Weight Watchers (UK) Ltd v HM Revenue and Customs Commissioner
| Jurisdiction | England & Wales |
| Judgment Date | 21 January 2008 |
| Date | 21 January 2008 |
| Court | Chancery Division |
Chancery Division.
Morgan J.
Peter Mantle (instructed by the Solicitor for HMRC) for the appellant.
David Milne QC (instructed by Lovells) & Greg Sinfield (of Lovells) for the respondent.
The following cases were referred to in the judgment:
Able (UK) Ltd v R & C CommrsUNKTAX [2007] EWCA Civ 1207; [2008] BTC 3
AH (Sudan) v Secretary of State for the Home DepartmentWLR [2007] 3 WLR 832
Beynon & Partners v C & E CommrsVATWLR [2005] BVC 3; [2005] 1 WLR 86
Card Protection Plan Ltd v C & E CommrsECASVAT (Case C-349/96) [1999] BVC 155; [1999] ECR I-973
Card Protection Plan Ltd v C & E CommrsVAT [2001] BVC 158
College of Estate Management v C & E CommrsVAT [2005] BVC 704
Cooke v Secretary of State for Social SecurityUNK [2002] 3 All ER 279
C & E Commrs v British Telecommunications plcVAT [1999] BVC 306
Edwards v BairstowTAXELR (1956) 36 TC 207; [1956] AC 14
Faaborg-Gelting Linien A/S v Finanzamt FlensburgECASVAT (Case C-231/94) [1996] BVC 436; [1996] ECR I-2395
Levob Verzekeringen BV v Staatssecretaris van FinanciënECASVAT (Case C-41/04) [2007] BVC 155; [2005] ECR I-9433
Napp Pharmaceutical Holdings Ltd v Director General of Fair TradingUNK [2002] 4 All ER 376
Value added tax - Supply of goods and services - Single or multiple supply - Taxpayer providing services and products for weight management and loss - Customers paying registration fee and meeting fee at first meeting and weekly meeting fee thereafter - Members receiving handbook and literature on registration at first meeting - Members receiving literature including monthly magazine at subsequent meetings - Whether taxpayer making standard-rated supplies or separate supplies of standard-rated services and zero-rated printed materials - Value Added Tax Act 1994, Sch. 8, Value Added Tax Act 1994 schedule 8 group 3Grp. 3.
This was an appeal by Revenue and Customs against a decision of a tribunal (No. 20,038; [2007] BVC 2,383) that the taxpayer organisation which provided services and products for weight loss and weight management at weekly meetings was making mixed supplies of standard-rated services and zero-rated printed matter.
The taxpayer offered members a weight loss programme. Customers attending their first meeting paid a registration fee plus a meeting fee. Thereafter, a weekly meeting fee was charged. New members received a handbook together with other items at their first meeting, and at subsequent meetings they received a weekly leaflet and a monthly magazine.
The taxpayer submitted that the supplies delivered at meetings had two separate components: supplies of standard-rated services and facilities, and supplies of zero-rated printed materials, neither component being ancillary to the other. In 2004, Customs had conceded that there were mixed supplies with 80 per cent being zero-rated. However, in 2005 that ruling was withdrawn and Customs indicated that the supplies at meetings were to be treated as a single supply of a weight-loss programme which was liable to VAT at the standard rate. In Customs' view it would be artificial to split the supplies into printed matter and other services.
The VAT tribunal allowed the taxpayer's appeal, deciding that there were mixed supplies of standard-rated services and zero-rated printed matter, although the zero-rated content of the supply at the first meeting was clearly greater (Decision No. 20,038; [2007] BVC 2,383). Customs appealed. Both sides agreed that the elements of the transactions could not be characterised in a way whereby one element was the principal element and another element was ancillary to it. Both sides agreed that the answer to the relevant question was to be found by applying the "artificial to split" test. Customs submitted that the tribunal had failed to take an overview which was required by the authorities; the tribunal had not approached the matter from the standpoint of a typical consumer contrary to the principles laid down in the authorities; the tribunal had misapplied the criteria of economic indivisibility and artificiality; the tribunal had not properly appreciated the significance of the decision in College of Estate Management v C & E Commrs [2005] BVC 704. Finally, Customs submitted that the answer provided by the tribunal to the question arising was wrong in law and should be reversed.
Held, allowing the appeal by HM Revenue and Customs in part:
1. Where two or more elements or acts supplied by a taxable person to a customer, being a typical consumer, were so closely linked that they formed objectively, from an economic point of view, a whole transaction, which it would be artificial to split, all those elements or acts constituted a single supply for purposes of the application of VAT. (Card Protection Plan Ltd v C & E Commrs (Case C-349/96) [1999] BVC 155; [1999] ECR I-973, College of Estate Management v C & E Commrs [2005] BVC 704 and Levob Verzekeringen BV v Staatssecretaris van Financiën (Case C-41/04) [2007] BVC 155; [2005] ECR I-9433 applied.)
2. The tribunal did not fail to form an overview having regard to all the circumstances. The tribunal correctly directed itself by reference to the legal test identified in Levob.
3. The tribunal correctly identified the criterion of the typical consumer by reference to Levob.
4. The tribunal did not misdirect itself on the issue of the economic purpose of the transaction or the question whether it was artificial to split the transaction into separate elements.
5. It was open to the tribunal in the present case to distinguish the College of Estate Management decision.
6. The characterisation of a transaction as a single supply or separate supplies was a question of law, involving an assessment of fact and degree and evaluation or judgment as to how the legal test applied to the primary facts. In cases such as the present there was a need for circumspection before reversing a specialist tribunal. However, it was open to the High Court to reverse the tribunal if the court was persuaded that, applying the correct legal test to the primary facts, the answer to the point of law was different from that arrived at by the tribunal, bearing in mind the need for circumspection. (Beynon & Partners v C & E Commrs [2005] BVC 3 and Able (UK) Ltd v R & C Commrs [2008] BTC 3 considered.)
7. Customs had not succeeded in showing that the tribunal had failed to apply the correct legal test to the primary facts found by them. Considering the correct characterisation of the transactions as a matter of law, in respect of the first meeting, it would be wrong to reverse the tribunal's decision that the transaction at the initial meeting comprised separate supplies of services and printed materials. Accordingly, the appeal was dismissed in so far as it related to the transaction involved in the first meeting.
8. The position at subsequent meetings was different. Applying the correct legal test to the primary facts found by the tribunal, the clear answer was that it would be artificial to differentiate between the services and the printed material at subsequent meetings. Accordingly, the appeal in relation to the treatment of the supplies at subsequent meetings was allowed.
Morgan J: The issue
[1] This is an appeal from a decision of the VAT & Duties Tribunal released on 8 March 2007 (Decision No. 20,038; [2007] BVC 2,383).
[2] The question before the Tribunal, which is the same question raised by the appeal to the High Court, was expressed by the Tribunal in paragraph 1 of its decision in these terms:
This appeal concerns whether customers of [Weight Watchers (UK) Limited], who attend weekly meetings at which they are weighed and can then remain to attend a talk and discussion period but in any event also receive a handbook and other printed material at the meetings, receive single standard-rated supplies of a weight loss programme or separate supplies of zero rated printed material and standard-rated support services.
[3] The Tribunal's findings of primary fact were set out in paragraphs 5 to 28 of the Tribunal decision. I will repeat those findings verbatim. I will also include paragraphs 2 to 4 of the Tribunal decision by way of introduction to those findings.
2. The appeal was against a decision letter dated 11 March 2005 that "with effect from 1 April 2005, the ruling given to you on 23 January 2004 is withdrawn" and Weight Watchers Classes "shall be treated as a single supply of a weight-loss programme which is liable to VAT at the standard rate." The ruling of 23 January 2004 was that the supplies were mixed supplies. In the letter of 11 March 2005 Customs accepted apportionment for the years 2003 and 2004 with 80 per cent zero-rated and 20 per cent standard-rated. Apart from the fact that the handbook in use from 2005 is very much larger than that used previously, there was no material change in the nature of the supplies. The ruling arose from a change in Customs' view of the law as to single and separate supplies.
3. The only witness was Mrs Melanie Stubbing, Senior Vice-President of Operations of the Appellant. She confirmed a witness statement, most of which was not challenged, and was cross-examined for a day and a half. She was an excellent witness who took considerable care in answering the questions put to her. In the nature of the dispute many of the questions were complex and sometimes lengthy, as were her answers. Given the nature of the cross-examination, it is unfortunate that there was no transcript.
4. Statements by five customers were accepted without challenge. There was a common bundle of documents with some specific exhibits, in particular the Switch handbook of 170 pages ("the Handbook").
The facts
5. The Appellant, which is a wholly owned subsidiary of Weight Watchers International Inc, offers services and products built upon its approach to weight management and weight loss. Most customers are...
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