David Baxendale Ltd v HM Revenue and Customs

A transaction containing several identifiable elements is not automatically divided into separate supplies merely because each element has independent utility or could be supplied separately. The court must make an objective, global assessment of the particular transaction and ask whether the typical consumer receives one indivisible economic supply. Contract terms, invoicing, a single price and the consumer’s purpose are relevant, but none is conclusive. Physical separation and the availability of similar goods or services elsewhere are not determinative. A weight-loss programme comprising food packs and counselling was therefore a single standard-rated supply because the counselling was integral to, and reinforced, the programme purchased by the typical consumer.

David Baxendale Ltd marketed the LighterLife weight-loss programme, comprising nutritionally complete food packs and weekly counselling sessions. The VAT and Duties Tribunal found that consideration was paid for both elements, but treated them as separate supplies and apportioned the consideration 2:1.

Morgan J allowed HMRC’s appeal and held that the programme was a single standard-rated supply: [2009] EWHC 162 (Ch). The taxpayer appealed, maintaining that the food packs and counselling were separate supplies and seeking a different apportionment. The central issue was whether the transaction was objectively a single indivisible economic supply or separate supplies for VAT purposes.

Patten LJ delivered the judgment, with the Master of the Rolls and Goldring LJ agreeing. The appeal was dismissed.

1. Appellate approach. Whether contractual arrangements involve one or more supplies for VAT purposes is a question of law. The appellate court must determine the correct VAT consequence by applying the relevant European law principles to the Tribunal’s findings of fact. Its task is not confined by the Edwards v Bairstow approach, and it need not identify a misdirection before reaching a different legal conclusion.
2. Composite-supply test. Under Article 2(1) of the Sixth Directive, supplies are normally distinct and independent. That principle does not permit an artificial division of a transaction which, viewed objectively from the typical consumer’s perspective, constitutes one indivisible economic supply. The court must assess all relevant circumstances, including the contractual terms, the basis of invoicing, the consideration and what the consumer acquired. A single price is relevant but not decisive.
3. The fact that components have separate utility, are used at different times or places, or could in principle be obtained from other suppliers does not determine the classification of the particular transaction. The inquiry is transaction-specific. The reasoning in RLRE Tellmer Property was confined to the context of lettings and cleaning services where the relevant arrangements could be separated.
4. On the Tribunal’s findings, the typical customer purchased the food packs and counselling as a continuous weight-loss and weight-stabilisation programme. The counselling was integral to the customer’s objective and reinforced the use of the food packs. It was therefore artificial to split the transaction into separate supplies. The programme was a single standard-rated supply.
5. The alternative issue concerning apportionment of the consideration did not arise.

• Court of Appeal (Civil Division): The appeal was dismissed. [2009] EWCA Civ 831 .
• High Court of Justice: Morgan J allowed HMRC’s appeal and held that the programme was a single standard-rated supply. [2009] EWHC 162 (Ch) .
• VAT and Duties Tribunal: The Tribunal held that the food packs and counselling were separate supplies and apportioned the consideration 2:1.