VAT – separate supplies or composite supply

Introduction

The appeal and cross-appeal related to the correct VAT treatment of the supply (or supplies) made by the Taxpayer to persons who participated in the LighterLife weight loss programme.

The Facts

The LighterLife Programme was a weight management programme for those who have a body mass index over 29 and in particular for those who had failed to lose weight by other means. It was a combination of nutritionally complete food packs and specialised counselling techniques.

LighterLife licenced its trademarks to counsellors such as the taxpayer. It sold the food packs to their counsellors at a price below the price charged on by counsellors. The counsellors were trained by LighterLife before they were licensed. LighterLife provided printed material and other items to the counsellors for them to sell or provide to the participants and also detailed course manuals setting and the way the programmes were to be provided to participants. Counsellors were expected to follow LighterLife practices and policies.

The Issue

There were three questions which were before the High Court:

1. Whether the Tribunal was right to hold that there were two supplies or whether HMRC was right that there was a single composite supply;
2. If HMRC was right on the first question: whether such a single composite supply was a standard rated supply or whether it was a supply of food and therefore zero rated;
3. If HMRC was wrong on the first question: the correct apportionment of the consideration between the supply of food and the separate supply of support services.

The Decision

First Question

The Judge held that the Tribunal was wrong in law in holding that there were two separate supplies; the correct legal answer was that the transaction involved a single supply for VAT purposes.

It was noted in the judgment that the ruling in the Court of Appeal in the case of Revenue and Customs Commissioners v Weight Watchers (UK) Ltd was available to the High Court, but not to the Tribunal.

It was found to be artificial to split the transaction in this case into the separate elements of a supply of food packs and a supply of support services. The basis for this decision was that a typical customer was buying the combination of food packs and support services. The two elements reinforced each other. In addition, from an economic point of view, it did not make sense for the supplier to charge, or for the customer to pay, separately for the elements of food packs and support services.

Second Question

Following on from the first question, it was held that the supply was standard rated and not zero rated.

In order for the decision to be different, the taxpayer's argument had to apply, that the supply of services was ancillary to the supply of food packs. However, the Judge did not think that the support services were subservient or subordinate or ministering to the food packs. In addition, the character of the single supply, which the Judge found to have been made in this case, was a supply of services and not a supply of food.

Third Question

On the basis that the Judge found in favour of HMRC, he did not consider the third question as it was based on the premise that HMRC had been incorrect.

The judgment is available online at http://www.bailii.org/ew/cases/EWHC/Ch/2009/162.html.