Public & Commercial Services Union v Customs & Excise

For VAT attribution, Value Added Tax Act 1994, section 19(4) requires a proper attribution of the consideration, but prescribes no single valuation method. Market value is not invariably mandatory, and a cost method is not invariably impermissible. The court may consider the reliability of available market evidence, the relative margins and costs of the supplies, and the burden and complexity of the exercise. Where competing methods are both proper, the simpler method should generally be used. A best-judgment assessment cannot exclude material overheads without adequate inquiry or evidence. The taxpayer bears the burden of showing that the assessment is excessive.

The Union supplied members with a package of benefits funded by subscriptions, including zero-rated magazines. No separate price was attributed to the magazines. The Commissioners assessed VAT for six accounting periods under section 73 of the Value Added Tax Act 1994, using a cost-based attribution for the magazines.

The London Tribunal upheld the assessments, finding that the Union had not shown them to be excessive. On appeal, the Union argued that a market-value method should have been used, or alternatively that the Commissioners’ cost method contained errors concerning overheads, group magazines and mark-up.

1. The appeal was allowed in part. The Tribunal’s decision was set aside and the matter was remitted to a fresh Tribunal.

2. Under section 19(4) of the Value Added Tax Act 1994, the consideration must be apportioned by a method that is proper in the circumstances. The legislation does not require market value in every case. Customs & Excise v Madgett & Baldwin [1998] STC 1189 identified relevant considerations, including whether market evidence is reliable, whether margins are proportionate to costs, and the complexity of the respective methods. If both methods would be proper, the simpler method should generally be selected, following Card Protection Plan v C & E Commissioners [1999] STC 270.

3. The Union failed to establish that the limited sales of magazines to non-members provided a sufficiently reliable market value of £1.80 per copy. The Tribunal therefore committed no error in rejecting the market-value argument.

4. The cost assessment did, however, contain an error of law. The Commissioners excluded the Union’s substantial general employment overheads without adequate evidence or inquiry into whether those costs fairly benefited the production and distribution of the magazines. A broad-brush attribution was permissible, but the particular method adopted could not reasonably be used on the material available. The Tribunal erred by failing to identify and rectify that defect.

5. The challenge concerning group magazines failed on the scant evidence before the Tribunal. The mark-up issue was not determined because the overheads issue required remission; any observations on that issue were provisional.

6. The burden remained on the Union to prove that the assessments were excessive. The assessments stood unless defeated, applying Grunwick Processing Laboratories Ltd v Commissioners of Customs & Excise [1986] STC 441 and the Court of Appeal decision at [1987] STC 357.

• London Tribunal Centre: The Tribunal upheld the Commissioners’ assessments and held that the Union had not discharged the burden of proving them excessive.
• High Court (Chancery Division): The Tribunal’s decision was set aside because the cost assessment wrongly excluded potentially relevant employment overheads. The matter was remitted to a fresh Tribunal.