First-tier Tribunal considers whether a single supply may be taxed at two VAT rates
When a taxpayer makes a supply of goods or services, it is not always clear cut whether there is more than one supply, or a single composite supply for VAT purposes.
Although this is a fact sensitive question, the Courts have provided some guidance on how this issue should be approached. In finding for the taxpayer in Colaingrove Limited v HMRC  UKFTT 116 (TC), the First-tier Tribunal ('FTT') had to consider not only this question, but also whether national legislation provided for separate VAT rates regardless of whether there was a single supply.
Colaingrove Limited ('Colaingrove') is the VAT representative member of the Bourne Leisure Group Limited, which operates a number of holiday parks and resorts in the UK, including Butlins and Haven Holidays caravan parks. This dispute centred on the VAT treatment of the electricity and gas supplied to chalets and static caravans at their holiday parks.
Colaingrove supplied power to holiday makers who stayed at Colaingrove’s chalets and static caravans whilst taking holidays which had been advertised as promotional offers in the News of the World and The Sun newspapers. Colaingrove had a contractual relationship with News International Limited, the owner of The Sun newspaper. Pursuant to this, The Sun published promotional ‘offers’ for holidays ('Sun Holidays') in static caravans and chalets (at heavily discounted rates) at certain venues, including Colaingrove’s holiday parks.
The contract between Colaingrove and the entity acting for News International Limited provided for the promotional offers to be published, for the discounted prices to be charged in the promotional offers as ‘holiday prices’, and for any supplementary charges, such as for gas and electricity, to be clearly indicated in the promotional offer, to be collected by Colaingrove either in advance or upon arrival. The terms of the contract between Colaingrove and a Sun Holidays customer provided for power charges to be made at a ‘per night’ rate. The attention of potential Sun Holidays customers was specifically drawn to this in a column in The Sun headed ’20 things every Sun holiday-taker must know’.
Separate amounts were charged to Sun Holidays customers in respect of accommodation and power. The charge for accommodation (typically around £60) was collected by the newspaper and held by it until the holiday had taken place. It would then be remitted to Colaingrove. The charge for power (typically around £12) was a fixed charge, which would be collected separately by Colaingrove from customers at the time they made their holiday reservation.
The charge for power was not optional – if the Sun Holidays customer did not pay it to Colaingrove by the specified date, the holiday would be cancelled. Power supplied to static caravans and chalets at Colaingrove’s parks was metered, but the FTT accepted evidence that in the periods in issue it would have been disproportionately burdensome and expensive to read the meter for each fixed caravan and chalet at the start and at the end of every holiday period, and Colaingrove therefore charged a fixed daily fee for fuel and power.
The parties' contentions
Colaingrove's primary argument was that the jurisprudence in the line of cases flowing from the judgment of the ECJ in Card Protection Plan Ltd v Customs and Excise Commissioners (Case C-349/96)  STC 270 ('CPP') concerning the discernment of single or multiple supplies for VAT purposes where a transaction comprises several elements, was not applicable in this case. This was because the application of a reduced rate was in issue.
In cases such as Talacre Beach Caravan Sales Ltd v Customs and Excise Commissioners (Case C-251/05) ('Talacre Beach') and European Commission v France (Case C-94/09) ('French Undertakers') the ECJ has recognised that a single supply can be taxed at two separate rates. In French Undertakers the ECJ held that legislation applying a reduced rate of VAT to the transportation of a body by vehicle, as a'concrete and specific element of the supply' of services by undertakers, fulfilled the conditions required by the relevant EU legislation providing for reduced rates to supplies of services including, inter alia, supplies of services by undertakers.
Colaingrove's alternative argument was that even if CPP was applicable, it made two supplies, one of holiday accommodation, and one of power for separate contractual considerations and the supply of power attracted VAT at the reduced rate.
HMRC, on the other hand, argued that CPP essentially requires the FTT to take an overall view of the commercial reality of a transaction, assessed from an economic point of view and without artificially splitting supplies. The nature of the supply or supplies made must be ascertained from the point of view of the typical consumer, and from that perspective there is only one economic supply - a supply of fully serviced holiday accommodation subject to VAT at the standard rate.
The FTT's decision
The tribunal accepted that in French Undertakers, the ECJ recognised and accepted that CPP did not provide ‘exhaustive guidance’ on the extent of a transaction, and that legislation providing for more than one rate for a single supply is compatible with EU law, provided that the reduced rate applies to a 'concrete and specific' element.
The FTT's task, therefore, was to determine whether the relevant UK legislation did apply the reduced rate to the 'concrete and specific' element of the supply, namely the supply of power. The FTT was comfortable that this approach would not undermine the CPP jurisprudence, since it can only be used in instances where the reduced VAT rate is an issue and the legislation indicates an intention that the CPP approach would not apply.
The FTT considered the question on the basis that references to 'supply' in the legislation carried the meaning that the nature of supplies concerned was to be ascertained by the CPP jurisprudence. Section 29A(4) VATA and Notes 4, 5 and 6 to Group 1, Schedule 7A, VATA, all contain indications that Parliament intended the reduced rate of VAT to apply to the ‘concrete and specific’ element (consisting of domestic fuel or power within Group 1, Schedule 7A, VATA) of a larger supply which (if the CPP jurisdiction were applicable to it) would fall to be characterised as something else.
The FTT therefore concluded that, notwithstanding the CPP jurisprudence, the UK legislation provides for a reduced rate of VAT to apply to the ‘concrete and specific’ element (which consists of domestic fuel or power within Group 1, Schedule 7A, VATA).
Whilst the FTT's findings above were enough to secure victory for the taxpayer, for completeness the tribunal went on to consider whether, if CPP did apply (i.e. if the tribunal was wrong on the primary argument), was there a single composite supply of serviced self-catering holiday accommodation or two supplies, one of self-catering holiday accommodation and one of power.
The FTT decided that, on the evidence, Sun Holidays customers realistically had no choice but to take supplies of power from Colaingrove. Whilst charges for power were invoiced separately by Colaingrove, this factor was not decisive. Applying the CPP jurisprudence, the FTT held that it would be artificial to split the transactions entered into by Sun Holidays customers with Colaingrove into two separate elements, one of a supply of holiday accommodation and a separate supply of power. There was therefore a single standard rated supply of serviced holiday accommodation.
This case clearly demonstrates the limits of the CPP line of cases. Whilst CPP provides a perfectly rational approach for considering the question of composite versus separate supplies, there are aspects of the domestic VAT legislation which are inconsistent with that approach. With the ECJ having accepted in French Undertakers that national governments were not prohibited from applying a different rate to 'concrete and specific aspects' of a single supply, the FTT was correct to look beyond the CPP approach in this case. This decision is likely to be of some concern to HMRC, and an appeal to the Upper Tribunal can be expected.