UK Appeal Court (Civil Division)

Introduction

This case was concerned with the correct tax treatment to be applied to the sale of the LighterLife weight loss programme. The Appellant, Mr David Baxendale, was one of about 300 taxpayers who marketed the programme under the licence from Lighterlife Limited and who would be affected by the outcome of the appeal.

The Facts

The taxpayer provided a weight management programme based on a combination of nutritionally complete food packs and specialised counselling techniques. Participants paid for the food packs at the time of receiving them but made no specific payment for the counselling sessions.

The taxpayer contended that, for VAT purpose, the programme consisted of the supply of zero rated food packs, to which counselling services supplied were ancillary. The taxpayer submitted that the aim of participants was to lose weight which was achieved through the use of the food packs and not the counselling session. Also, he claimed that as the only payment received by the taxpayer was for the food packs, these constituted the only taxable supply. The HMRC argued that the participants were purchasing a programme and not the component parts; food packs and support services and these two elements constituted a single supply which was economically indivisible and as a supply of services, it was subject to VAT at the standard rate.

The Tribunal held that although no specific payment was made for the counselling services, the amount paid for the food packs also provided consideration for those services. There was therefore more than one supply and the question was whether there were separate supplies or a single composite supply. The Tribunal held they were separate supplies and that the consideration should be apportioned between the food packs and the support services in the ratio 2:1.

The HMRC appealed the Tribunals decision and submitted that that there was a single standard rated supply. The taxpayer sought to uphold the Tribunal's decision that there were two supplies but argued that the 2:1 apportionment of the consideration was wrong. The taxpayer contended for a 91:9 apportionment calculated on the basis of relevant profit margins.

The High Court allowed the appeal by the HMRC and held that there was a single supply of standard rated services. The taxpayer then appealed to the Court of Appeal and submitted that the Tribunal was right to find that it made separate supplies of food and support services but still contended for the 91:9 apportionment if he succeeded on that appeal. The initial argument that it was a single composite supply of zero rated food was no longer a concern at that point.

Issues

Weather the Tribunal was correct in its decision that there were separate supplies of food and services and not a single composite supply.

Decision

The Court of Appeal dismissed the appeal, based on the facts found by the Tribunal, and determined that the proper conclusion was that what the typical customer purchased was a single package of food packs and support services which they wished to use in combination with each other and which, in the context of the transaction, were not economically divisible. The Judge described them as re-enforcing each other which is what they are intended to do. They were to be taken together and were purchased on that basis. The evidence was that the typical consumer regards them as complementing each other and values them both. The Judge held that it would be artificial to split up what anyone wishing to use the programme would regard as a single economic supply.

The judgement is available on-line at http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2009/831.html&query=title+(+baxendale+)&method=boolean