The Ice Rink Company Ltd & Anor v Revenue and Customs (VAT - SUPPLY : Single or multiple) [2017] UKFTT 698 (TC)
FTT-Tax
The Ice Rink Company Ltd & Anor v Revenue and Customs (VAT - SUPPLY : Single or multiple)
[2017] UKFTT 698 (TC) · 2017-06-29
[79]UK legislation has specifically identified the hire of children’s footwear as attracting a lower rate of VAT and, in accordance with the C-94/09 EC v France (“the French Undertakers case”) , this amounts to a concrete and specific supply. 80. Colaingrove v HMRC [2015] UKUT 80 (TC) and [2017] EWCA Civ 332 (“ Colaingrove fuel” ) is distinguishable. Only UK and Ireland zero rate children’s clothing and footwear by virtue of art. 114 of the PVD. It is submitted that Parliament intended that the zero rate would apply to a wider interpretation of supply in s 30 and Group 16 Schedule 8 than the “supply” in Schedule 7A VATA (the reduced rate). 81. Children’s skates are only ever hired in the context of ice skating whereas electricity and fuel as in Colaingrove fuel can form parts of many different packages. It is conceivable that Parliament did intend for the zero rate in Group 16 to be carved out. 82. As to fiscal neutrality, it is standard practice in the industry to treat packaged supplies of admission and hire of skates as separate supplies, as indeed HMRC initially accepted with PIB. 83. It is also standard in the ten pin bowling industry as confirmed in HMRC correspondence. HMRC’s submissions 84. Mr Golder submits that in this case there is a single transaction for the supply of access to and use of an ice rink together with the supply of children’s skates, and there is therefore a single composite supply chargeable to VAT at the standard rate. 85. Elaborating, Mr Golder says that HMRC’s submission breaks down into three parts. 86. The first is the fact that multiple services including skate hire are advertised as a package and customers pay a single price, in support of which proposition Mr Golder submits that:(1) The websites show they advertised “skating with skates” as a package at a single price on their websites.(2) Customers without their own skates will purchase the whole package at reception, the first place a customer goes to when they arrive.(3) It is likely that most users will not own their own skates, and consequently typical customers will have to obtain skates to enjoy the facilities. It therefore makes perfect sense for the appellants to supply customers with skates at the same time the customer intends to skate.(4) Customers admittedly have an option to go for the package but if a customer does not have skates the easiest option is to hire the skates in the package. 87. The second is that for typical customers skating is their aim, in support of which proposition Mr Golder submits that: (1) The appellants have developed their business to encourage customers to skate at their facilities. (2) It follows that the hire of skates must be an ancillary supply, as it is, following CPP, “a means of better enjoying the principal service”. The skates are a necessary, but ancillary means of achieving the aim of skating. 88. The third is that the supply of ice skates is integral to the use of the ice rink, in support of which proposition Mr Golder submits that: (1) The supply of skates and the access to and use of the rink are so closely integrated that they form an integral operational and economic transaction. A customer cannot have one without the other. (2) While some customers will have their own skates, if a customer does not posses their own ice skates they expect the ice rink to supply them. (3) The Insight data shows that nearly 70% of ice rink skaters skate for fun and half do not own their own skates. For them the skating with skates package is the only viable option. (4) It would then be artificial to separate the supply of ice rink access from the supply of skates (see CPP and Levob ), as that would distort the functions of the VAT system.(5) Levob shows that it is a strong indication of a single composite supply is two or more supplies would not be of particular use to the typical customer is they were supplies in isolation.(6) That HMRC zero rates gloves and magazines is correct because they are not supplies as part and parcel of another predominant supply. Here access is the predominant supply and the hire of skates ancillary (per CPP ) or equally, per Levob , they form an economically indissociable supply. 89. In relation to the argument put in the grounds of appeal that HMRC had not taken account of developments since CPP , Mr Golder assumes that to be a reference to the French Undertakers case. 90. That case permitted a member state to derogate from the general principle of VAT by allowing a lower rate of VAT ‘for concrete and specific’ aspects of what would otherwise be a single composite supply. 91. In Wm. Morrison plc v HMRC [2013] UKUT 247 (TCC) (“ Morrisons ”) the Upper Tribunal (Vos J as he then was) dismissed the notion that French Undertakers allowed Morrisons to carve out the charcoal element in their otherwise fully taxable supply of disposable barbecues because the lower rate for fuel legislation did not seek to describe any specific and concrete application of the fuel rate to charcoal supplied in a barbecue. 92. The logic of Morrisons applies equally to an attempt to carve out children’s footwear. The “section 30 is different” argument 93. In oral argument Ms Brown sought to draw a distinction, on the basis of the Court of Appeal’s reasoning in Colaingrove fuel , between the legislation for reduced rating in s 29A VATA and that for zero rating in s 30 VATA with a view to distinguishing French Undertakers and Morrisons. This argument had not been included in her skeleton, and while Mr Golder dealt with it on the hoof, I permitted him to make post-hearing submissions if he wished, which he did. 94. Ms Brown’s argument was that the reasoning in Colaingrove fuel (and in Morrisons and French Undertakers ) depended on the precise wording in s 29A VATA and the wording in s 30 was different. 95. The additional words in s 30(1) are “whether or not VAT would be chargeable on the supply apart from this section” before the paragraph stating that “no VAT shall be charged on the supply.” 96. These she said make it clear that a zero-rated supply included in a composite supply are always to be carved out. 97. HMRC say that the additional words are there for a completely different purpose. The words in s 29A that have the effect of allowing no carve out (the precise description of the lower-rated supplies) are the same as the words in s 29(2), the precise description in the saw terms of zero-rated supplies. Parliament could not have intended any difference. 98. The true purpose of the additional words is to establish a hierarchy of liability in a case where a supply might be both exempt or zero-rated. They cite in support CGI Pensions Trust Ltd v Commissioners of Customs and Excise [1998] VAT Decision 15926. Discussion 99. Unlike many VAT cases on the general issue of single and multiple supplies, this case was mercifully free of great long lists of European and domestic authorities. This is the correct approach because, as we have been told by Lord Hoffmann everything starts with CPP, and with the exception of Levob and maybe a domestic case or two, everything ends there. 100. In the House of Lords, after the Court of Justice (“CJEU”) had given its decision, Lord Slynn of Hadley said of that decision: “18. The court further held that in deciding whether a transaction which comprises several elements is to be regarded as a single supply or as two or more distinct supplies to be assessed separately, regard must first be had to all the circumstances in which that transaction takes place, taking into account: ‘29. . . . first, that it follows from article 2(1) of the Sixth Directive that every supply of a service must normally be regarded as distinct and independent and, secondly, that a supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical consumer, with several distinct principal services or with a single service. 30. There is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service. A service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied: Customs and Excise Commissioners v. Madgett and Baldwin (trading as Howden Court Hotel) (Joined Cases C-308/96 and 94/97) [1998] STC 1189 , 1206, para 24.’ (p 627.) Even if a single price is charged for the arrangements, which may indicate a single supply, it must still be considered whether the arrangements in the present case indicated that ‘31. . . . the customers intended to purchase two distinct services, namely an insurance supply and a card registration service, then it would be necessary to identify the part of the single price which related to the insurance supply, which would remain exempt in any event. The simplest possible method of calculation or assessment should be used. . . . ‘ Accordingly it is for the National Court ‘32. . . . to determine, in the light of the above criteria, whether transactions such as those performed by CPP are to be regarded for VAT purposes as comprising two independent supplies, namely an exempt insurance supply and a taxable card registration service, or whether one of those two supplies is the principal supply to which the other is ancillary, so that it receives the same tax treatment as the principal supply.’” 101. In CPP the VAT & Duties Tribunal had found that there were 15 elements in what was supplied by CPP to the customer. Holding that the characterisation of those elements as forming a single supply or more than one, the House, considering the elements from an economic point of view held that there was a principal supply, insurance, and an “ancillary” supply, the card registration service and other minor matters. Thus there was a single supply of an insurance transaction and the supply was therefore exempt. 102. CPP did not seem to decide what the approach should be to a package of supplies where it could not be said that there was only one principal supply to which any others were ancillary. 103. The CJEU faced this issue in Levob . In that case Levob , an insurance company, imported computer software from a US company and also commissioned the US company to customise the software for its operations (by translating it into Dutch etc) and to provide installation and training. Separate payment was made for the different elements (unlike the position in CPP where a single payment was made to CPP). 104. The CJEU said, of the approach that must be taken: “19 According to the Court’s case-law, where a transaction comprises a bundle of features and acts, regard must be had to all the circumstances in which the transaction in question takes place in order to determine, firstly, if there were two or more distinct supplies or one single supply and, secondly, whether, in the latter case, that single supply is to be regarded as a supply of services (see, to that effect, Case C-231/94 Faaborg-Gelting Linien [1996] ECR I-2395 , paragraphs 12 to 14, and CPP , paragraphs 28 and 29). 20 Taking into account, firstly, that it follows from Article 2(1) of the Sixth Directive that every transaction must normally be regarded as distinct and independent and, secondly, that a transaction which comprises a single supply from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must in the first place be ascertained in order to determine whether the taxable person is making to the customer, being a typical consumer, several distinct principal supplies or a single supply (see, by analogy, CPP , paragraph 29). 21 In that regard, the Court has held that there is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal supply, whilst one or more elements are to be regarded, by contrast, as ancillary supplies which share the tax treatment of the principal supply ( CPP , cited above, paragraph 30, and Case C-34/99 Primback [2001] ECR I-3833 , paragraph 45). 22 The same is true where two or more elements or acts supplied by the taxable person to the customer, being a typical consumer, are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split.” 105. It went on to say: “24 With regard to the dispute in the main proceedings, it is apparent, as held by the Gerechtshof te Amsterdam whose decision was the subject of the appeal in cassation pending before the referring court, that the economic purpose of a transaction such as that which took place between FDP and Levob is the supply, by a taxable person to a consumer, of functional software specifically customised to that consumer’s requirements. In that regard, and as the Netherlands Government has correctly pointed out, it is not possible, without entering the realms of the artificial, to take the view that such a consumer has purchased, from the same supplier, first, pre-existing software which, as it stood, was nevertheless of no use for the purposes of its economic activity, and only subsequently the customisation, which alone made that software useful to it. 25 The fact, highlighted in the question, that separate prices were contractually stipulated for the supply of the basic software, on the one hand, and for its customisation, on the other, is not of itself decisive. Such a fact cannot affect the objective close link which has just been shown with regard to that supply and that customisation nor the fact that they form part of a single economic transaction (see, to that effect, CPP , paragraph 31). 26 It follows that Article 2 of the Sixth Directive must be interpreted as meaning that such supply and such subsequent customisation of software are, in principle, to be regarded as forming a single supply for VAT purposes.” 106. In our view in the light of the decisions in these two cases it is plain that in this case there are two supplies, a supply of the use of a skating rink and the supply of hire of ice skates. Neither is ancillary to the other as they both can be, and are, purchased on their own. Far from it being artificial to split the package into two, that is precisely what is in effect done in a substantial percentage of the appellant’s transactions with those using its facilities. 107. We do not think it matters at all that there is one price for the package which is different from the combined prices of the two elements taken separately, any more than it mattered in Levob that there were separate prices for the elements of a single supply. 108. From the customers’ viewpoint a consumer of the package is getting the two things they want. The two elements are dissociable, not because of any spatial separation between the ticket office and the skate hire booth, but because that is the only appropriate way of looking at the supply of the elements. 109. It is also a notable feature of this case that is not present in CPP , Levob or any other similar case of which we are aware that a substantial percentage of customers will choose to buy one or other of the element but not both, and that it is possible that the same customer may at one time buy a package and at another buy only one of the elements. Therefore it makes no sense to say that the elements are not dissociable when on a majority of the occasions that users enter the reception to use the rinks they choose only one of the two main elements, entry to the rink. 110. We therefore hold that the appellant’s appeal succeeds. 111. The appellant had what might be regarded as a first fall back and a second fall back position. 112. The first fall back position is that case law in the CJEU and domestically establishes that even though there is a single supply, an element of that supply taxed at a different rate may be carved out. 113. In our view Colaingrove fuel gives the conclusive answer in this case, without any need for us to embark on a lengthy survey of other decisions. In giving the only reasoned judgment Arden LJ said at [45] – [48]:[45]“45. In my judgment, HMRC are correct to say that the meaning of VATA is plain. The fuel charge does not apply where the supply is a composite supply of some other service.[46]Section 5 VATA applies to supplies of any form, but, as Mr Hyam submits, that does not mean that something which is not a supply for VAT purposes is to be treated as such. Moreover, a statute is not the place for a variable contextual meaning. Unless there is good reason for some other interpretation, a word used in a statute conventionally has the same meaning wherever it occurs in that statute. Paragraph 4 of Schedule 4, which states that the supply of fuel is to be treated as a supply of goods, throws no light on the issue in this case.[47]Section 29A applies the reduced rate to supplies which are ‘of a description’ specified in Schedule 7A. So the fuel charge is defined not by reference to use but by reference to the supplies described in Schedule 7A. It is not therefore a mere use-based test, as Mr Cordara submits.[48]Within Schedule 7A and 8 are a number of provisions for apportionment, but none of them applies where the fuel is part of a composite supply of fuel and some other goods or services. So the provisions for apportionment are not an indication that Parliament intended the fuel charge to apply where there was a composite supply of which fuel was the minor part, but to the contrary. If it had been Parliament's intention that the reduced rate should apply to an element of the supply, it would have inserted some similar apportionment provision. This is not a case (such as the exclusion of contents from caravans) where the CPP principles need to be excluded since fuel forms the minor part of a composite supply and is subject to the limitation that it must be supplied for domestic use. ”114. The reference by Arden LJ to Schedule 8 in [48] makes it clear that the scope of the decision is not limited to reduced rate cases such as Colaingrove fuel, Morrisons or French Undertakers . We can see nothing in the wording of Group 16 in Schedule 8 that could found the beginnings of an argument that it is outside the scope of the decision in Colaingrove fuel .115. As to the argument in the hearing about whether Colaingrove fuel and the other cases cited in it do not apply to Schedule 8 (zero-rating) because of a difference in wording, we find wholly convincing HMRC’s post-hearing submissions (and indeed Mr Golder’s submissions orally) as set out at §97 and §98 that there is no relevant difference between the wording of s 29A and that in s 30 VATA. Therefore Colaingrove fuel and Morrisons , which are both binding on us, apply to deny a carve out.116. Thus if we had found for HMRC on the main issue, we would not have changed our view because of this argument.117. We do not intend to consider the fiscal neutrality arguments because we do not need to, but more than that we do not think we had anything like the materials that would enable us to form any view. Mr Fife’s anecdotal experiences are not enough. Further observations118. We were not asked to consider whether the assessments made in this case were in fact made to the best of Mr Merson’s judgment. But we find it decidedly odd that following a VAT inspection and meeting with the management of PIB in 2012 after which he took policy advice and approved their zero-rating the hire of skates, he later reversed that decision, apparently because of the issue by HMRC of revised guidance to its staff about CPP (which had been heard years before) – see §14.119. Even odder was the decision to apply this guidance (or to have it applied by specialists for him) to the companies in this case without any attempt to discover whether there were any differences between PIB’s operations and that of the appellants and without visiting their operations or talking to their management. Indeed all he asked the appellants was whether their exempt or zero-rated sales covered children’s ice skates, and on the basis of their confirmation he justified his assessments.120. That the text of his letter to IRC was simply cut and pasted can be seen from the initially puzzling reference to PIB’s future conduct in it – see §17.121. Mr Merson also seems to have confessed that his figures in his assessments were obviously wrong.122. We also do not understand why PIB and possibly other cases in common ownership were not able to convince HMRC that it would cause them hardship to pay the VAT demanded, but the appellants could.123. Nor do we understand why if HMRC changed their view of CPP etc in 2012 or 2013 they felt it appropriate to assess large amounts (over £600,000 in IRC’s case) going back four years: obviously they had the statutory right to, but that should not necessarily the be all and end all.124. Finally to threaten Schedule 24 FA 2007 penalties on the basis of what Mr Merson knew (or did not know) when he threatened them was not, to our minds, the action of a reasonable VAT officer. Decision125. The appeals succeed and the assessments are cancelled.126. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. RICHARD THOMAS TRIBUNAL JUDGE RELEASE DATE: 20 SEPTEMBER 2017