HM Revenue & Customs v Weight Watchers (UK) Ltd

For VAT purposes, the question whether several elements constitute one supply must be answered objectively, by reference to the typical consumer and the transaction’s economic reality. A supply is single where its elements are so closely linked that they form an indivisible economic whole and it would be artificial to split them. Physical separability and the supplier’s ability to charge separately are not decisive. A single price is relevant but not conclusive.

Where a tribunal misapplies those requirements, an appellate court must correct the legal error and determine the proper characterisation from the facts found.

Weight Watchers operated a membership-based weight-loss programme, “Switch”. Meeting members received printed materials, were weighed, and could attend a leader’s talk and group discussion. New members also received a handbook and an orientation talk.

HMRC ruled that the meeting package was a single standard-rated supply. The VAT and Duties Tribunal held that the printed materials and support services were separate supplies, with the printed materials zero-rated. Morgan J upheld that conclusion for a first meeting but held that later meetings involved a single standard-rated supply.

Weight Watchers appealed concerning later meetings. HMRC cross-appealed concerning first meetings. The central issue was whether the meeting transactions comprised separate supplies of printed matter and services, or a single supply of a weight-loss programme.

1. HMRC’s cross-appeal was allowed and Weight Watchers’ appeal was dismissed. The meetings, whether first or subsequent, each involved a single standard-rated supply of the weight-loss programme. The court would, if necessary, affirm HMRC’s ruling of 11 March 2005.

2. The governing test under Article 2(1) of the Sixth Council Directive 77/388/EEC was that stated in Levob: the court must assess all circumstances objectively from the perspective of the typical consumer. It must decide whether the supplied elements are so closely linked that they form a single, indivisible economic supply which it would be artificial to split. The linkage is economic, rather than merely physical or temporal. A single price is relevant but can be apportioned and is not conclusive.

3. The Tribunal had erred in law. It wrongly treated the economic aspect as inapplicable to a retail supply, approached practical separability from the supplier’s viewpoint, and failed to identify and apply the perspective of a typical consumer. Objectivity and the typical-consumer perspective are cumulative requirements. Those errors affected both categories of meeting and required a fresh application of the correct test.

4. The typical consumer was a person who was, or was about to become, a meeting member in order to obtain the Switch programme. Its cardinal feature was the reinforcing combination of the diet information taught through the handbook and the group support available at meetings. Economically, it made no sense to treat the publications and meetings as separately purchased supplies. A first meeting was a necessary preliminary to obtaining that combined benefit; an enrolling or re-enrolling member was simply a subset of the same consumer class.

5. Characterisation of a supply for VAT purposes is a question of law. Although an appellate court should exercise ordinary appellate caution, the fact-finding test in Edwards v Bairstow did not govern this legal characterisation.

• Court of Appeal (Civil Division) — in [2008] EWCA Civ 715, allowed HMRC’s cross-appeal concerning first meetings and dismissed Weight Watchers’ appeal concerning subsequent meetings. It held that both were single standard-rated supplies.
• High Court, Chancery Division (Morgan J) — dismissed HMRC’s appeal concerning first meetings, but allowed it concerning subsequent meetings, which he held to be a single standard-rated supply.
• VAT and Duties Tribunal — allowed Weight Watchers’ appeal against HMRC’s ruling and held that the meeting transactions comprised separate supplies of printed materials and support services.