Customs have clarified their policy regarding whether a transaction consists of a single supply or two or more independent supplies, following the tribunal decisions in Southport Vision Plus (17498) and Leightons Ltd; Eye-Tech Ltd (17502). The tribunal found in favour of the appellants that the sale of spectacles and contact lenses by dispensing opticians should be regarded as two separate supplies: one of standard-rated goods and the other of exempt dispensing services.
Customs have clarified their policy regarding whether a transaction consists of a single supply or two or more independent supplies, following the tribunal decisions in Southport Vision Plus (17498) and Leightons Ltd; Eye-Tech Ltd (17502). The tribunal found in favour of the appellants that the sale of spectacles and contact lenses by dispensing opticians should be regarded as two separate supplies: one of standard-rated goods and the other of exempt dispensing services. The supply of dispensed spectacles and contact lenses therefore continues to be treated in the same way as since 1995. The sight test and supplies of dispensing services independent of the supply of spectacles or contact lenses continue to be exempt. The treatment of dispensed hearing aids, which is similar to that of dispensed spectacles and contact lenses, also remains unchanged. Customs are not appealing this ruling.
The tribunal took into account the existing agreement between Customs and opticians that dispensing services are a relatively high percentage of the total price of dispensed spectacles and contact lenses. Card Protection Plan v Commissioners of Customs and Excise (Case C-349/96) [1996] STC 2130 established the principle that a single price is not a decisive indicator that there is a single supply. In the light of the tribunal decision, Customs accept that if a distinct service element represents 50 per cent or more of the price of a bundle of goods and services, it will be a strong indicator that this service is not ancillary to a principal supply of any other goods or services in that bundle and that the consideration may need to be apportioned accordingly.
However, Customs will continue to challenge the apportionment and any attempt to use manipulated values in a way that might distort a decision about whether a transaction is a single supply or multiple supplies.
One of the tests established in Card Protection Plan is that a service should be regarded as ancillary to a principal supply, if it does not constitute an aim in itself but a means of better enjoying the principal service supplied. In the opticians' cases, the tribunal concluded that the dispensing service cannot be regarded as a means of 'better enjoying' the optical appliance, as it could not be enjoyed at all without the dispensing service. If taken too widely, that line of reasoning would imply that a service would only be regarded as ancillary where it was, in effect, an optional part of the package. Customs continue to believe that the primary test remains what the customer thinks he is buying. A service can be regarded as an ancillary part of a single supply even where it is a compulsory part of the transaction.
(Source: Customs Business Brief 3/02 dated 12 February 2002.)