VAT Tribunal Decisions - ALLISON PLAGER reports six recent decisions.

VAT Tribunal Decisions
ALLISON PLAGER reports six recent decisions.
Apportionment required
One of the appellants, Norman Smith, had disposed of his house to his niece and her husband, and gone abroad to live. However, he later returned to the United Kingdom, and decided to live with his niece. In order to accommodate him, a new dwelling was built next to the original house. This new house was partly new, but partly the conversion of an existing part of the house. For council tax purposes the two houses were separately assessed, and there was no reason why, in the future, they should not eventually be sold individually.
It was agreed that the greater part of the new dwelling was an enlargement of, or extension to an existing building, bringing it within paragraph (b) of Note (16) of Group 5 of Schedule 8 to the VAT Act 1994. Note (16) says:
' … the construction of a building does not include –
'...
'(b) any enlargement of, or extension to, an existing building except to the extent the enlargement or extension creates an additional dwelling …'
However, Customs said that for this paragraph to apply, the whole of the new building had to be contained within the enlargement, and this was not the case in this instance.
The appellants argued that the work as a whole created an additional dwelling, and that if necessary, an apportionment should be made of the cost of the 'new' work and the cost of adapting the part of the existing house which had been incorporated in the new.
The tribunal said that although there had been some alteration of the existing building, this was clearly an enlargement or extension. The natural meaning of the words in Note (16) was that an enlargement or extension qualified for zero rating, if an additional dwelling was created. There was no reason why the additional dwelling had to be wholly incorporated within that enlargement.
The supply fell within Item 2 of Group 5 and was zero rated in principle, but it was excepted from zero rating because it was an extension, unless the extension formed a new building. The tribunal said that the new building work should be zero rated, but the work undertaken in order to incorporate part of the original building should be standard rated. The appeal was allowed therefore in part.
(Michael, Gillian and Norman Smith (17035).)
Connected supplies?
The Institute of Chartered Foresters, a non-profit making body providing training, information and education in all aspects of forestry, appealed to the tribunal on a point concerning single or multiple supply for VAT. It applied to be registered for VAT with effect from April 1973 claiming that the supply of the right to obtain its journal, Forestry, at a discounted price from Forestry Publications Ltd should be zero rated. However, Customs said that the discounted price was part of the services supplied to members in return for a subscription, and it was therefore exempt from VAT.
The tribunal said that the question to be answered was 'what, as a matter of substance and reality, was the true consideration for the making of the two payments in question by the appellant's members who chose to subscribe to the journal?'. It was true that the subscription to the journal was additional and identifiable, but the discounted rate could not be obtained without the member paying his subscription fee. Thus the two subscriptions were connected. The appellant supplied Forestry at a discounted rate to members, and therefore part of those members' subscriptions covered some part of the cost of the journal. To treat the journal subscription as a separate supply would ignore the supply by the appellants of the right to members to obtain the journal at a discount.
Hence the case was distinguishable from The Automobile Association case [1974] STC 192 in which the Association's handbook was held to be a zero-rated supply separate from the other services provided to members.
The appeal failed.
(Institute of Chartered Foresters (16884).)
The design factor
The appellant, Medivac Healthcare Ltd, supplied various medical items. The company claimed under Item 2(g) of Group 12 of Schedule 8 to the VAT Act 1994 that five specific products:
medivac bedding;
medivac vacuum cleaner;
banamite dehumidifier;
medivac allergen medication system;
banamite anti-allergen spray;
qualified for zero rating when supplied to a handicapped person. Customs accepted that all the products, except the spray, were appliances for the purposes of Item 2(g). However, they questioned whether or not the products were designed for handicapped persons, and whether handicapped in this context meant chronically sick or disabled.
The appellant argued that each of the products was designed solely for use by sufferers from house dust mite allergy who were handicapped by the condition in the sense of being chronically sick or disabled.
The tribunal found that the main purpose of each product was either to reduce the house dust allergen or to neutralise its effect in those sensitive to it. The evidence of an expert witness was used. Eventually, the tribunal found as a fact that each product was designed solely for people whose symptoms to the dust mite allergy could be regarded as making them chronically sick or disabled, in the sense of suffering significant distress or degradation of quality of life. Thus the first four items were allowed.
With regard to the spray, Customs argued that this was not equipment or an appliance, but was a chemical and the canister was simply a container. In response, the appellant said that the spray was a composite supply. The tribunal, referring to the decision in GD Searle and Co Ltd (1290A), agreed with the appellant, saying that the canister was an integral part of the supply, and not mere packaging. Without it, the chemical served no practical use.
The appeal was allowed.
(Medivac Healthcare Ltd (16829).)
Educational supplies
Oxford Open Learning (Systems) Ltd supplied study packs, mainly for GCSE and 'A' level courses, to students enrolled with colleges of further education and considered that these were zero rated as a supply of books and the like. It purchased the study packs from Oxford Open Learning, which published the packs. The colleges of further education were keen to increase their numbers, so entered into an arrangement with Oxford Open Learning (Systems) whereby it would recruit students for courses and introduce them to the colleges. If the college provided everything the student required, then it would pay to Oxford Open Learning (Systems) a finder's fee. However, where the college did not have its own tuition resources, Oxford Open Learning (Systems) would supply freelance tutors. In this instance, the college would pay the appellant for the use of the tutors. In both situations, the appellant supplied the students with study packs, and the student paid the appellant according to the number of study packs supplied.
Customs argued that the appellant made a standard-rated supply of education in consideration for the fees paid by the students. The tribunal said that it took education to mean instruction, tuition or schooling, and that a supply of education meant the provision of such. It looked at the words of a booklet sent to prospective students, and agreed that from a reading of this, it would seem that the appellant was supplying the education in return for the students' fees. However, it is only when the student has sent in a completed application form and his fees that the appellant was committed to supplying the study pack and to procure the student's enrolment at a college.
The tribunal said that objectively, the real nature of the appellant's side of the bargain with the student was to supply the study packs and procure a place at a college. This could not be described as a supply of education. Oxford Open Learning (Systems) did not supply the student with instruction, tuition or schooling, it rather provided guidance and facilitated enrolment. The supply of study packs was a supply of goods and was zero rated. The college supplied the education under a learning agreement with the student.
The appeal was allowed.
(Oxford Open Learning (Systems) Ltd (16890).)
Accessory or not?
The only point in issue before the tribunal in this case was whether or not an emergency generator purchased by a nursing home for the severely disabled qualified for zero rating. It was accepted that the generator did not constitute medical equipment and was not part of any such equipment within Note (3)(c). However, the appellant claimed that it was an accessory within the meaning of that note.
Note (3)(a) states that 'relevant goods' includes 'medical … equipment for use in medical … treatment', and Note (3)(c) further includes 'parts or accessories for use in or with goods described in paragraph (a) … above'.
The tribunal understood the appellant's belief that the generator was an essential accessory enabling electrically powered medical equipment to continue to be used in the event of a mains power failure, and that this was in accordance with Customs' guidance notes in VAT Notice 701/6 item 5.3(k). However, the tribunal said that the generator was in the first place a substitute for the mains power supply, which could itself never be seen as an accessory. It followed that neither could the generator be seen as such. Electricity did not assist the functioning of the relevant medical equipment; it was essential.
The generator was not an accessory, and the appeal was dismissed.
(Royal Midland Counties Home For Disabled People (17010).)
Bagel banter
The Great American Bagel Factory Ltd made and sold bagels in a chain of shops in London, Leeds and Manchester. The bagels could be sold toasted, and Customs ruled that these fell into the category of hot food within note (3)(b) of Group 1 of Schedule 8 to the VAT Act 1994, and should therefore be standard rated.
The tribunal decided that the best way to make a decision was to view the process and taste the results. This it did. The tribunal also heard evidence from the managing director of the appellant. She said that the purpose of toasting the bagels was to create a crunchy interior to the bagel and to promote freshness. The idea was not to produce a hot bagel, and indeed many customers took the toasted bagels away to eat later. They were not marketed as hot.
The tribunal considered John Pimblett & Sons Ltd v Commissioners of Customs and Excise [1988] STC 358, Greenhalgh's Craft Bakery Ltd (10955) and Prêt à Manger (Europe) Ltd (16246) in reaching its conclusion, and decided that the aim of toasting the bagel was to produce a crisp surface texture. The bagels were not intended to be eaten straightaway. Applying the decision in Pimblett, the tribunal ruled that the supply of toasted bagels did not fall within note (3).
The appeal was allowed.
(The Great American Bagel Factory Ltd (17018).)