David Baxendale Ltd v Her Majesty's Revenue & Customs, V 20757
Jurisdiction | UK Non-devolved |
Judge | Charles HELLIER |
Judgment Date | 30 July 2008 |
Respondent | Her Majesty's Revenue & Customs |
Appellant | David Baxendale Ltd |
Reference | V 20757 |
Court | First-tier Tribunal (Tax Chamber) |
20757
VAT – Supply of services – Whether supplied for consideration – Dietary foodpacks supplied together with counselling support, payment made for foodpacks – Whether consideration given for counselling support – Held: yes
VAT – Supply of goods and services – Whether single or multiple supply – Whether support service ancillary to zero-rated food supply – Effect of Talacre – Whether elements of supply physically and economically dissociable – Held multiple supply
DAVID BAXENDALE LTD Appellant
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and –
Tribunal: CHARLES HELLIER (Chairman)
ALEX McLOUGHLIN
Sitting in public in London on 10, 11, 12 March 2008
Alun James, counsel, instructed by Vantis plc, for the Appellant
Nicola Shaw, counsel, instructed by the solicitor for HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2008
1. The Appellant is one of a number of persons who operate under a form of franchise from LighterLife. The appeal relates to the VAT treatment of the supplies made by the Appellant to people who participate through the Appellant in the LighterLife weight loss programme.
2. We were told that there were some 300 other persons in similar factual circumstances to those of the Appellant whose VAT treatment would effectively be determined by the outcome of this appeal.
3. 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.
4. 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?
5. We shall start by considering the legal principles relevant to the first three of these issues. We then turn to the facts and then, by reference to each of the questions, consider the parties’ arguments and set out our conclusions.
1. The Legal Principles
(i) What does the participant give consideration for: is the support provided free?
6. Article 2 of the Sixth Directive (being the directive in force at the relevant time) provided that “the supply of goods or services effected for consideration” should be subject to VAT. That is reflected in section 5 VAT Act 1994 which, in subsection (2)(a) provides that “supply” includes “all forms of supply but not anything done otherwise than for a consideration”.
7. The ECJ considered the requirement for consideration in Tolsma v Inspecteur der Omzatbelasting Leeuwarden [1994] STC 509 where it held that a service was supplied for consideration
“only if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient.”
In Town & Country Factors v Customs and Excise Commissioners [2002] STC 1263, the ECJ held that the nature of the “legal relationship” was not one which had to be enforceable under local law. What was required was agreement, and reciprocity under that agreement.
8. In Kuwait Petroleum GB v HM Commissioners for Customs & Excise [1999] STC 488 the ECJ were considering whether goods provided under a promotion linked to the purchase of fuel were to be treated as supplies for a consideration. The court reiterated the Tolsma test and said:
“27. It is for the national court to inquire whether, at the time of purchasing the fuel, the customers of Kuwait had agreed – through the dealers, as the case may be – that part of the price paid for the fuel, whether identified or not, would constitute the value given for the Q8 vouchers or redemption goods. There is nothing, however, in the documents before the court to suggest that there was in fact such reciprocal performance by the parties concerned.”
Thus the question for us will be whether it can be said that the participants and the Appellant had agreed that the support services would be supplied at least partly in return for the monies paid.
9. In HM Commissioners for Customs & Excise v Primback [2001] STC 803 the ECJ applied the test quoted in paragraph 8 above to find that, when Primback provided free credit to purchasers of goods but the price paid was the same irrespective of whether the credit was taken up. Primback had supplied the credit free and not for consideration.
10. When Kuwait returned to the UK, the appeal against the tribunal’s decision (given in the light of the ECJ’s guidance) was heard by Laddie J. At paragraphs 31 to 34 he considered two criticisms of the tribunal. The first related to the relevance of literature describing the redemption goods being provided as ‘gifts’. He accepted that, like lunches, nothing is ever free in a commercial transaction, but said that even if the promotion scheme caused an increase in pump prices “that does not address the question of what the customers thought they were agreeing to”.
11. The second related to an example of a trader who advertises, ‘Buy One, Get One Free’ (and raised by this tribunal in the course of the hearing), and whether it could be seriously suggested that the customer was getting the second item at no cost. He said,
“There is a limit to the reasonable gullibility of ordinary members of the public. A promotion of that kind would not persuade most customers that they were really getting half their acquisitions free. They would think they were receiving each of the products at half price and that they were paying for both. … In such circumstances, if one answers the question posed by the Court of Justice in Kuwait, one receive[s] the answer that the parties did not believe they were agreeing to a disposal free of charge. That cynicism does not apply here …”
In Ford Motor Co v R & Commissioners [2007] STC 1783 in the High Court Sir Donald Rattee cited these passages. But he said that in his judgment the question was not what the customer or dealer did or did not himself reasonably believe was the value of the benefits received, but whether the parties had expressly or by implication agreed that part of the price paid, in that case for the car, was paid for the ‘free’ insurance. When Ford went to the Court of Appeal [2008] EWCA Civ...
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