National Federation of Occupational Pensioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 January 2018 |
| Neutral Citation | [2018] UKFTT 26 (TC) |
| Date | 23 January 2018 |
| Court | First-tier Tribunal (Tax Chamber) |
[2018] UKFTT 0026 (TC)
Judge Sarah Falk
Julian Hickey, instructed by Foxley Kingham Chartered Accountants, appeared for the appellant
Giselle McGowan, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Whether branches of the appellant are persons independent from the appellant for VAT purposes – Whether sums received by the appellant and rebated to branches are received as agent or are consideration for supplies by the appellant.
The First-tier Tribunal (FTT) held that branches of the appellant federation were independent “persons” for VAT purposes. However, rebates paid to the branches by the appellant formed part of the taxable consideration for supplies to its members.
The appellant membership organisation (NFOP) represented the social interests of approximately 83,000 occupational pensioners. This appeal related to the Value added tax (VAT) treatment of part of the membership subscriptions which it collected and paid to its branches as a “branch rebate”. The FTT was asked to consider two issues: firstly, whether the branches were to be treated as part of NFOP for the purposes of VAT or as separate autonomous and independent persons; and secondly, if the branches were found to be independent persons, whether the branch rebate should be included in the membership subscriptions paid to NFOP for VAT purposes or should be treated as an amount collected by NFOP as agent on behalf of the branches.
It was the appellant's position that the branches were separate persons for VAT purposes and that the branch rebate was simply subscription money collected by NFOP on their behalf, so that it should be excluded from the taxable consideration received by NFOP from the members. HMRC argued that the branches were not separate from NFOP and that the branch rebate element formed part of the consideration received by NFOP for VAT purposes.
The appellant submitted that its relationship with the branches was similar to that between a company and its shareholders, in that the autonomous branches controlled NFOP via general meetings and had the ability to change NFOP's constitution, whereas NFOP was not able to influence the day-to-day activity of the branches. In the appellant's view, if the branches met the test to be considered an unincorporated association, then they should be regarded as separate. The question of whether the branches carried on economic activities would only be relevant if they were required to be registered for VAT. In relation to the second issue, the appellant submitted that the branch rebate was not consideration for a supply made by NFOP. It maintained that NFOP merely acted as an agent or cash collector in respect of the branch rebate. As explained by Lord Neuberger in Airtours Holidays Transport Ltd v R & C Commrs [2016] BVC 17, there would be a supply for consideration only if there was a legal relationship pursuant to which there was reciprocal performance, with the remuneration received constituting the value actually given in return for the service supplied, which, according to the appellant, was not the case here.
HMRC submitted that the relevant question was whether any of the individual branches constituted a person independently carrying out any economic activity, within art. 9 of EC Directive 2006/112, the 2006 VAT directive. In their view, each branch was not independent from NFOP and HMRC went on to show how they considered the branches to be both controlled by NFOP and bound by its constitution. On the agency issue, HMRC's position was that the whole membership subscription was paid to NFOP for its membership package, including the opportunity to join a branch. There was no reference in the marketing material to members paying part of the fee to branches, and the subscription was defined in the regulations as money paid to the funds of NFOP. This pointed towards the branches not acting as agent of the branches.
Having considered the procedural basis of the appeal, the FTT held that the appeal was brought under VATA 1994, s. 83(1)(b), which related to the VAT chargeable on a supply. Both issues raised affected the calculation of the VAT chargeable by NFOP on its supplies to members in exchange for the membership subscriptions. If the branches formed part of NFOP then it should be accounting for VAT on supplies currently assumed to be made by the branches. A successful appeal by NFOP on the first issue would raise the question of whether VAT was potentially chargeable on branch rebates, as being consideration for supplies made by the branches. However, as regards output tax, that would be a matter for the branches rather than NFOP.
In deciding whether the branches were separate from NFOP for VAT purposes, the FTT first adopted the two part test of whether the branches were “persons” within the Interpretation Act 1978 definition on the basis that they were unincorporated associations, and then whether they met the test of economic independence. In accordance with the test described by Lord Hoffmann in Eastbourne Town Radio Cars Association [2001] BVC 271, the FTT was satisfied that each of the branches was an unincorporated association. Moreover, applying the principles described in Skandia America Corp (USA), filial Sverige v Skatteverket (Case C-7/13) [2014] BVC 43, the FTT found that the model branch was independent. It was clear from the judgment that the key focus was on economic risk and the branch carried such risk. NFOP's role was much more one of support, guidance and coordination than direction or control.
The FTT concluded that NFOP had done enough to establish that the branches were separate persons from NFOP. The appeal was, therefore, allowed in respect of the first issue. NFOP's appeal in respect of the second issue was dismissed on the basis that NFOP had not demonstrated that the branch rebate was collected on behalf of branches and belonged to them. Instead the amount paid formed part of the consideration for supplies made by NFOP to members. The appeal was allowed in part.
This is unlikely to be the end of the dispute in this case as, during the hearing, HMRC raised the separate question of whether the rebates paid by NFOP to the branches might form taxable “third party” consideration for supplies made by the branches to the members. The FTT held that the matter might need to be considered at a further hearing before the appeal can be finally determined.
[1] The appellant (“NFOP”) is a company limited by guarantee which was incorporated on 20 August 2009 as the successor entity to an unincorporated association. It is a membership organisation which represents the social interests of approximately 83,000 occupational pensioners. This appeal relates to the VAT treatment of part of the membership subscriptions collected by NFOP and paid on to its branches as a “branch rebate”. The agreed issues for determination are as follows:
- whether the branches are to be treated as part of NFOP for the purposes of VAT or as separate persons that are autonomous and independent; and
- whether the branch rebate should be included in the membership subscriptions paid to NFOP for VAT purposes, or should be treated as an amount collected on behalf of branches and belonging to them.
Issue (2) only becomes relevant if the answer to issue (1) is that the branches are independent persons.
[2] NFOP's position is that the branches are separate persons for VAT purposes, and that the branch rebate is simply a collection of subscription money on behalf of the branches, so that it should be excluded from the consideration treated as received by NFOP from members, with only the balance being taken into account for VAT purposes. This is the basis on which it has historically accounted for VAT. HMRC's position is that the branches are not separate from NFOP and that (whatever the answer on issue (1)) the branch rebate element forms part of the taxable consideration received by NFOP for VAT purposes, which then falls to be apportioned between zero and standard rated supplies. There was no dispute that the burden of proof is on NFOP in respect of both issues.
[3] The decision which NFOP challenges was originally made by HMRC by a letter dated 31 May 2011. It was confirmed in a letter dated 11 September 2013 and on review in a further letter dated 2 May 2014. NFOP appealed to the Tribunal on 30 May 2014.
[4] Neither party could assist by giving an indication of the amounts at stake in the appeal. NFOP's understanding is that, whatever the outcome of the appeal, they will be due a refund of VAT from HMRC because of a (separately agreed) change in the method of apportionment between standard and zero rated supplies. As I understand it, the appeal is being brought principally to establish the position for the future and because both parties regard the issues as one of principle that should be resolved. From HMRC's perspective the first issue at least is clearly also potentially relevant to the VAT treatment of other organisations.
[5] The position is complicated by the fact that there are some distinguishing features between branches, such that it might be possible to conclude that some of the branches are separate persons and some are not. Whilst Ms McGowan, for HMRC, did undertake an analysis which sought to group branches having common features, this was not straightforward and HMRC's stated preference at the hearing was that, if it became relevant do so, the Tribunal should make a separate decision in respect of each branch.
[6] For clarity and ease of reference only, I will refer on occasion to NFOP and its predecessor unincorporated association (in each case excluding the branches) as “head office”.
[7] The parties provided a helpful “Statement of Agreed Facts and Issues”. There was one...
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