary fact.
Despite their length it is necessary to set out the findings of fact which relate to the first question before the court, as follows:
“31. We had before us a wealth of documentary evidence relating to the LighterLife programme. This included advertising material, material given to participants, the DVDs which were shown at group sessions, LighterLife's manuals for its counsellors and documents relating to the relationship between LighterLife and the counsellors. We also had samples of the food packs.
32. We heard oral evidence from David Baxendale, a director of the Appellant, who ran the business of the Appellant, and from Octavia Morley the chief executive officer of LighterLife UK Ltd. We also heard the evidence of two people who had participated in the LighterLife programme through providers other than the Appellant: they were Sara Anne Jamison, the current marketing director of LighterLife UK Ltd, and Susan Elizabeth Smith an officer of HMRC. All of the witnesses provided witness statements. From that evidence we find the facts as follows.
(1) The LighterLife Programme
33. The LighterLife Programme is a weight management programme for those who have a body mass index over 29 and in particular for those who have failed to lose weight by other means. It is a combination of nutritionally complete food packs and specialised counselling techniques. The Programme has three main stages:
(i) Foundation. This stage lasts 14 weeks for women, and 8 weeks for men. Participants adhering to the programme abstain from normal food completely during the period, eat only the food in the food packs, and attend weekly meetings with a LighterLife Counsellor such as Mr Baxendale. During this stage participants should lose some 3 stone.
(ii) Development. This stage is for those participants who have more than 3 stone to lose. Participants adhering to the programme in this stage continue to abstain from normal food and eat food packs only and attend weekly sessions.
(iii) Route to Management. This is the stage at which conventional food is gradually re-introduced. This stage lasts some 12 weeks. Participants adhering to the programme gradually reduce the number of food packs they eat each day and begin to eat conventional food. They attend weekly sessions.
In addition there are programmes for the lapsed and the continuing clients:
(i) Management: four week courses with food packs for those who have completed the earlier stages but wish to rebalance their diets or who wish for further support;
(ii) Refreshers: for the lapsed who wish to rejoin the programme; and
(iii) Holding: for those who have not managed to stay on the diet. Participants in Holding Sessions do not purchase food packs; they may attend to be weighed or receive advice. Not all LighterLife consultants ran Holding Programmes: the Appellant is one such.
Of some 24,000 current participants approximately 13,000 are in Foundation and Development, 8,000 in Management in some form, and 3,000 are in Refreshers.
34. Overall the LighterLife Programme appeared to us to achieve for many participants what its advertising material claimed for it:
“It uses a powerful...
To continue reading
Request your trial
-
The Commissioners for HM Revenue & Customs v Gray & Farrar International LLP
...(t/a Salon 24) where at [70] it is apparent that Warren J did not adopt the predominant element test; and David Baxendale Ltd v HMRC [2009] EWHC 162 (Ch), [2009] STC 825 at [80], a decision of Morgan J upheld by the Court of Appeal ( [2009] EWCA Civ 831, [2009] STC 2578) without referenc......
-
Colaingrove Ltd
...(Case C-41/04) [2007] BVC 155, R & C Commrs v Weight Watchers (UK) LtdVAT[2009] BVC 91, David Baxendale Ltd v R & C CommrsVAT[2009] BVC 115, R & C Commrs v Bryce (t/a The Barn)VAT[2011] BVC 1589, Don Bosco Onroerend Goed BV v Staatssecretaris van FinanciënECAS (Case C-461/08) [2010] BVC 108......
-
Goals Soccer Centres Plc
...v Staatssecretaris van FinanciënECAS (Case C-41/04) [2007] BVC 155, especially at paragraphs 22-29, David Baxendale Ltd v R & C CommrsVAT[2009] BVC 115, R & C Commrs v Bryce (t/a The Barn)VAT[2011] BVC 1589, and Purple Parking Ltd v R & C CommrsECAS (Case C-117/11) [2012] BVC 268, and Talac......
-
David Baxendale Ltd and Another
...of the food packs were zero-rated, whilst the counselling services were standard-rated. That decision was reversed in the High Court ([2009] BVC 115), where Morgan J held that there was a single standard-rated supply of In David Baxendale Ltd, the Court of Appeal upheld the High Court's dec......