The Commissioners for HM Revenue & Customs v Gray & Farrar International LLP
| Jurisdiction | England & Wales |
| Judge | Lady Justice Simler,Lord Justice Newey,Lord Justice Lewison |
| Judgment Date | 13 February 2023 |
| Neutral Citation | [2023] EWCA Civ 121 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA 2022/000203 |
[2023] EWCA Civ 121
Lord Justice Lewison
Lord Justice Newey
and
Lady Justice Simler
Case No: CA 2022/000203
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
UPPER TRIBUNAL TAX & CHANCERY DIVISION
Mr Justice Adam Johnson and Judge Ashley Greenbank
Royal Courts of Justice
Strand, London, WC2A 2LL
Sarabjit Singh KC (instructed by HMRC Solicitors Office & Legal Services) for the Appellant
David Milne KC & Barbara Belgrano (instructed by Harbottle & Lewis LLP) for the Respondent
Hearing dates: 17 & 18 January 2023
Approved Judgment
This judgment was handed down remotely at 10.30am on 13 February 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Introduction
This appeal concerns the liability of Gray & Farrar International LLP (“G&F”) for Value Added Tax (“VAT”) on matchmaking services provided to clients outside the UK and EU. The outcome turns on whether the single service supplied constitutes “ services of consultants … and other similar services … and the provision of information …” within article 59(c) of Council Directive 2006/112/EC (“the Principal VAT Directive”). If so, and the client is outside the UK and EU, the services are treated as supplied outside the EU and therefore outside the scope of VAT.
G&F charged no VAT on supplies of their services to clients (for VAT periods between December 2012 and September 2016) belonging outside the EU on the basis that the service fell within article 59(c) because what was provided was consultancy services. By a decision dated 30 August 2016, the Commissioners for HM Revenue and Customs (“HMRC”) concluded that G&F's supplies of matchmaking services to clients outside the UK and the EU, did not qualify as consultancy, and were within the scope of VAT. Following an unsuccessful review, G&F appealed. The First-tier Tribunal (Judge Hellier and Ms Wilkins) (“the FTT”) agreed with HMRC (by majority, Judge Hellier having a casting vote) and dismissed G&F's appeal by a decision dated 8 November 2019, reported at [2019] UKFTT 0684 (TC). The FTT gave permission to appeal.
On G&F's further appeal, the Upper Tribunal (Tax and Chancery Chamber) (Adam Johnson J and Judge Greenbank) (“the UT”) allowed the appeal by a decision dated 25 November 2021, reported at [2021] UKUT 0293 (TCC), [2022] STC 94. The UT held that the FTT had erred in law by failing to apply the correct test for characterising the single service supplied, namely the “predominant element test” derived from EU law. The error led to the FTT's failure properly to characterise the supply made by G&F to relevant clients. The UT set aside the FTT decision, and remade the decision, holding that G&F's services were “ consultancy services … or similar services … and the provision of information” within article 59(c).
HMRC appeal with leave of Andrews LJ. There are four free-standing grounds of appeal, all directed at the UT's conclusion that the services supplied by G&F fall within article 59(c) and the domestic implementing legislation. They are:
i) Ground 1: the UT was wrong to set aside the FTT's decision on the basis that the FTT had failed to consider the application of the predominant element test. There is no mandatory requirement to consider or apply this test.
ii) Ground 2: if there is a predominant element test, the UT failed to characterise G&F's supply for VAT purposes as an introductory service and not within article 59(c) of the Principal VAT Directive.
iii) Ground 3: the UT wrongly found that G&F provided “services of consultants” (or similar services) within the meaning of article 59(c) of the Principal VAT Directive.
iv) Ground 4: the UT wrongly found that it could read “data processing and provision of information” in article 59(c) disjunctively and that G&F benefited from that provision merely if it provided information but did not provide data processing.
The appeal is resisted by G&F who seeks to uphold the UT's order for essentially the reasons it gave.
The parties are represented as they were below. Sarabjit Singh KC appears for HMRC and David Milne KC and Barbara Belgrano appear for G&F. The court has been assisted by their submissions, both written and oral.
The legislation
VAT is an EU tax charged on the supply of goods or services. The primary source of law on VAT was originally contained in Directive 77/388/EEC (“the Sixth Directive”), but on 1 January 2007 it was replaced by the Principal VAT Directive which applies to the period in issue in this case. As the two Directives contain effectively identical provision for present purposes, it is unnecessary to set out the corresponding provisions in the Sixth Directive (though they are discussed in the case law to which I shall refer).
Article 2.1 of the Principal VAT Directive defines the scope of VAT. It provides (among other things) that VAT is liable to be levied on “(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such …”. There are definitions of “taxable person” in article 9 and “supply of services” in article 24 but they are not in issue and it is unnecessary to set these out.
The general rule is that the place where a service is supplied is deemed to be the place where the supplier has established his or her business or has a fixed establishment from which the service is supplied, or in the absence of either, the permanent address where the supplier usually resides. There are, however, exceptions, for example as provided by article 59. Article 59 is headed “Supply of services to non-taxable persons outside the Community”. It provides so far as relevant to this appeal:
“The place of supply of the following services to a non-taxable person who is established or has his permanent address or usually resides outside the Community, shall be the place where that person is established, has his permanent address or usually resides:
(c) the services of consultants, engineers, consultancy firms, lawyers, accounts and other similar services, as well as data processing and the provision of information;
…”
As already indicated, article 59(c) is in essentially identical terms to the third indent to article 9(2)(e) of the Sixth Directive. The only difference is the reference to “consultancy firms” in article 59(c) which replaced the words “consultancy bureaux” in the third indent. Article 59(c) is therefore to be interpreted in the same way as the third indent.
Article 59(c) has been transposed into UK law by section 7(5) and schedule 4A, paragraph 16(2)(d) of the Value Added Tax Act 1994 (the “VAT Act 1994”). So far as relevant, paragraph 16 provides:
“(1) A supply consisting of the provision to a person (“the recipient”) who –
(a) is not a relevant business person, and
(b) belongs in a country which is not a member State (other than the Isle of Man),
of services to which this paragraph applies is to be treated as made in the country in which the recipient belongs.
(2) This paragraph applies to –
…
(d) service of consultants, engineers, consultancy bureaux, lawyers, accountants, and similar services, data processing and provision of information, other than any services relating to land,
…”
It is common ground in the appeal that the relevant supplies were not made to a “relevant business person”; that the person (or relevant client) “belongs in a country which is not a member State (other than the Isle of Man)”; and that the services were not services “relating to land”.
There is no dispute that the domestic legislation must be construed (so far as possible) in conformity with article 59(c) of the Principal VAT Directive. There is no suggestion that the domestic legislation has a different effect in this case. Accordingly I refer below to the words used in article 59(c) in preference to paragraph 16(2)(d) VAT Act 1994.
The Facts
The evidence before the FTT included witness evidence from Virginia Sweetingham, the founder of the business, and her daughter, Claire Sweetingham, the managing partner of G&F. The FTT made findings of fact set out at paragraphs 37 to 67 of the FTT decision. The UT summarised those findings at paragraph 10 of its decision and I gratefully adopt that summary as follows:
(1) G&F was founded by Virginia Sweetingham in 2005. In the early years of the business, she worked alongside her daughter, Claire Sweetingham. Claire Sweetingham took over the management of the business in 2010. She is the current managing partner.
(2) G&F describes its business in advertisements as a “matchmaking service”. It attracts potential clients through advertisements and word of mouth. When a potential client approaches G&F, generally by email or telephone, there will usually be a short telephone conversation in which the extent and nature of G&F's services and terms will be discussed and there may be some intimation of the prospective client's needs.
(3) A principle at the core of the business of G&F was and remains to take away some of the risks associated with dating by being an active intermediary. G&F's service includes some form of face-to-face contact with a client before any introductions are made. This enables G&F to verify its clients; it makes it more difficult for a person to present himself or herself differently as someone might do on an unmediated dating site; and it also enables a better match. To this was added, where appropriate, advice to a client on how to modify his or her behaviour.
(4) G&F now offers three levels of matchmaking service: Club, Custom and Bespoke; between 2012 and 2016 it offered only two (Club and Bespoke):
(a) For the Club service G&F agreed that over a 12 month period of...
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