Spa & Resort Operations Ltd v Her Majesty's Revenue & Customs, V 20979

20979

VAT – output tax – face-value vouchers issued by appellant to guests at health and beauty treatment spas – assuming vouchers issued by appellant face-value vouchers whether supplied for consideration – no – alternatively whether vouchers discount vouchers – yes – appeal dismissed

MANCHESTER TRIBUNAL CENTRE

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Tribunal: David Demack (Chairman)

Sitting in public in Manchester on 9 and 10 November 2008

James Puzey of counsel, instructed by the Solicitor and General Counsel for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

Introduction

1. The appellant company, Spa & Resort Operations Ltd (“Operations”) appeals against a decision of Her Majesty’s Commissioners for Revenue and Customs (“HMRC) by letter of 29 March 2006 and assessments to VAT totalling £430,560 made consequent upon that decision. The decision relates to the correct VAT treatment of certain vouchers supplied by Operations as part of a business promotion scheme designed to attract guests to its residential and day spas for health and beauty treatments. Operations claims that such treatments constitute one supply, and that the vouchers, which are supplied to all guests for consideration, are another. It maintains that the vouchers are “face-value” vouchers being paid for by its guests at their full value, so that it is required to account for tax on them only when they are redeemed.

2. HMRC’s primary case is that, assuming the vouchers are “face value” vouchers, no consideration is given for them, and that the entire payment made by the guest, being attributable to a taxable supply, results in an immediate output tax liability. Alternatively, first HMRC maintain that if the vouchers are supplied as part of a composite transaction, they fall outside paragraph 7(6) of Schedule 10A to the Value Added Tax Act 1994, and are thus to be treated as supplied for no consideration. Secondly, they contend that the vouchers are discount vouchers, simply conferring a right to a discount on the price of a future stay at Operations’ residential spa.

3. I set out in the Schedule to my decision the legislative provisions I am required to consider.

4. Mr. Roger Thomas of counsel appeared for Operations, and Mr. James Puzey, also of counsel, for HMRC. They produced an agreed bundle of copy documents, and I was provided with other bundles containing the authorities on which they rely. Oral evidence was given by Mr. Stephen Frederick Joynes, the president of Operations’ holding company and a director of Operations, and by Mrs. Dianne Roxborough, HMRC’s case officer. From the whole of the evidence presented, I make the following findings of fact.

The facts

5. First, I must explain that this appeal is concerned only with vouchers provided to guests purchasing treatment packages. However, in addition to those vouchers, Operations also separately sells vouchers which anyone may purchase for their full face value, and which may be applied in payment for treatments or for accommodation at its residential spa. Somewhat confusingly, it describes both types of voucher as gift vouchers – a fact which in itself may mislead those reading its information about vouchers. HMRC accept that vouchers on general sale purchased separately from a package are face-value vouchers supplied for consideration, and that Operations need account for VAT on them only on their redemption. In order to avoid further confusion, all further references in my decision to vouchers, unless specifically stated, are to vouchers supplied as part of a package.

6. Operations operates two spa resorts. The main one at Hoar Cross Hall, near Yoxall, Staffordshire, provides both residential and day facilities. The day spa at Yoxall operates under the style of Eden Day Spa. Operations other resort is at Eden Hall, near Newark, Nottinghamshire, where only day spa facilities are provided. At both its residential and day spas Operations offers a variety of packages of health and beauty treatments and, whilst I was not told so in terms, I presume that the majority of its guests are women. Where appropriate, I therefore propose to adopt the feminine gender in describing them.

7. A potential guest of Operations usually asks for details of the accommodation, treatments available and activities on offer at its spas. If she does, it will send her its brochure together with a copy of its “tariff”, a booklet containing the prices of the various packages on offer. Packages vary in price depending on e.g. whether they are taken mid-week, as part of a special offer for special occasions, and, in the case of residential visits, the type of accommodation the guest requires. The information contained in the brochure and tariff is also available on Operations’ website. As I understand it, payment for a package of treatments may be made in cash, by cheque, or by credit or debit card. It may also be made in whole or in part by the use of any type of gift voucher issued by Operations.

8. As part of its marketing plan, Operations supplies every guest purchasing a package of treatment with a voucher with a stated face-value. I shall shortly deal with the terms and conditions on which it issues vouchers, but for the moment confine myself to finding that each such voucher represents the right to receive goods or services to the value of the amount stated on it. A guest need not accept the voucher she is given, but should she not do so is given nothing in lieu of it.

9. Operations claims the economic purpose of its marketing scheme to be to encourage its guests to return to its spas, thereby “increasing their loyalty”. That appears to me to be a strong indicator that the essence of the scheme – its “cause”, to use the Community term – is to encourage those guests to return to the spas and pay for their treatments at discounted rates.

10. Operations maintains, but I make no finding, that including a voucher in each package of treatments supplied has two marketing advantages:

1. it increases the “value” of the package to the guest; the number of items being bought is thereby increased, which has an effect on a guest’s perception of value. It would be impossible to remove the supply of a voucher from a package without adverse reaction from potential guests; and

2. it encourages guests to return to Hoar Cross Hall, or to change from being day visitors to residential guests (see the terms and conditions on which vouchers are supplied at [13] below). Operations maintains that in consequence a redeemed residential value is worth over £220 to the company.

11. Although HMRC claim that not all the information available to guests refers to the provision of vouchers, I am quite satisfied that the vouchers are referred to in most of its publicity and other material of interest to potential guests. I am also satisfied that notices at the spas, in reception, bedrooms and some other places draw attention to the provision of vouchers, but make no mention whatsoever of their value, or their terms and conditions.

12. Over...