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 the recent case of Colaingrove Limited v HMRC  UKFTT 116 (TC), the First-tier Tribunal (FTT) had to address 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 (as opposed to touring caravans) at the 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 in static caravans and chalets (at heavily discounted rates) at certain venues, including Colaingrove’s holiday parks (Sun Holidays). Touring caravans were not included within the scope of the promotion.
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 Holiday customer provided for power charges to be made at a ‘per night’ rate. The attention of potential Sun Holiday 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 Holiday customers in respect of accommodation and power. The charge for accommodation (typically around £60) was collected by The Sun and held by The Sun 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 the customer at the time when the customer made a holiday reservation.
The charge for power was not optional – if the Sun Holiday 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, hence Colaingrove charged a fixed daily fee for fuel and power.
Section 29A VATA provides that:
“(1) VAT charged on-
(a) any supply that is of a description for the time being specified in Schedule 7A … shall be charged at the rate of 5 per cent.
(3) The Treasury may by order vary Schedule 7A by adding to or deleting from it any description of supply or by varying any description of supply for the time being specified in it.
(4) The power to vary Schedule 7A conferred by subsection (3) above may be exercised so as to describe a supply of goods or services by reference to matters unrelated to the characteristics of the goods or services themselves.
In the case of a supply of goods [and by paragraph 3 of Schedule 4, VATA, the supply of any form of power, heat, refrigeration or ventilation is a supply of goods], those matters include, in particular, the use that has been made of the goods.”
Schedule 7A VATA provided as follows:
“Group 1: Supplies of domestic fuel or power
Item 1: Supplies for qualifying use of- …
(e) Electricity, heat or air-conditioning.
Note 3: Meaning of ‘qualifying use’
In this Group “qualifying use” means-
(a) Domestic use; or
(b) use by a charity otherwise that in the course of furtherance of a business. …
Note 4: Supplies only partly for qualifying use
For the purposes of this Group, where there is a supply of goods partly for qualifying use and partly not-
(a) if at least 60 per cent of the goods are supplied for a qualifying use, the whole supply shall be treated as a supply for a qualifying use; and
(b) in any other case, an apportionment shall be made to determine the extent to which the supply is a supply for a qualifying use.
Note 5: Supplies deemed to be for domestic use
For the purposes of this Group the following supplies are always for domestic use-
(g) a supply of electricity to a person at any premises where the electricity (together with any other electricity provided to him at the premises by the same supplier) was not provided at a rate exceeding 1000 kilowatt hours a month.
Note 6: Other supplies that are for domestic use
For the purposes of this Group supplies not within paragraph 5 are for domestic use if and only if the goods supplied are for use in-
(a) a building, or part of a building, that consists of a dwelling or number of dwellings;
(b) a building, or part of a building, used for a relevant residential purpose;
(c) self-catering holiday accommodation;
(d) a caravan; or
(e) a houseboat.”
The parties’ arguments
Colaingrove’s primary argument was that the jurisprudence in the line of cases flowing from the judgment of the CJEU 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 CJEU has recognised that a single supply can be taxed at two separate rates. In French Undertakers the CJEU 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.
The alternative argument relied upon by Colaingrove was that if CPP applied to this case, then 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 contended that the facts of this case were that Colaingrove made a single supply of fully serviced holiday accommodation, subject to VAT at the standard rate. HMRC highlighted the fact that the charge for power made to a Sun Holiday customer of Colaingrove was not related to a consumption of any specific quantity of power by the customer. HMRC accepted that if that were the case then there would have been a supply of power attracting the reduced rate, separate from the standard rated supply of holiday accommodation. HMRC’s rationale for this distinction was that where a customer is charged for the power actually consumed by him, it must follow that there is an element of choice for the customer as to how much, if any, power he will consume, which would demonstrate that the supply of power is in reality separate from the supply of holiday accommodation.
HMRC 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 serviced holiday accommodation, which it would be artificial to split.
In the view of HMRC, Colaingrove were seeking to “rob the CPP principles of much of their force” by contending that the wording of national legislation meant that CPP did not apply in the circumstances of this case.
HMRC also argued that allowing Colaingrove to benefit from the reduced rate of VAT in relation to a flat rate charge for power which is raised regardless of a customer’s actual usage of power would infringe the principle of fiscal neutrality.
The FTT’s decision
The FTT accepted that in French Undertakers, the CJEU 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 the reduced rate applies to a ‘concrete and specific’ element.
The tribunal’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 summarised the effect of the UK legislation as follows:
“Put shortly, these provisions seem to us to indicate that, quite apart from the expectations of a typical consumer of the supply as to what he/she was enjoying by receiving the supply, Parliament has provided for other criteria to apply in determining the nature of a supply of domestic fuel and power which is chargeable at the reduced rate. We agree with [Colaingrove] that these provisions indicate Parliament’s intention that a supply of fuel or power may qualify to be taxed at the reduced rate by reference not only to the nature of what is supplied (the ‘characteristics of the goods or services themselves’ – see: section 29A(4) VATA) but also by reference to the beneficial social purpose to be achieved by the supply – for example, the supply of gas or electricity in whatever quantity for use in self-catering holiday accommodation or a caravan (see: Note 6, Group 1, Schedule 7A, VATA).”
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).
The FTT also concluded that the principle of fiscal neutrality is not infringed if the reduced rate is applied to the supplies of power and that no distortion to competition results. The FTT endorsed Colaingrove’s example of “three caravans on a cliff-top”:
“The occupants of Caravan 1 have a contract with an electricity supplier for supplies of electricity, separate from their contract for the provision of holiday accommodation. HMRC agree that the resultant supplies of electricity attract the reduced rate of VAT. The occupants of Caravan 2 have a contract for supplies of electricity with the same person who provides the holiday accommodation, but the supplies of electricity are metered, the meter is read, and the occupants of Caravan 2 are charged a price for electricity which is directly related to the amount of electricity supplied. HMRC agree that the resultant supplies of electricity also attract the reduced rate of VAT. The occupants of Caravan 3 (Sun Holiday customers) have similar contractual arrangements as the occupants of Caravan 2, but the meter is not read and they are charged a price for electricity which is a per diem rate not directly related to the amount of electricity supplied (which is unknown) but ‘exclusively calculated on the basis of the period for which [the holiday accommodation is rented].”
The FTT was of the view that HMRC’s position (that the power should be standard rated in Caravan 3), would undermine the principle of fiscal neutrality because it would not treat similar supplies of electricity, which are in competition with each other, in the same way for VAT purposes.
Whilst the FTT’s findings above were enough to secure victory for the taxpayer, for completeness the FTT went on to consider whether, if CPP did apply (ie 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 Holiday 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 transaction entered into by a Sun Holiday customer 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 self-catering 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 CJEU 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.