HM Revenue and Customs v Compass Contract Services UK Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Mummery,Lord Justice Scott Baker,Sir Charles Mantell |
| Judgment Date | 09 June 2006 |
| Neutral Citation | [2006] EWCA Civ 730 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: C/2005/1334 |
| Date | 09 June 2006 |
[2006] EWCA Civ 730
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE MANCHESTER VAT
AND DUTIES TRIBUNAL
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Mummery
Lord Justice Scott Baker and
Sir Charles Mantell
Case No: C/2005/1334
MS MELANIE HALL QC & MR OWAIN THOMAS (instructed by the Acting Solicitor for HM Revenue & Customs) for the Appellant
MR JONATHAN PEACOCK QC (instructed by Reynolds Porter Chamberlain ) for the Respondent
The dispute
This is an appeal by HM Revenue & Customs (Customs) against a decision of the Manchester VAT and Duties Tribunal dated 6 May 2005. The Tribunal allowed an appeal by Compass Contract Services UK Limited (Compass) , as representative member of the Compass VAT Group, against a decision letter dated 6 August 2003. The letter contained a determination by Customs that supplies of cold prepared food (such as sandwiches, salads, snacks and drinks) by Compass to customers from retail food outlets operated by it at the BBC Television Centre at Wood Lane, Shepherd's Bush, London did not qualify as zero rated supplies of food for VAT purposes. According to Customs standard rate tax applied to the supplies.
Although Compass in fact supplies a range of cold prepared food from its retail outlets in the BBC Television Centre, it will avoid unnecessary repetition and simplify this judgment if I take sales of sandwiches by Compass at the outlets as the relevant supplies. For VAT purposes there is no difference between supplies of sandwiches and supplies of other kinds of cold prepared food.
The basis of Customs' determination was that Compass supplies the sandwiches to its customers "in the course of catering." If that is correct, the supplies are excepted from the zero rating of general items of food used for human consumption and the purchasers of the sandwiches must pay VAT on them to Compass: see section 30 and Group 1 Schedule 8 to the Value Added Tax Act 1994 ( VATA 1994) .
VAT: some basic points
In order to grapple with the principal issues on the appeal it must first be appreciated that, for the purposes of VAT on supplies of food, two crucial distinctions are made in the VATA 1994.
(1) Condition of the food
The first distinction relates to the condition in which the food is supplied. A distinction is drawn between supplies of hot food (eg fish and chips) and supplies of cold food (eg sandwiches.)
(2) Premises
The second distinction relates to the premises on which the relevant supplies of food are to be consumed. A distinction is drawn between supplies of food for consumption on the premises on which the food is supplied (eg in a restaurant, café or sandwich bar) and supplies of food for consumption elsewhere (eg in the office, in the park or at home) .
5. Two general rules and an exception should also be noted:
(1) Standard rating
The general rule is that supplies of hot food are standard rated. This is so whether the food supplied is to be consumed on the premises on which the supplies of the food are made or on other premises.
(2) Zero rating
The second rule is that, subject to exceptions, supplies of food for human consumption are zero rated.
(3) Exception to zero rating
If supplies of food fall within the exception, standard rating applies. The relevant exception to zero rating is supplies of food "in the course of catering." This case is about the nature and scope of the exception. The precise question for the VAT Tribunal was whether supplies of sandwiches to customers by Compass from its food outlets at the BBC Television Centre are "in the course of catering."
On the scope of the expression "in the course of catering" Note (3) to Schedule 8 VATA 1994 is important. The Note deals separately with supplies of food for consumption on the premises and with supplies of hot food. Section 96(9) VATA 1994 provides that Schedule 8 is to be interpreted in accordance with the Notes contained in the Schedule.
According to Note (3) a supply of anything "in the course of catering" "includes (a) any supply of it for consumption on the premises on which it is supplied": see Note (3) (a) . This case is essentially concerned with supplies of sandwiches to be consumed by people who work at the BBC Television Centre or are visitors to the Centre, but not in the particular areas of the BBC Television Centre in which the Compass retail outlets are located and the supplies made.
Note (3) also deals specifically with supplies of hot food, which are indirectly relevant to this case. Any supply of hot food for consumption off the premises on which it is supplied is a supply "in the course of catering": see Note (3) (b) . The effect of the Notes is that standard rating applies whether the hot food is to be consumed on the premises or off the premises on which it is supplied.
Leapfrog appeal
The Tribunal disagreed with Customs' determination. It held that the supplies of sandwiches at 6 retail food outlets operated by Compass at the BBC Television Centre were not supplies of food "in the course of catering." Zero rating applied.
10. The Tribunal observed that the modern manner in which supplies of food are made has changed since a number of High Court authorities cited to the Tribunal on the interpretation of the statutory expression "in the course of catering." The Tribunal considered that the Court of Appeal should supply guidance on the issue. That explains the grant of permission by the Tribunal to appeal direct to the Court of Appeal. The Tribunal certified that its decision involved a point of law relating wholly or mainly to the construction of an enactment ( VATA 1994) , which had been fully argued before the chairman and considered by him: Article 2(b) Value Added Tax Tribunals Appeals Order 1986.
Outline facts
Compass makes supplies of sandwiches (as well as other items of hot and cold food and drink) to customers, who include thousands of BBC employees and visitors to the BBC Television Centre, at 6 retail outlets located in 4 principal buildings at the BBC Television Centre:
(1) The Filling Station in the Spur. This is the largest retail outlet with the greatest range of food, including hot drinks, hot soup, pizza and jacket potatoes, as well as sandwiches and other sorts of cold prepared food. There are about 50 adjacent seats grouped around tables close to, though not at, the Filling Station outlet. The Compass units do not provide seating and tables. Plates are not provided, though disposable cutlery is. Food and drink are generally placed in a paper bag at the cash till and then taken away by the customers for consumption elsewhere than at the Filling Station. A more limited range of food is on offer at the 5 other retail outlets listed below where a similar procedure is adopted.
(2) The Green Tea Bar in the Doughnut. This has seating for about 40 close to the unit. Chairs and stools, which are not provided by Compass, are grouped around tables.
(3) The Third Floor Tea Bar in the Doughnut.
(4) The Sixth Floor Tea Bar in the Doughnut. This is a counter. No hot food is available. Customers stand in the adjacent corridor as they are served.
(5) The Design Tea Bar in the Design Building
(6) The East Tower Tea Bar in the East Tower
The 6 retail food outlets were established at the BBC Television Centre after the BBC's decision in 2001 to outsource the performance of functions which were not central to its core activities. The provision of property-related services to the BBC, including management of food provision, was covered by a contract between the BBC and Land Securities Trillium (Media Services) Limited (LST) , a property partnership made up of a BBC entity and LST Media, dated 17 September 2001. Compass, which is the largest food service organisation in the world, was appointed sub-contractor by LST under a contract dated 3 October 2001 to provide food services to LST Media at, among other sites, the BBC Television Centre. The wide range of services covered by the Compass contract include a self-service restaurant, food bar "deli-bar" style service, a beverage vending service and a hospitality service for meetings, conferences and events. In accordance with the terms of the sub-contract Compass also entered into a contract direct with the BBC.
The relevance of the existence and the terms of the outsourcing contracts to the question whether a supply of food is "in the course of catering" was central to the arguments before the Tribunal and this court. Customs attach great importance to the overall and inescapable commercial catering/service contract context, within which Compass is enabled to supply sandwiches to customers at the BBC Television Centre. Customs argue that the supplies of sandwiches by Compass are closely associated with the fact of the catering services, which Compass contracted to provide at the BBC Television Centre to meet the needs of employees and visitors there.
Careful attention to the actual language of the legislation is all-important: the question is not whether the supplies of sandwiches by Compass are catering, but whether the particular supplies by Compass are "in the course of catering." Supplies of sandwiches may be made "in the course of catering" to someone other than the recipient of the catering services. So, Customs submitted, the catering service at a wedding reception is usually supplied by the caterer to the bride's father, but the items of food are supplied by the caterer to the wedding guests at the reception "in the course of catering."
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