The High Court dismissed an appeal by the taxpayer against the decision of the VAT Tribunal ([2005] BVC 4,080; No. 19,034) that a part work consisting of CDs and written materials involved a standard-rated supply of the CD to which the written materials were ancillary.

Facts

The product sold by the taxpayer, a direct marketing company, was part of a series on classic composers. It comprised a compact disc (CD) and 12 pages of written material and illustrations. The taxpayer contended that the whole product was a book or booklet within VATA 1994, Sch. 8, Grp. 3, item 1 or, alternatively, that the CD fell within Grp. 3, item 6 as an article supplied with books, booklets, etc. and not separately accounted for.

The taxpayer considered that the product was a single supply of printed matter, the dominant purpose of which was the provision of written material in book form, with the CD being a means of better enjoying the printed material. The commissioners argued that the product was a standard-rated CD with some ancillary sleeve notes bound into the same cover. They maintained that a customer's primary aim was to buy the CD. The printed material did not constitute a book or booklet.

The VAT tribunal held that there were two separate supplies. The CD was the principal supply and the written material was ancillary thereto. A typical customer would be interested in listening to the CD and would regard the printed material as an aid to enjoying the music. The printed material did not constitute an aim in itself but a means of better enjoying the CD. The tribunal distinguished the circumstances from those of a CD supplied with a magazine. In such cases, the buyer's main intention would be to buy the magazine and to regard the free CD as an extra. Accordingly it dismissed the taxpayer's appeal.

The taxpayer appealed to the High Court, arguing that its supply of CD books was a single supply of a book and a CD which was zero-rated within Grp. 3 and the tribunal had erred in law.

Issue

Whether the supply was standard-rated or zero-rated for VAT purposes.

Decision

Collins J (dismissing the appeal) said that, in all the circumstances, there was nothing to suggest that the tribunal had erred in law. The tribunal had been entitled to conclude as it had with regard to the nature of the product on offer, particularly having referred to the introductory leaflet which highlighted the predominance of the CD.

In determining whether a transaction which comprised several elements was to be regarded as a single supply or as two or more distinct supplies to be assessed separately, regard should first be had to all the circumstances in which the transaction took place. From an economic viewpoint, a supply which consisted of a single service should not be artificially split but the essential features of the transaction should be ascertained to determine whether a taxable person was supplying the typical customer with several distinct principal goods or with a single supply of goods.

There was a single supply where one or more elements were to be regarded as constituting the principal goods, whilst one or more elements were to be regarded as ancillary goods. A supply of goods was ancillary to a principal supply of goods if it did not constitute for customers an aim in itself, but a means of better enjoying the principal goods supplied. A single price might suggest a single supply, although it was not decisive. However, if the circumstances indicated that the customer intended to purchase two distinct goods, it would be appropriate to make an apportionment (Card Protection Plan Ltd v C & E Commrs (Case C-349/96) [1999] BTC 5,121; [1999] ECR I-973 considered).

Chancery Division. Judgment delivered 19 January 2006.