Ringside Refreshments v Customs and Excise

In determining who makes a taxable supply, the court must identify the relevant supply and analyse the contractual relationship between the parties. Where self-employed operators purchase goods, use equipment supplied by another and sell to the public, the written agreement may establish a principal-to-principal relationship. The court must then consider whether the parties operated consistently with that agreement or treated it as a sham.

Extensive operational control does not, by itself, establish agency. Control may be relevant to whether a person is an employee or independent contractor, but it is peripheral to whether that person supplies goods or services to the public as principal or as agent. An appellate court may intervene where a tribunal applies the wrong legal test or fails to construe and apply the material contractual terms.

Ringside supplied raw food materials and equipment to self-employed operators, who prepared and sold fast food to the public from Ringside’s vans and kiosks. The operators paid Ringside for the materials and were described in written agreements as purchasers trading on their own account.

The VAT and Duties Tribunal concluded that the operation was, in substance and reality, one business owned by Ringside, with the operators acting as its agents. It therefore treated the retail supplies as made by Ringside, although it disallowed a related penalty. Ringside appealed to the High Court under section 11 of the Tribunals and Inquiries Act 1992 on an error of law. The central issue was whether the operators supplied the cooked food as Ringside’s agents or as principals.

1. Appeal allowed. The tribunal’s decision disclosed errors of law.
2. The relevant supply was the operators’ supply of prepared and cooked food to members of the public. Since the Commissioners accepted that the operators were self-employed, the starting point was to construe the contracts governing the relationship between Ringside and the operators.
3. On their proper construction, clauses 1 and 6 of the purchasing contracts were consistent only with a principal-to-principal relationship. The operators bought the raw materials, undertook to trade on their own account and accepted responsibility for their own VAT liability. The contracts were not shams, and the tribunal’s findings did not show that either party had acted inconsistently with them.
4. The substantial control exercised by Ringside over prices, pitches, operating methods and continuation of the arrangements did not alter that conclusion. Such control could be relevant to whether services supplied to Ringside were performed by employees or independent contractors. It was, at most, peripheral to the distinct question whether the operators supplied food to Ringside or directly to the public.
5. Following and adopting the approach in Kieran Mullin Ltd v Customs & Excise Commissioner [2003] STC 274, the court held that the tribunal had failed to give proper legal effect to the written agreements. Its reliance on the degree of control, without reconciling that conclusion with the contractual terms, amounted to an error of law.
6. The tribunal also adopted an inappropriate test from Burrell (trading as The Firm) v Customs & Excise Commissioners [1997] STC 1413. That case concerned whether businesses owned by the same taxpayer were separate taxable entities, not whether operators were agents or principals.
7. Alternatively, the tribunal’s conclusion was unreasonable in light of its factual findings, applying the approach in Potter v Customs & Excise Commissioners [1985] STC 45. The retail supplies were therefore not to be treated as supplies made by Ringside through agents.

The VAT and Duties Tribunal determined on 7 April 2003 that the supplies were assessable to VAT but disallowed the penalty imposed for past failure to account for VAT. The High Court allowed Ringside’s appeal on errors of law.