Appeal Under The Tribunals And Enquiries Act 1992 Section 11 By The Highland Council V. A Decision Of The Vat And Duties Tribunal Released On 10th April 2006

JurisdictionScotland
JudgeLord Johnston,Lord Penrose,Lord Kingarth
Judgment Date25 May 2007
Neutral Citation[2007] CSIH 36
CourtCourt of Session
Published date25 May 2007
Docket NumberXA90/06
Date25 May 2007

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Johnston Lord Kingarth Lord Penrose [2007] CSIH 36

XA90/06

OPINION OF THE COURT

delivered by LORD PENROSE

in

APPEAL UNDER THE TRIBUNALS & ENQUIRIES ACT 1992, SECTION 11

By

THE HIGHLAND COUNCIL

Appellants

against

A DECISION OF THE VAT AND DUTIES TRIBUNAL RELEASED ON 10 APRIL 2006

_______

Act: Tyre, Q.C.; Biggart Baillie (Appellants)

Alt: Mrs. S. Wolffe; Shepherd & Wedderburn (Respondents)

25 May 2007

[1] The appellants, as local authority, provide a range of leisure facilities at a number of locations within their area. In addition to the appellants' own facilities, there are a number of not for profit community leisure facilities which are supported by the appellants. In order to stimulate use of the facilities, the appellants sell three types of cards, described as "Highlife" cards.

[2] The appellants and HMRC are in dispute as to the categorisation for purposes of value added tax of the proceeds of sale of one type of card, the "All Inclusive" card. There is no dispute about the other two types of card. These are the 'Budget' card, which is available without payment to households in receipt of certain State benefits, and which allows recipients to enjoy leisure facilities at a flat rate of 50 p. per activity, and the "Pay as You Go" card, which is available without payment to those under eighteen, in full time education or over sixty, and which allows recipients to enjoy leisure facilities at half the standard price per activity. The provision of these cards does not constitute a taxable supply for value added tax purposes because there is no consideration: Value Added Tax Act 1994 section 5 (2).

[3] The All Inclusive card is issued in return for payment in terms of the appellants' standard application form. The form advertises the advantages offered by the card to frequent users of leisure facilities, and states:

"For unlimited access to all leisure

centre run activities

You Pay:

a set monthly amount by

direct debit or equivalent

annual lump sum by cash,

cheque or debit/credit

card"

The category is defined further in these terms:

"ALL INCLUSIVE

This allows unlimited use of all facilities and activities in the scheme during their normal opening hours for individuals or families (up to two adults and dependants under 18 living at the same address) committed to paying an all inclusive fee by direct debit for a minimum of one year. There are some restrictions to All Inclusive use detailed in the terms and conditions above."

So far as is material, the terms and conditions exclude certain specified forms of use of facilities, regulate payment where card holders and non card holders play games together, exclude priority of access to facilities over non card holders, and restrict advance booking of facilities. More particularly, it is provided:

"k) Highland council reserve the right to charge additional fees for selected activities/classes.

p) Cardholder fees are non-refundable.

r) 'All Inclusive' card holders will not be entitled to credit for any part of courses not attended

s) The scheme includes an annual 2 week shut down of facilities. However, if the building is closed for an extended period of emergency repairs then credit will be given for every additional full week closed."

[4] The activities available at the facilities were not explored in any detail. The majority of the facilities include swimming pools, and the use of the pools was taken as sufficient illustration of the factual background to the dispute. The supply of facilities for swimming, and similar forms of physical exercise, for a consideration, are exempt in the case of certain qualifying providers: Article 13A (1) (m) of the Sixth Directive and Group 10 in Schedule 9 to the 1994 Act. The appellants do not fall within the scope of the exemption, and such supplies by them are liable to standard rate value added tax. However, tuition in sporting activities, such as swimming lessons, provided for a consideration, are exempt in the case of the appellants: Group 6 in Schedule 9. Typically, therefore, the holder of an All Inclusive card would be able to participate in activities that, if provided for a consideration paid at the time of enjoyment, would attract value added tax at the standard rate or would be exempt from tax depending on the particular category involved. The issue in the case turns on the characterisation of the transaction between the appellants and the All Inclusive cardholder. HMRC contend that the issue falls to be resolved on the terms of the contract between the parties, and that the contract provides a right to enjoy an undifferentiated range of facilities and activities. At the time of payment, nothing was provided that qualified for exemption. The whole consideration was standard rated. The appellants contend that what was provided by them was the use of the facilities; that the use comprised standard rated and exempt activities; and that the exemption for provision of education applied subject only to apportionment of the consideration.

[5] The Tribunal preferred the approach of HMRC and refused the appellants' appeal, finding support in particular in Kennemer Golf & Country Club v Staatssecretaris van Financien [2002] QB 1252. The scope of the argument before the Court differed considerably from the argument before the Tribunal. In particular, counsel for the appellants abandoned much of the argument before the Tribunal based on an extensive citation of authorities relating to the distinction between single and multiple supplies for a single consideration, founding his submissions mainly on two cases: British Railways Board v Customs & Excise Commissioners [1977] STC 221 and Mothercare (UK) Ltd v Customs & Excise Commissioners [1993] VATTR 104.

[6] The Tribunal's decision reflected the argument before it. So far as material for present purposes, the decision was:

"Applying the principles outlined in the authorities above cited the Tribunal finds that what was supplied to the participant by the Council was, as contended for by the Commissioners, a single supply of a right to exercise and enjoy the use of the Council's facilities as and when and to whatever extent the purchaser required.

Having regard to the transaction the Tribunal has no doubt that what was sold in consideration for the price was a right. The exercise of that right, given that there may be various tax treatment or various services, being a matter for the customer cannot be pre-determined and since it could not be known what the purchaser would do with his card to attempt to dissect the transaction into unrealistic or at best speculative components would not reflect reality and so would be an error.

The BRB case provides a clear example of the supply of the discount card being related to only one class of service. The Mothercare discount card is in the same position. To attempt to allocate an artificial proportion, which might bear no relation to the reality of the only transaction between the Council and the purchaser, the essential matter, which has to be regarded as artificial, unrealistic and bearing no relation to the reality of the situation. Accordingly, as presently administered, the admirable Highlife scheme requires to be standard rated upon an analysis of the transaction in question and also having regard to the unreality of attempting to sub-divide the single transaction into a 'package' of potentially separate items of standard rated and exempt supplies."

[7] In setting out the factual background to his submissions, counsel for the appellants contended that the Tribunal's decision reflected a misconception of the appellants' administrative arrangements. The comments made about the "artificial" and "unrealistic" character of the analysis of the transaction for which the appellants contended reflected an error that was obvious in the brief narrative provided by the Tribunal of the background. The Tribunal stated:

"The annual card made available unlimited access to activities with differing VAT liabilities. The Appellant sought to differentiate these and apportion the annual payment on a broad statistical basis which purported to show.. that the general usage of facilities which could be regarded as exempt in terms of VATA 1994 Schedule 9 could indicate that some 13.37% of Highlife all inclusive cardholders might have participated in activities which fell within the exempt category."

[8] Counsel submitted that the Tribunal's comments reflected a misunderstanding of the uncontroversial evidence presented. The appellants' witness, Mr Brian Parker, had explained that the appellants accounted for value added tax for the period in which payment of the price of All Inclusive cards was received. For that period, the appellants' computerised records disclosed the actual use made of the facilities by all holders of All Inclusive cards, analysed by category of use. Thus, in the case of a swimming pool, the records disclosed the number of swimming lessons and other educational activities enjoyed and the number of admissions to the pool for exercise. The appellants then valued the supplies of these activities at the rates published in the current tariffs. That produced a fraction for standard rated supplies and for exempt supplies during the period which could then be applied to the period's cash receipts for the sale of All Inclusive cards to obtain a reliable apportionment. The figure of 13.37% was simply illustrative of the outcome of applying that methodology for a specified period. The approach was not unrealistic, nor was it artificial or unrelated to the realities of the situation.

[9] The question for the Tribunal and for the court was expressed in a number of ways, but it was agreed that the formulation adopted by Lord Weir in delivering the opinion of the Court in Ivory & Sime Trustlink Ltd v Customs & Excise Commissioners [1998] STC 597, at page 600, was...

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