HM Revenue & Customs v Weight Watchers (UK) Ltd

For VAT purposes, a transaction may comprise separate supplies where treating its elements separately is not artificial. The principal/ancillary test is not exhaustive. The court must examine all the circumstances, the essential features of the transaction, and the perspective of a typical consumer.

Whether supplies are single or separate is a question of law involving fact, degree and evaluative judgment. An appellate court should show circumspection before reversing a specialist tribunal, particularly in a borderline case, although the Edwards v Bairstow test does not apply merely because the issue arises from primary facts.

Weight Watchers’ first meeting involved separate supplies of services and printed materials. At subsequent meetings, the links between the services and printed materials were sufficiently strong that separating them would be artificial.

HM Revenue and Customs appealed from a decision of the VAT & Duties Tribunal concerning the VAT treatment of Weight Watchers’ meetings. Customers received printed materials and services including weighing, talks, discussion and encouragement.

The Tribunal held that the arrangements involved mixed supplies. The printed material was zero-rated under group 3 of schedule 8 to the Value Added Tax Act 1994, while the services were standard-rated.

The appeal concerned whether the transactions constituted single composite supplies or separate supplies, and whether the Tribunal had applied the correct legal test or reached an erroneous legal conclusion.

1. The appeal was allowed in relation to the transaction at a subsequent meeting and dismissed in relation to the first meeting.

2. The relevant VAT question is whether the elements supplied form objectively a single, indivisible economic supply which it would be artificial to split. The court must consider all the circumstances, the essential features of the transaction, its economic purpose and the perspective of a typical consumer. The principal/ancillary test is an available but non-exhaustive approach.

3. The characterisation of a transaction as a single or separate supply is a question of law, although it involves fact and degree, evaluation and judgment. On an appeal from a specialist tribunal, the High Court must show appropriate circumspection. It should not reverse a borderline evaluative conclusion merely because it would have placed the case on the other side of the line. The Edwards v Bairstow test is not required for this type of legal question.

4. The Tribunal had not materially misdirected itself. Its discussion of the typical consumer, economic purpose, physical severability and the distinction from College of Estate Management v Customs and Excise Commissioners did not amount to errors of law. The Tribunal was entitled to distinguish that decision.

5. At the first meeting, the registration fee and weekly meeting fee formed one transaction, but the printed materials and services were sufficiently dissociable. The materials had utility without meeting attendance, and the materials were supplied separately to At Home customers. Given the evaluative nature of the issue and the Tribunal’s conclusion, the High Court declined to reverse it.

6. At subsequent meetings, the printed material was closely linked to the meeting services. Its purpose was to contribute to the usefulness of those services and reinforce the member’s commitment to the programme. The case was not borderline, and it would be artificial to differentiate the materials from the services. The supply was therefore a single standard-rated supply of weight-loss services.

7. The question whether the Points Tracker, Points calculator and Membership card were zero-rated printed material was left for agreement or further directions.

• High Court (Chancery Division): appeal from the VAT & Duties Tribunal allowed as to subsequent meetings and otherwise dismissed.