Marks and Spencer Plc v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 27 June 2019 |
| Neutral Citation | [2019] UKUT 182 (TCC) |
| Date | 27 June 2019 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2019] UKUT 182 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Mr Justice Nugee, Judge Guy Brannan
Nicola Shaw QC, instructed by Joseph Hage Aaronson LLP, appeared for the appellant
Andrew Macnab, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs
Value added tax – Promotional offer of three food items for £10 with free wine – Whether output tax on wine element – Whether bespoke retail agreement applied to treat wine as supplied for nil consideration – Appeal dismissed.
The UT dismissed Marks & Spencer's appeal against the decision of the FTT that it should account for VAT on wine supplied to customers as part of a meal deal that was advertised as including “free wine”. Marks & Spencer argued that the wine was supplied for nil consideration and therefore no VAT was due.
Marks & Spencer ran a promotion called “Dine in for Two – £10 – with free wine”. Under the terms of the promotion customers who purchased a particular set of food items together paid £10 and received a free bottle of wine (or non-alcoholic alternative). If purchased separately the food items in question would in most cases cost more than £10.
The FTT concluded that “on proper analysis of the terms and conditions of the promotion the customer paid £10 in order to receive three food items and the wine, so the price must be allocated across the four items for VAT purposes” (para. 39).
Marks & Spencer argued that the fact that the wine was free was a clearly advertised part of the promotion. The promotion was similar to the promotion run by Kuwait Petroleum which gave customers who collected vouchers free goods (Case (C-48/97) [1999] BVC 250).
The UT reviewed the key authorities on consideration, including the Dutch potato case (Case 154/80) [1981] ECR 00445, Apple and Pear Development Council v C & E Commrs (Case No 102/86) (1988) 3 BVC 274, Tolsma v Inspecteur der Omzetbelasting Leeuwarden (Case C-16/93) [1994] BVC 117 and the recent National Car Parks Ltd v R & C Commrs [2019] BVC 30. It concluded that “the economic and commercial reality was that M&S was offering a package of four items and the word “free” was being used in a marketing or promotional sense in the same way that an offer might be described as “buy two get one free”. The wine would only be provided if the customer paid £10”. (para. 103).
The appeal was dismissed.
The UT reached the expected conclusion in this case, although the promotion was marketed as “buy three items for £10 get one free”, most consumers would regard the transaction as being “buy four items for £10”, the wine therefore was not free.
[1] This appeal concerns the correct VAT treatment of a promotional offer made by the appellant (“M&S”) called “Dine In for Two – £10 – with Free Wine” (“the Promotion”). The Promotion allowed a customer to choose three food dishes on payment of £10 and obtain a bottle of wine (or other non-alcoholic beverage) which was described as being provided “free”.
[2] Food items sold separately are zero rated for VAT but wine is standard rated. The issue in the appeal is whether the £10 should be apportioned between the food and wine, as HMRC contend, or whether, as M&S contends, the wine was supplied free of charge for VAT purposes.
[3] The First-tier Tribunal (Judge Thomas Scott) (“the FTT”), in a decision released on 10 April 2018, decided that the £10 should be apportioned between the food and wine. M&S, with the permission of this Tribunal, now appeals that decision.
[4] If we decide that the wine was supplied free of charge, a second issue arises. M&S contends that, in these circumstances, the supply of “free” wine falls within the terms of a Bespoke Retail Scheme Agreement (“BRSA”) entered into between M&S and HMRC. The BRSA is an agreement entered into pursuant to regulations 67 and 68 of the Value Added Tax Regulations 1995. If, however, we decide that the £10 should be apportioned between food and wine, it was common ground that the BRSA issue does not arise.
[5] The parties asked us to decide these matters in principle, leaving the calculation of the exact VAT liabilities which would flow from our decision to be determined between them.
[6] For the reasons given later in this decision, we have decided that the £10 should be apportioned between the food and wine. We therefore uphold the decision of the FTT and dismiss this appeal.
[7] For simplicity, decisions of the Court of Justice of the European Union and, prior to 2009, Court of Justice of the European Communities are referred to as decisions of the “ECJ”.
[8] The following summary of the facts is taken from [21]–[46] of the FTT's decision and references in square brackets are references to the relevant paragraphs in that decision.
[9] In March 2014 M&S first informed HMRC of its plan to change its existing promotional offer “Dine In for £10”. Under the new offer (the Promotion) the customer would be entitled to buy three specified items – a main course, side dish and dessert – for £10, and would be entitled to a “free” bottle of wine or alternative beverage. (FTT [27])
[10] Under the previous “Dine In” promotion, M&S offered customers three food items and a bottle of wine for £10. (FTT [34])
[11] The Promotion was introduced in May 2014 and was offered for limited periods of time in subsequent periods. It was not available online. It was described in marketing and promotional material, both in-store and on M&S's website, as “Dine In for £10 with Free Wine”. Instead of wine, customers could choose certain non-alcoholic beverages available under the Promotion. (FTT [36])
[12] The detailed terms and conditions of the Promotion were not available in stores. On the M&S website, typical terms and conditions were stated as follows:
Offer runs Thursday 1st May to Tuesday 6th May 2014 in selected stores in the UK. Subject to availability. Serving suggestions shown. Selected products only. Excludes Channel Islands, overseas' stores, M&S Outlet stores and Simply Food stores … See in store for details. Selected Main, Side and Dessert available for £10. Free wine only available to customers over 18 and in conjunction with the £10 meal for 2. Non-alcoholic alternative available. In the unlikely event that the free wine (as opposed to the non-alcoholic alternative) is not available or required, an alternative product or discount is not available, although the food selection in the “Dine in for £10” promotion can still be purchased. For the avoidance of doubt, as the value attributed to the free wine in this deal is £0.00, if returned, no refund will be due.
[13] The Promotion was advertised in stores with two displays, often adjacent. The first stated: “Dine In for Two £10 with Free Wine” and in small print “Selected products only. See individual tickets for details. Subject to availability. Please drink responsibly. Free wine only available to over 18s with the £10 meal.” The second stated “Main course + Side dish + Dessert All for £10”, and underneath that “With Free Wine or non-alcoholic alternative.” (FTT [38])
[14] The three food items in the Promotion could be purchased by a customer for £10 and tills in the stores were programmed to recognise a unique product code for that combination of items. The same code would recognise a bottle of wine being offered in the promotion and include it within the £10 charged to the customer. All the items – namely the three food items or the three food items plus the wine – would have to be bought in a single till transaction to attract the £10 price, although the customer's basket of goods could include any number of other goods outside the Promotion. (FTT [39])
[15] The till receipt for the Promotion would show each of the items, both food and wine, at their full prices, and then the total of those items as “Balance before Saving”. The receipt would then show as a deduction the saving on the food items, against the entry “Dine In Meal for £10”, and the saving on the wine against the entry “Free Wine or Non Alc.” The receipt would conclude “Items:4 Balance to Pay £10” and state “You Have Saved £x on Our Promotions Today.” (FTT [40])
[16] The policy relating to refunds under the Promotion was somewhat unclear, but the FTT made the following findings. If a customer returned any of the three food items he or she had bought in the promotion, he or she would be given a full £10 refund. If the customer sought to return the wine he or she might, at the discretion of the store, be given a replacement bottle, but in no circumstances would the customer be refunded any cash amount or given any future credit. (FTT [41])
[17] All of the items in the Promotion, including the wine, were offered subject to availability. In practice, stores had a limited measure of discretion in offering equivalent replacement items, within the terms of the Promotion. If an item was not available, in no circumstances was any cash alternative or discount offered to the customer. Although the online terms and conditions (see paragraph 12 above) might have implied that this policy did not apply to the non-alcoholic beverage in the promotion, this was not the case. (FTT [42])
[18] The aggregate shelf price of the three food items in the Promotion if bought separately varied considerably but would always have been at least £10, and in most cases more. (FTT [43])
[19] On average, the “free” wine would be the most valuable single item in the promotion in terms of its shelf price. (FTT [44])
[20] Although the customer did not need to take the wine in order to benefit from the £10 offer, in practice over 99% of customers did so. (FTT [45])
[21] In February 2014 M&S and HMRC entered into the BRSA. (FTT [26])
[22] A BRSA is mandatory for retailers whose turnover, excluding VAT, exceeds £130 million. As explained in HMRC Notice 727/2 at...
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