International Masters Publishers Ltd v HM Revenue & Customs

VAT mixed supplies are assessed by examining all relevant circumstances and the transaction’s economic reality. Each supply is normally distinct, but a single economic supply must not be artificially split. A tribunal that finds one element principal and another ancillary within a single supply will ordinarily have logically excluded a separate-supply analysis, provided its reasons show that it considered the transaction as a whole. Principal and ancillary terminology is not exhaustive. Some supplies are single supplies even though one element is central and indispensable rather than subordinate. Appellate courts should respect evaluative findings that are open on the evidence.

The appellant marketed a continuity series combining CD books, written material, cards and related items. The London VAT Tribunal treated each CD book as a single supply principally consisting of the CD, with the written material ancillary. It treated the cards as a separate zero-rated supply. Collins J dismissed the taxpayer’s appeal, holding that the tribunal was entitled to reach that conclusion in CH/2005/APP/4255. The taxpayer appealed, arguing that the tribunal had to decide separately whether the CD and booklet were separate supplies and had failed to account properly for cost and the continuity structure. The central issue was whether the principal-and-ancillary finding logically resolved the separate-supply question.

Appeal dismissed. Lady Justice Arden gave the leading reasons, with Lord Justice Rix and Lord Justice Pill agreeing.

1. VAT analysis begins with two principles. Supplies are normally distinct and independent, but a single economic supply must not be artificially split. The essential features of the transaction must be identified by examining all relevant circumstances and the position of the typical consumer, applying the guidance in Card Protection Plan Ltd v Customs and Excise Comrs Case C-349/96.
2. There are two possible analyses: separate supplies, or one supply containing principal and ancillary elements. Where a tribunal has properly found that the elements form the principal and ancillary parts of one supply, that conclusion logically excludes the alternative conclusion that they are separate supplies. It would nevertheless be preferable for the tribunal to address a separately advanced argument expressly.
3. Principal and ancillary are convenient terms, not a complete test. Ancillary means subordinate or serving the principal element. Some transactions are single supplies even though an element is central and indispensable rather than ancillary. The analysis should not strain the ordinary meaning of ancillary.
4. The tribunal had addressed the separate-supply issue in its paragraphs 6 to 8. Its findings that the CD book was one supply, principally the CD, and that the written material enabled enjoyment of the CD rejected the appellant’s alternative argument. Relative cost was relevant but, in the circumstances, subsidiary. The tribunal’s evaluative conclusions were open to it on the evidence.
5. Rix LJ observed that another conclusion might have been possible on different evidence, but evaluation was for the tribunal. Pill LJ considered the tribunal’s reasoning entirely convincing on the facts. The Court also held that Talacre Beach Caravan Sales Ltd v Commissioners of Customs & Excise Case C-251/05 did not directly assist on the issue before it.

• Court of Appeal (Civil Division): Dismissed the appeal on 8 November 2006. [2006] EWCA Civ 1455.
• High Court, Chancery Division: Collins J rejected the taxpayer’s appeal from the London VAT Tribunal in CH/2005/APP/4255.
• London VAT Tribunal: Treated the CD book as a single supply principally consisting of the CD, with the written material ancillary, and the cards as a separate zero-rated supply.