The Court of Appeal held that, for VAT purposes, the consideration received from customers attending meetings of the taxpayer's weight loss programme, for a combination of support services and printed materials, was in respect of a single standard-rated supply.

Facts

The taxpayer company offered its customers 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 received leaflets and a monthly magazine at subsequent meetings. The taxpayer claimed that the supplies delivered at meetings had two separate components: supplies of standard-rated services and facilities, and zero-rated supplies of printed materials, neither component being ancillary to the other. Customs took the view that there was a single standard-rated supply which it was artificial to split.

The VAT tribunal allowed the taxpayer's appeal, deciding that there should be an apportionment because 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 ([2007] BVC 2,383; Decision No. 20,038).

The High Court allowed an appeal by Customs in part, holding that, although it was necessary to apportion the consideration received from customers attending their first meeting between standard-rated support services and zero-rated printed materials, it would be artificial to differentiate between those supplies at subsequent weekly meetings where the taxpayer was in fact making a single supply of weight loss services ([2008] BTC 5,129).

The taxpayer appealed the decision in relation to the subsequent meetings. Customs appealed the decision in relation to the first meeting.

Issue

Whether the taxpayer was making standard-rated supplies.

Decision

Sir Andrew Morritt C (Hopper and Lloyd LJJ agreeing) (allowing Customs’ appeal and dismissing the taxpayer's appeal) said that in deciding whether there had been a single standard-rated supply for VAT purposes, the court had to have regard to all the circumstances and apply the relevant test on an objective basis. There were various formulations of what the relevant test was (in Card Protection Plan Ltd v C & E Commrs (Case 349/96) [1999] BTC 5,121; [1999] ECR I-973, College of Estate Management v C & E Commrs [2005] BTC 5,673, and Levob Verzekeringen BV v Staatssecretaris van Financien (Case C-41/04) [2007] BTC 5,186; [2005] ECR I-9433). Common to all of them were the requirements that the court must look at the transactions from the view point of the typical consumer rather than the supplier. The extent of the linkage between the relevant transactions had to be considered from an economic point of view, rather than, say, a physical, temporal or other standpoint. So regarded, the question then was whether it would be artificial to split them into separate supplies. The fact that the supplier had charged a single price for the aggregate of the transactions was a relevant circumstance but was not conclusive because that price might be apportioned.

Given the obvious interrelation between the first and subsequent meetings, the tribunal should have considered them in the order in which they occurred and tested the prima facie conclusions in relation to one category against the prima facie conclusions in relation to the other. The tribunal had erred in its conclusions in respect of both categories of meeting. It had erred in its consideration of the economic point of view and the typical consumer. The judge had been obliged to correct those errors of law but had failed to do so.

The correct legal test pointed clearly to the conclusions that there was a single standard-rated supply at meetings of each description in accordance with the original ruling of Customs. The typical consumer was about to become a member of Weight Watchers. The purpose of such a consumer in being or becoming a member was to obtain the benefit of the weight loss programme marketed by the taxpayer. One of the cardinal features of that programme was the combination of the diets as taught in the handbook and the group therapy to be derived from the meetings. If it was the combination which the member was buying, then it made no sense from an economic point of view to pay or be charged separately for the meetings and the publications. It followed that the events of the first meeting, from the point of view of the enrolling member, were merely a necessary preliminary to obtaining the benefits of the programme as a whole at that and any subsequent meeting.

In those circumstances it was unnecessary to consider whether the judge applied sufficient or excessive circumspection in his treatment of the various decisions of the tribunal. An appellate court on an appeal on a point of law such as this was entitled to interfere with the decision of the lower court or tribunal on wider grounds than those enunciated by the House of Lords in Edwards v Bairstow [1956] AC 14. In that case the House of Lords was considering findings of fact. In Dr Beynon & Partners v C & E Commrs [2004] BTC 5,794, the House of Lords held that the characterisation of a supply for VAT purposes was a question of law. It might be that in some circumstances the different tests would lead to the same result but that did not mean that the tests were the same or applicable in the same circumstances.

Court of Appeal (Civil Division)
Judgment delivered 25 June 2008.