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United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Compass Conttact UK Ltd v Revenue and Customs [2005] UKVAT V19053 (06 May 2005)
URL: http://www.bailii.org/uk/cases/UKVAT/2005/V19053.html
Cite as: [2005] UKVAT V19053
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- The Appellant, Compass Contract Services UK Limited, is the representative member of a VAT group which includes Compass Services UK and Ireland Limited. I shall generally refer to them, and each of them, indiscriminately, as "Compass". In October 2001 Compass entered into an agreement by which it undertook to provide food from various places within the BBC's Television Centre at Wood Lane, Shepherds Bush. The Respondents maintain that all of the supplies Compass makes pursuant to that agreement attract VAT at the standard rate, because they are supplies made in the course of catering. Compass accepts that some of its supplies meet that description, and are correctly standard-rated, but contends that the remainder do not, and that they are zero-rated.
- Formally, this is an appeal against the Respondents' decision, set out in a letter to Compass's accountants of 6 August 2003, that Compass must account for VAT at the standard rate on all the supplies it makes. The Respondents rely on two propositions, both of which Compass challenges: that the supplies are of catering within the ordinary meaning of the word (the "catering per se" argument); and that they also come within the extended, or clarified, meaning of catering in that the supplies are of food to be consumed "on the premises" on which it is supplied (the "on the premises" argument). Those propositions arise from the wording of Item 1 to Group 1 of Schedule 8 to the Value Added Tax Act 1994, by which (with section 30 of the Act) certain supplies of food are zero-rated. Those supplies of food which do not fall within the item are, by necessary implication, standard-rated.
- Those parts of Group 1 which are presently material read:
- I shall deal first with the facts of the case, before turning to the parties' arguments about the interpretation of the law and its application to those facts. The Appellant was represented by Jonathan Peacock QC, and the Respondents by Owain Thomas. I was provided with a statement of agreed facts but also heard evidence from three witnesses: Kevin Severn, the Assistant Catering Director of Land Securities Trillium (Media Services) Limited ("LST"), a company interposed in the contractual relationship between the BBC and Compass (and formerly a BBC employee); Andrew Barry, Divisional Finance Director of Compass Group plc, the ultimate holding company in the United Kingdom of the Appellant and of Compass Services UK and Ireland Limited; and Julian Fris, the Strategic Property Manager of the BBC's Property Division. The parties also produced a considerable volume of documents. Much of the evidence was undisputed, and in the interests of brevity I intend to set out my findings of fact, drawing attention to the evidence only when it is necessary to do so for a proper understanding.
- The Compass group, I was told, is the largest food service organisation in the world. Some of its business is carried on in high streets, or in places such as railway stations, using well-known trading names, for example Upper Crust and Harry Ramsden's, both of which it owns and operates itself, and Burger King and Pizza Hut, which are franchised to independent operators. A significant part of its business consists of food provision, in various ways, for corporate clients within particular market sectors, such as the healthcare industry and in education; those clients include the BBC. Some of the issues which arise in this appeal also arise in the context of other contracts into which Compass has entered (and some, I understand, also affect its competitors).
- Compass's contractual relations with the BBC are unusual and complicated, and they require some explanation. In about 2001, the BBC decided to change the arrangements by which it had hitherto undertaken functions ancillary to its principal activity of producing programmes and broadcasting them. Its purpose was in part to enable it to concentrate on its core activities, and in part to enable it, as it believed would be the case, to reduce the cost of its overheads, leaving a greater proportion of its licence fee income available for programme-making. Some of those ancillary functions it had hitherto carried out itself, usually by means of subsidiary companies, while the remainder were performed by other organisations pursuant to contracts between those organisations and the BBC. The functions of particular relevance in this case included the management of the BBC's substantial estate of properties, and the provision of food for those working in and visiting those properties. Prior to the change, food provision at the Television Centre was undertaken by a company then known as Sutcliffe Catering (UK) Limited which has since, and for unconnected reasons, become a Compass group subsidiary and, by change of name, has become Compass Services UK and Ireland Limited.
- On 17 September 2001, BBC Property Investment Limited, a BBC company which until then had managed its property estate, entered into a partnership agreement with LST (ultimately a subsidiary of Land Securities plc which, I was told, is Britain's largest property company). The partnership became known as the "Property Vehicle", and I shall so refer to it. On the same day the Property Vehicle entered into a further agreement, for "occupation and services", with the BBC by which the Property Vehicle undertook to provide property and facilities management services at various BBC sites throughout the country, of which the Television Centre is one. The agreement is of considerable length, and deals with a vast range of topics in minute detail. Those parts of it which deal with the availability of food to those working in and visiting the BBC's sites—that is, the provisions of immediate concern in this appeal—occupy only a very small portion of the whole.
- Although it is, nominally, the Property Vehicle which is to take over the running of the BBC estate, the task was in fact delegated to LST. It seems that the delegation had always been the BBC's underlying expectation, but if there is any document formally appointing LST as the Property Vehicle's delegate, with or without the BBC's consent, I did not see it. I deduce that the Property Vehicle partnership came into existence partly because the titles to some of the properties in the BBC estate were to be transferred to it and by this means there remained a BBC interest, and partly in order that the BBC retained some control over the Property Vehicle's (and LST's delegated) activities. The title to the Television Centre site was not one of those transferred to the Property Vehicle, and the site was instead the subject of a property agency and indemnity (or "PAIN") agreement, by which the Property Vehicle—in effect LST—became the managing agent of the buildings on it. Its position as managing agent carried with it the right to come into the Television Centre in order to perform its duties but, as I shall need to explain later, the fact that LST had no title to any part of the Television Centre had a number of consequences. One of those consequences, which Mr Thomas explored in some detail, is that the nature of Compass's tenure of the places within the Television Centre which it occupies is, if not obscure, rather difficult to identify.
- The agreement for occupation and services covers a vast range of topics, including the entire range of property maintenance and the day-to-day administration of the various sites. It descends to considerable detail, and it also covers such matters as the implementation of a decision by the BBC to move staff from one site to another, or to change the use of one site, or part of one site, and contingencies such as the failure of LST to perform its obligations. The depth of the detail by which the agreement deals with such topics is formidable. The range and nature of the services to be provided by LST, and the precise manner in which they are to be provided, vary in several ways from site to site, but those variations are largely immaterial for present purposes since I am required to consider only the Television Centre, and the arrangements for the provision there of food for employees and visitors.
- The partnership agreement and the agreement between the BBC and the Property Vehicle allowed for—and in reality contemplated—the procurement of services from third parties, described in the agreements as "Service Partners", although the Property Vehicle's, or LST's, relationship with them is not one of true partnership. The Service Partners do no more than supply goods or services, or both, in return for consideration. Compass Services UK and Ireland Limited became a Service Partner by an agreement dated 3 October 2001 between LST and itself. Compass undertook by the agreement to provide food at the Television Centre, and numerous other BBC properties; again, I do not need to describe the arrangements at those other properties. I should mention at this point that the services to be provided by Compass are frequently described, in all of the relevant agreements, as "catering" although the phrase "food provision" is also used. Mr Thomas was to argue that the terms are, at least for present purposes, synonymous. Mr Peacock said in opening the appeal that it was about "food provision at the workplace", which he used as a portmanteau term to include both supplies of catering and supplies of food which do not amount to catering.
- Compass began to make supplies in about November 2001. At approximately the same time LST entered into agreements with a great many other companies which were to provide services such as security, the BBC's information technology infrastructure and cleaning.
- The agreement between LST and Compass, too, is lengthy and detailed. It follows the format of the agreement between the Property Vehicle and the BBC, with which it is intended to be compatible, to the extent that its schedules bear the same numbers as the corresponding schedules of that agreement, those schedules containing provisions which are of no relevance to this agreement being simply omitted. Its purpose is to impose on Compass those obligations which were originally imposed on the Property Vehicle which are relevant to Compass, with no more modification than is inescapable. By this means the BBC is able to ensure that its wishes are fully respected, in substance and in detail.
- Accordingly, the agreement between LST and Compass requires Compass to make food available at BBC properties, including the Television Centre, and to do so to standards prescribed by the BBC. Those standards cover matters such as the times of day at which food is to be available and the quality of the food (which is to be "nourishing" and "healthy" and of sufficient variety). The BBC reserved to itself the right to monitor Compass's performance by measuring it against a previously agreed list of standards; the monitoring was not delegated to the Property Vehicle. The BBC undertook monitoring for, I was told, the first two years after Compass began to make supplies, but it was then discontinued. The BBC also reserved some rights—which I understand it has not exercised—to dictate the prices charged by Compass. Although there has been no formal direction by the BBC, and Compass is able to set its own prices by reference to normal high street prices, it nevertheless consults the BBC about them, and they have a bearing on the financial relationship between Compass and, ultimately, the BBC.
- Compass was obliged by its agreement with LST to enter into a direct covenant with the BBC, as it has done. The covenant restricts Compass's ability to terminate its engagement to provide food (among other things, it cannot terminate some only of its contractual obligations), and it caters for disputes between LST and Compass; in appropriate circumstances the BBC can require Compass to enter into an agreement with itself, by-passing LST and the Property Vehicle, in order to ensure the continuity of supply. It is clear from the agreements that continuity (and not merely in relation to Compass) is a major concern of the BBC.
- It was apparent from the evidence that the availability of food to those working in or visiting the Television Centre, too, is something which the BBC considers to be important. In addition to those supplies with which I am concerned, Compass provides hospitality catering for people whom the BBC has invited to appear on its programmes and, for those who wish to eat a full, or light, meal it operates several restaurants and cafeterias within the Television Centre in which customers may sit down to eat. Many within the centre require no more than a sandwich or other snack, however, and it was in order to satisfy their needs that the outlets whose supplies give rise to this appeal came into existence. They were established some years before the times with which I am concerned, and remain in operation, though with some changes. As Mr Fris explained, recognising that employees would work more efficiently if they were able to buy what they themselves perceived to be good quality food, the BBC had decided to "bring the high street" into the Television Centre. Thus, although Compass's outlets within the Centre have their individual names specific to the Television Centre, it sells goods under its own brand names, such as Upper Crust, which are available in many places throughout the country, as well as branded products bought in from third party suppliers. The Centre also contains other shops with familiar names, not run by Compass and making different kinds of supply. The intention, as I understood Mr Fris's evidence, was to make the BBC's working environment as congenial as possible.
- The Television Centre consists of twenty-one buildings on one site, including a multi-storey car park on adjacent land, separated from the main site by a railway line under which there is a pedestrian tunnel. Some of the buildings are used for utility reasons only, but the main complex, containing several studios in which programmes are produced and from which they are broadcast, consists of four principal buildings, known as the "Doughnut" (because of its circular shape, with a central void), extending into the "Spur", which is structurally integrated with it; the Restaurant Building; the Design Building; and the East Tower. To gain access to the complex, it is necessary to pass through a security control point at the main entrance (or, if one has an appropriate pass, through another of the available entrances) but thereafter employees and visitors can pass freely from one building to another, either by walking between them at ground level, or by using walkways at certain other levels. Access to some areas within the buildings is restricted—visitors cannot, for example, walk at will into studios which are in use—but there are no restrictions on access to Compass's outlets.
- I was told that about 22,000 BBC employees and 38,000 non-BBC staff have rights of access to the Television Centre and are issued with cards enabling them to gain access through the security points. The non-BBC staff includes freelance workers, contractors and their employees (including Compass's employees) and those renting facilities within the Centre; the facilities are available to independent producers including even competing broadcasting companies and, I was told, use of the facilities by "outsiders" is increasing. On any one day, there might be some 8,000 people within the Centre, about half of them BBC employees, the remainder being made up of non-BBC employees and casual visitors, including "live" audiences for certain broadcasts, and those enjoying a guided tour. Members of the public, with no specific business at the Television Centre (such as forming part of an audience), are not admitted unless they are participating in a guided tour, for which the BBC charges a modest fee.
- Despite the meticulous detail of the agreements between the BBC and the Property Vehicle and between LST and Compass, neither makes any attempt to specify, by plan, description or otherwise, the places within the properties on the Television Centre site from which Compass is to provide the food, save that they are mentioned by name in one schedule which sets out the required minimum opening times and the types of food each outlet is required to sell. Since neither the Property Vehicle nor LST has any title to the Television Centre, or parts of it, LST could not grant a lease or licence to Compass, and the BBC has not done so—and, indeed, the agreements effectively preclude the possibility that it might. It was, no doubt, expected that Compass would take over the places hitherto used by Sutcliffe—which is what happened (although, largely because of Sutcliffe's absorption by the Compass group, there was in fact continuity)—and I understand that the names of the units previously used by Sutcliffe were adopted for the purposes of the schedule. With, at most, some limited exceptions Compass has retained those names. The BBC's agreement with Sutcliffe, which also related to several sites of which the Television Centre is only one, is similar: it identifies the units by name but only in the most general terms by location.
- Instead of delineating the units, the agreements proceed upon the footing that the BBC will make available to LST, which in turn will make it available to Compass, sufficient space within the Television Centre from which Compass can provide the services for which it has contracted, but the provisions take the form of an agreement to agree, and even then there is no direct obligation on the BBC to provide any, let alone a prescribed minimum amount, of space; the relevant provisions merely relieve Compass of its obligations to the extent that the space provided is inadequate for their performance. Thus, save for the evident assumption that Compass will occupy the space vacated by Sutcliffe, the location and size, and any other relevant characteristics, of the space which Compass is to occupy are, in effect, left to later oral agreement. One of the schedules contains a "pro-forma property memorandum" which, the agreement suggests, should be completed for each area occupied, but it is unsuitable as a means of defining the areas to be occupied by Compass and, I understand, has probably not in fact been used; at least, no completed example was provided. As Mr Thomas emphasised, not only are there no leases or licences, there are no written agreements or memoranda between the BBC and LST, between LST and Compass or between the BBC and Compass, delineating the units (or even prescribing their number). Indeed, in some respects the grant to Compass of the use of the units seems to be contrary to the provisions of the agreements, although there is provision for waiver of the requirements which it must be assumed, since there was no evidence on the matter, have in fact been waived.
- The extent and location of the various units which Compass in fact occupies are shown on plans which LST maintains as part of its duty of managing the buildings on the site. It seems to me that the plans amount to a record of the use which is made of the various rooms and other spaces at the Television Centre but they do not achieve, or set out to achieve, anything more. Nevertheless, the documentary evidence did indicate that the BBC had agreed, if only by silence, to Compass's occupation of the units and Mr Fris who, as I accept, is in a position to know, told me—in reality stating the obvious—that the BBC is not only aware of the location and extent of the units, but content that they are so occupied.
- Compass's 13 units (a neutral term I intend to use) can be divided into two categories (I disregard the vending machines which Compass has also installed at various places within the site). The first consists of the restaurants and cafeterias which I have mentioned and from which, as Compass agrees, it makes supplies of catering. Those units are not relevant to the present dispute. The second category consists of six units from which it makes some supplies which it accepts are standard-rated, and others which it maintains are zero-rated. The standard-rated supplies are of hot food or drinks, which come within paragraph (b) of Note (3), and of confectionery, carbonated drinks, crisps and similar items which are invariably standard-rated (they come within the "Excepted items" referred to in the heading of Item 1 of Group 1 of Schedule 8 but, as their detail is not material to the dispute, I have set out only a brief extract); those which Compass says are zero-rated are of cold food, principally sandwiches and prepared salads. None of the supplies is of raw food which must be cooked, or of cooked food requiring re-heating or some other form of preparation, before it is eaten.
- The hot food and drink are, of course, intended for immediate consumption. The cold food may be eaten immediately after purchase, or it might be kept for a short time, up to, say, an hour. The evidence was not precise, although Mr Barry said it would be inadvisable to delay consumption for very long. Quite where the boundary between immediate and non-immediate falls, in this context, is not, I think, an issue I have to decide. Mr Barry's comment, together with the fact that the goods with which I am concerned are sold from refrigerated displays, is sufficient to show that Compass's intention is that the food should be consumed immediately, taking that term to mean with minimal delay, though I accept that Compass has no control over its customers' use of the goods once they have been paid for, and that a few customers might have bought food well in advance of consumption. It is perhaps worth making the point, however, that in this respect Compass is in the same position as the proprietor of a high street sandwich shop.
- There are some differences between the six units. The Filling Station, in the Spur, is the largest of the six and provides the greatest range of goods for sale. Hot food—soup, pizzas and jacket potatoes—is dispensed by staff into take-away containers (plates are not provided), while customers take other foods and drinks from display cabinets or machines. Only disposable cutlery is available. A customer's purchases are generally placed in a paper bag at the cash till and are then taken away. The procedure at the other units—the Green Tea Bar, the Third Floor Tea Bar and the Sixth Floor Tea Bar in the Doughnut, the Design Tea Bar in the Design Building and the Tower Tea Bar in the East Tower—is similar, although those units offer, in general terms, a more limited range of goods: for example, the Sixth Floor Tea Bar offers no hot food, and in some other units there is no assisted service.
- The photographs within the documentation produced at the hearing, as well as the oral evidence, show that each of the units, save for the Sixth Floor Tea Bar, resembles a shop. Customers enter, select their purchases, pay for them and leave. The Sixth Floor Tea Bar is no more than a counter fronting a space in which the person operating the unit works, and customers stand in the adjacent corridor as they are served. None of the units has within it any seating, or even counters or tables at which customers might stand to eat or drink their purchases. They are, therefore, forced to go elsewhere in order to do so. However, there is seating close to the Filling Station and the Green Tea Bar. The availability of the seating is of particular relevance to the "on the premises" argument and I need to deal with it in some detail.
- The evidence, including the photographs, shows that the seating is quite suitable for the consumption of food and drink. Chairs and stools are grouped around tables of a convenient size and height. However, the number of seats is quite modest—50 at the Filling Station and 40 at the Green Tea Bar—and, I was told, it was provided by the BBC, in late 2003 or early 2004 (and therefore more than two years after Compass began making supplies) for the use of those who had no desk space of their own, and for informal "break-out" meetings. Around the walls there are power points and sockets through which laptop computers may be connected to the BBC's computer system and to the internet. The seating is available, without restriction, throughout the day to anyone who wishes to use it. Mr Fris told me that, while the BBC has no objection to its being used by those eating food, and it is in fact so used, that was not the purpose for which it was installed (which I accept) and, perhaps surprisingly, it is less heavily used between 12 noon and 2 pm than at other times of the day. Nevertheless, it became clear that a significant number of people do use the seating when eating food, even if those people represent a fairly small proportion of the total customers at the two units to which it is adjacent.
- In September 2004 Compass undertook a survey of customers at the six units with which I am concerned, in order to ascertain where they intended to consume their purchases. The survey was somewhat unsophisticated, and there is, I have concluded, some merit in Mr Thomas's criticism that those completing the survey sheets have, in some instances, done so in an ambiguous, and possibly incorrect, manner. Despite that, and the rather limited period covered by the survey, I am satisfied that the survey does give some impression of customers' intentions. It shows that, of the customers of the Filling Station and the Green Tea Bar, only a small proportion—under ten per cent—intended to use the nearby seating, although even ten per cent amounts to a significant number: in the case of the Filling Station about 120 people each day from Monday to Friday between 12 noon and 2 pm. Of the remainder, most said (according to the survey) that they would consume the food and drink elsewhere within the same building and a smaller number that they would do so in another building on the site, while a few intended to take the food off the site altogether. Customers of the remaining units could not consume their purchases on nearby seats, but were asked whether they intended to take them elsewhere within the same or another building on the site, or off the site altogether. The proportions differ, in some cases substantially, from those obtained from customers of the Filling Station and the Green Tea Bar, and from one day to another. Those differences could be accounted for, I was told, by the varying make-up of the potential customers, dictated by the nature of the nearby facilities and the programming schedules for the day.
- I did not find the survey of great help, and it is not apparent to me what relevance a survey undertaken at the other units has to the intentions of customers buying food at the Filling Station and the Green Tea Bar. It is, I think, sufficient to record that I am satisfied (both from the survey and by Mr Fris's evidence) that a substantial majority of customers buying food at those two units did not intend to make use of the nearby seating, but the survey does not lead me to any other useful conclusion. I do, however, accept the evidence that Compass and LST (and, I infer, the BBC) are indifferent about where any food bought from Compass is consumed. As Mr Barry put it, Compass's sole concern in this respect is its sales; what the customers do with their purchases is of no interest to it.
- In practice, it was clear, the lack of precision in the documentation about the location and extent of Compass's units has caused no difficulty. Irrespective of the plans which I have mentioned, Compass knows the extent and the boundaries of the spaces it may use, while the BBC and LST do not merely acquiesce in, but positively approve, its doing so. Mr Thomas did not suggest the contrary, but he did argue that the absence of any form of lease or licence, and the fact that the BBC could terminate such right of occupation as Compass had, or require it to move, even to a different site, indicated that Compass did not truly have any right to occupy a specific space, with the consequence that it could not be said to be occupying discrete "premises" from which it made its supplies.
- I will deal with the arguments at a later stage. The facts as I find them are that Compass does not have an enforceable right to occupy any identifiable part of the Television Centre, but it does have permission to occupy such parts of the Centre as it, LST and the BBC agree from time to time. It is true that the BBC could, if it chose, effectively terminate that permission, in respect of any one or more of the units, but I am satisfied that it is improbable that it would do so, save by asking Compass to move a unit from one location to another. Despite the negative nature of the obligation placed on LST and, through it, the BBC (that is, merely relieving Compass of its obligations if insufficient space is provided) it is clear to me that, short of a fundamental change in its policy, the BBC will continue to require, and make facilities available for, the provision of food at the Television Centre for the foreseeable future, and that a change of policy is unlikely. Thus although Compass occupies the units by what amounts, as I accept, to no more than leave, it nevertheless has a reasonable expectation of security. There is not, as I find it, any significant possibility that Compass will be required to leave the Television Centre unless it should be materially in breach of contract. Despite the marked difference between Compass's rights of occupation and those of a formal lessee—and I accept Mr Thomas's point that, the agreements being otherwise so meticulous, that difference must be deliberate rather than accidental—there is, in my judgment, little difference in a practical sense between the position of Compass and that of a formal lessee. Both can be confident of uninterrupted occupation, even if the lessee has but Compass does not have an enforceable right to that occupation.
- In fact, the BBC's acquiescence in Compass's occupation of the units goes even further. It extends to the grant by Compass of what can best (even if inaccurately) be described as a sub-licence to Costa Limited (a company which is not in Compass's group) in respect of a kiosk occupied by Costa Coffee. There is a formal agreement, reserving a substantial "concession fee" calculated as a percentage of turnover, made in February 2002 between Compass and Costa, which recites the BBC's request that Compass bring the Costa concession within its own operation and that Compass and Costa have agreed that Costa will give up the mobile site it had hitherto used and move to a permanent site. Whether or not LST had consented to the change, or had even been consulted about it, is not mentioned. It is unclear too what authority Compass had to grant a licence over a part of the Television Centre which it did not itself occupy, and in respect of which it had no kind of title. The agreements between the BBC and the Property Vehicle, and between LST and Compass, suggest that it is for LST rather than Compass to make arrangements of this kind; but, again, the evidence made it clear that, whatever the legal or procedural deficiencies might be, the BBC and LST were aware of and content with the arrangement.
- Mr Thomas observed that the agreement between Compass and Costa incorporates a plan, but the plan shows the layout of the unit (that is, the arrangement of the fittings within it) and not its location. However, it was clear from the evidence that here, too, the lack of precision had caused no difficulty. The location of the unit cannot be determined from the agreement but it is shown on LST's management plans and there can be no real doubt that all those concerned in the arrangements know precisely where it is. It is, in my view, inconsistent with the proposition that Compass had no expectation of security that, not merely with the BBC's acquiescence but at its request, it was permitted to grant rights of occupation to Costa. It is, rather, an indication that, whatever the deficiencies of the documentation, Compass in fact had a secure expectation of continuing occupation of the units.
- By contrast, and perhaps surprisingly against the background of the informal allocation of space, the agreements between the BBC, LST and Compass allow, and in quite elaborate terms, for variations of several kinds. On a larger scale, they deal with such eventualities as movements of staff from one site to another, as I have mentioned, but on a smaller scale they allow for the reallocation of space within a building. These provisions were invoked when the BBC asked Compass to abandon one unit, a mobile "cart" on the sixth floor of the Doughnut, and instead to operate from a fixed unit, now known as the Sixth Floor Tea Bar. It was apparent from the evidence that the change had been accomplished amicably on all sides, and with little or no formality. If, however, there should be disagreement between the BBC, LST and Compass about a change there is a carefully-designed dispute resolution procedure whose effect is that change cannot be forced on Compass at the BBC's whim. It is possible in some circumstances for Compass itself to instigate a change.
- Each of the six units operated by Compass and with which I am concerned is enclosed by walls. The Filling Station has two customer access doorways, one for entry and the other for exit, the Sixth Floor Tea Bar has only a staff door, and the other units have a single customer door, used for both entry and exit. The photographs of the units with which I was provided show that the floor surface changes, in colour if not in material, as one enters the unit from the adjacent corridor; it would, I think, be clear to a customer where the boundaries of the unit are. In each case the unit can be secured, by locking the doors or by closing and locking shutters. Compass keeps the keys, but a spare set is retained by the BBC's security staff. Although it is, I understood, possible to secure the Filling Station this is never done because it remains permanently open.
- The photographs show that there is some intrusion from the Green Tea Bar into the adjacent corridor. When the unit is open, some moveable display units are placed across the threshold, and the till is on a counter which, it seems, is so placed that the operator is forced to sit or stand partly in the corridor; indeed, the till itself may be wholly or partly in the corridor. When the unit is closed, however, the display units and the till are stored inside it. At the Sixth Floor Tea Bar customers are required, as I have mentioned, to stand in the corridor, since there is no facility for them to enter the unit, but the displays and the operator remain inside it. In both cases it was apparent that the BBC raises no objection to the encroachment on the adjoining corridors.
- Compass is responsible for the interior of the units, including their refurbishment when necessary (and some immediate refurbishment obligations are imposed by the agreement between LST and Compass, reflecting similar requirements of the agreement between the BBC and the Property Vehicle), the provision of display equipment, drink dispensing machinery, heating equipment and tills (though some of the equipment appears to have been "inherited" from Sutcliffe), their decoration and their cleaning. The agreements contain provisions for the assumption by Compass's successor of the benefit of the refurbishment, at its amortised value, should Compass's contract be terminated. With the exception that Compass accepts that it must clear up food dropped by customers immediately outside the units, its responsibility for cleaning is limited to the units themselves. Cleaning of the corridors leading to the units, and of the seating areas near the Filling Station and the Green Tea Bar, is undertaken by a cleaning contractor—a Service Partner—separately engaged by LST.
- Compass is required to, and does, arrange its own public and employer's liability insurance. The premium for the former is subsidised by the BBC (though indirectly via the Property Vehicle) to the extent of £5,000 per year as the BBC requires a much higher level of cover than, it recognises, Compass would obtain but for that requirement: the additional cover reflects the risk that Compass might disrupt the broadcasting schedules, for example by causing a fire.
- The units are inspected from time to time by the local authority's environmental health department and, as I accept, that department treats them as discrete outlets. Some of the units operated by Compass at the Television Centre (though none of those with which I am concerned) are licensed for the sale of alcoholic liquor; they are separately licensed. I mention this point because Mr Peacock stressed it, in support of his argument that the units each constituted "premises" in their own right. Mr Thomas accepted the factual basis of Mr Peacock's argument but contended, though without producing the relevant legislative provisions, that the appropriate tests in the field of food hygiene and liquor licensing differed from those appropriate to the zero-rating of food. Without deciding that point, I take the view that the treatment of the units for other purposes is of limited value in determining the issue before me.
- Compass's presence at the Television Centre is not merely a commercial venture undertaken for its own benefit. As I have already mentioned, adequate food provision of an appropriate standard is required by the BBC, which imposes various requirements on Compass and, even if it does not fully apply them, reserves monitoring rights to itself (with sanctions in case of breach by Compass). Compass is obliged to ensure that the units remain open for minimum specified hours—in the case of the Filling Station, the requirement is that it remain open 24 hours a day, seven days a week, since the BBC itself operates during those hours—and that there is an appropriate range of food available during those hours. Other units remain open for shorter hours but, as I find, those hours are in each case longer than those which Compass, motivated only by profitability, would choose. The objective is to ensure that there is adequate availability of food, for BBC employees and others on the site, at all times.
- In return for its accepting the various obligations, and in particular the imposition of minimum opening hours, Compass does not pay rent or a licence fee, or any equivalent, and (as I understood the evidence) is not required to contribute to the cost of electricity, water or heating or to other overheads such as security. Instead, the agreements introduce the concept of a "unitary charge", a formula by which LST (indemnified against the cost by the BBC) is required, in prescribed circumstances, to subsidise Compass. It does so by making up its turnover at those times of the day when the units are open, in order to satisfy the BBC's requirement that food be available at certain hours, but when, if the ability to earn profits were the only criterion, they would be closed; it appeared that as much as 76 per cent of the time for which the units were open might be unprofitable. The unitary charge is designed, in effect, to meet the staff costs of keeping the units open at unprofitable times, but it does so by making up, not Compass's turnover, but its profit, although turnover has an obvious bearing on profit. A calculation is made monthly in accordance with the formula and, since it is dependent on the turnover and related profit actually achieved, the amount paid varies from one accounting period to the next. I was not provided with much detail, but was told that the arrangements between the BBC, LST and Compass are designed to reduce the amount of the unitary charge over time, and that this objective has been achieved.
- There is, in addition to Compass's 13 units and the Costa Coffee unit, one further place within the Television Centre from which food may be bought, namely a shop occupied by a well-known high street retailer, also not in Compass's group. There is some sensitivity about its identity since, even if obliquely, its own tax affairs were the subject of discussion at the hearing (at which it was not represented) and I shall refer to it as "the retailer". It sells, among other goods, food items including sandwiches (of a brand, "Foo-Go", which is also sold at one or more of Compass's units), cold drinks and confectionery.
- The BBC's relationship with the retailer is markedly different from that it has with Compass. The retailer holds a formal lease, granted to it by the BBC in November 2003, quite independently of (and despite) the BBC's arrangements with the Property Vehicle and LST. The lease is in a standard form for commercial letting, defining precisely the location and extent of the demised premises, reserving a full rent (linked, in prescribed circumstances, to the retailer's turnover) and imposing on both parties common form repair and other covenants. The user clause permits the sale of food and drink. The range of such items which the retailer may offer for sale is limited, in order that it does not compete with Compass to an unacceptable degree, but not so much so that the sale of food items is impractical and, as the photographs produced at the hearing show, the shop contains several large and well-stocked display cabinets. Hot food and drinks are not sold. It was common ground that the retailer's sales of cold food, unless it is standard-rated for other reasons (for example because it is confectionery) are zero-rated or, at the least, have hitherto been treated as zero-rated. The retailer is able to choose its own opening hours, without any reference to the BBC.
- Those within the Television Centre may buy food at any of the outlets which is open. At one time, the BBC (mindful of its subsidy) attempted to discriminate between its own employees and others but this practice, I was told, proved to be impractical and the attempt was abandoned; indeed, the BBC has had a change of heart and now recognises that the availability to others using the Television Centre of food and drink is to its own advantage, and that discrimination between employees and others is inappropriate. Food and drink may, therefore, be bought from Compass's units or its several vending machines, from Costa, or from the retailer. Alternatively, customers may leave the Centre and buy food from shops in nearby streets. There is no impediment to their doing so (it appeared from Mr Fris's evidence that the BBC does not seek to discourage its own employees from leaving the site) and, while the need to renegotiate the security checks when returning to the Centre might be a disincentive, the exercise and the availability of shops selling other goods may encourage some to adopt this course (there are a few shops, in addition to the retailer, within the Centre but they offer only a very limited range of non-food goods and services). I was provided with no information about the number of those working at the Television Centre who do leave it during their lunch break, or at other times during the working day, although Mr Fris's evidence suggested that the number was not insignificant.
- It was, as I understood it, common ground that the agreements give rise (for present purposes) to three distinct supplies: by LST or the Property Vehicle to the BBC, of the management of the buildings; by Compass to LST (and through it to the Property Vehicle and the BBC), of what is sometimes described as catering services but is also called food provision; and by Compass, of food items to the individual customers. Although the contractual matrix is complicated by, in particular, the direct covenants given by Compass to the BBC (which reflect the fact that, ultimately, Compass is satisfying the BBC's requirements), the division into three primary supplies remains. The issue in this appeal is the proper treatment of only the last of the categories. Thus, whatever may be the liability for VAT of the first two categories (which, as it happens, the parties agree are standard-rated), that liability is irrelevant to the question whether Compass's supplies of cold food from the six units are zero-rated. As Mr Thomas himself put it, the supplies have to be judged on their own merits.
- Mr Peacock argued that the separation of the supplies from each other went rather further in that, even if Compass's supplies to LST (or the BBC) should properly be described as supplies in the course of catering, that was an immaterial consideration: the only issue before me was whether the sale by Compass to an individual customer of sandwiches and similar items was a supply in the course of catering, as that term is to be interpreted for the purposes of Item 1 of Schedule 8; thus I should leave the use of the word "catering" in the agreements out of account. Mr Thomas, while maintaining that catering was an accurate description of the entirety of Compass's supplies—to LST, the BBC and the customers—did not rely on the use of the word "catering" in the agreements for its own sake. He did, however, suggest that it represented the parties' own view of the correct description of what was being supplied, which is a material factor to which some weight must be attached, the more so when the word is used properly and accurately.
- I accept that there is some merit in each of those arguments. But while one should not, I think, wholly disregard the description the parties apply to the supplies they make—it must, if no more, be the starting point for the enquiry—it is necessary at the same time to be wary of reading too much into the use of a term in a context in which it is appropriate, and then transferring the meaning the term properly bears there into another context; and one must be cautious too about becoming unduly influenced by the label which the parties to a contract put on their relationship. The tribunal's proper task is to identify the characteristics of the supplies, and to apply the legislation to them as they are so identified. As Laws J put it, in Customs and Excise Commissioners v Reed Personnel Services Ltd [1995] STC 588 at 595,
- That the name attached by the parties to supplies, whether by contract or otherwise, is not conclusive is illustrated by the determination of the tribunal in Mylo's of Reading (Catering and Ices) Ltd v Customs and Excise Commissioners (1987) VAT Decision 2538 that it should ignore the appellant's own description of his supplies (which he insisted were of catering) and to reach its own view of the matter. Similarly, in Emphasis Ltd v Customs and Excise Commissioners (1995) VAT Decision 13759 the contractual description of the supplies as "catering services" was disregarded. That the place of supply was described as a "canteen"—traditionally associated with catering—was found to be immaterial in Bishop and Elcocks v Customs and Excise Commissioners (2002) VAT Decision 17620, as was the appellant's own name in Ashby Catering Limited v Customs and Excise Commissioners (1989) VAT Decision 4220.
- In the present case, I do not think it is a factor of any great significance that the word "catering" is used in the agreements. Some of the supplies made by Compass pursuant to those agreements—from the restaurants in particular—plainly are supplies made in the course of catering, within the statutory definition. Nor do I think that, even if all of the supplies made by Compass to LST and the BBC are properly described as supplies in the course of catering (a question which I do not need to decide), it necessarily follows that Compass's individual sales of sandwiches and similar goods to its customers must answer to the same description; rather, I agree with Mr Peacock that those sales must be considered in their own right. That it might be in the BBC's interest that food is available within the Television Centre, and at times when its provision may be unprofitable, seems to me to be beside the point. The supplies made (directly or indirectly) by Compass to the BBC are of remaining open for extended hours and of making a range of goods available. Even if (which I doubt) those could properly be described as supplies made in the course of catering, they are not supplies of food, and Group 1 of Schedule 8 is concerned only with supplies of food. The contract between Compass and its customer, taking the typical example, is for the supply of a sandwich, and it is only that supply which could come within the statutory provisions.
- I propose to consider the meaning of "catering" first—the "catering per se" argument—before moving on to determine whether the premises from which the supplies are made and those on which they are consumed are, wholly or in part, co-extensive—the "on the premises" argument. Although the two questions can be put discretely, and I intend to deal with them in that way since that is how the parties put their arguments, there is in fact some overlap between the questions, and many of the decided cases to which I will refer deal with both, sometimes without discriminating fully between them.
- I shall, however, dispose first of a minor point. One of the Appellant's complaints is that it is being treated unfairly, in that while all of its sales are regarded by the Respondents as standard-rated, those of similar cold food made by its competitors, including the retailer and the sandwich shops in nearby streets outside the Television Centre, are not, and it is consequently put at a competitive disadvantage. I accept that there is real, rather than hypothetical, competition. I was told that the Respondents have notified the retailer that they may seek to change their treatment of its supplies, so that they too are to be standard-rated. Mr Peacock acknowledged that the hitherto incorrect treatment (if that is what it is) of the retailer's supplies could not entitle Compass to the same incorrect treatment, but asked me to bear in mind the requirement of the Sixth VAT Directive (77/388/EEC) that VAT should not be applied in a manner which will result in a distortion of competition.
- While I recognise the force of that argument, and accept that the possible distortion of competition is a material factor, in as much as I should avoid a conclusion which might have that effect, I have also to remember that I have heard incomplete evidence about the retailer—and none from the retailer itself—and that, if the Respondents are right, there are good reasons, irrespective of considerations of competition, for differentiating between supplies made by the retailer and by sandwich shops in nearby streets, on the one hand, and those made by Compass on the other. That the sandwiches they sell may be identical in composition is irrelevant to the question whether any of them sells the sandwiches in the course of catering.
- It is also necessary to take into account the background to the zero-rating of supplies of food. It depends upon a derogation which appears in article 28(2)(a) of the Sixth VAT Directive, incorporating by reference the requirement imposed by article 17 of the Second VAT Directive (67/228/EEC) that any measure providing for zero-rating must be "for clearly defined social reasons and for the benefit of the final consumer"; see also EC Commission v United Kingdom (Case 416/85) [1988] STC 456. It is well established that exemptions (including zero-rating) must be construed strictly: Stichting Uitvoering Financiële Acties v Staatssecretaris van Financiën (Case 348/87) [1989] ECR 1737 ("SUFA"); while exceptions from the exemptions need not: Blasi v Finanzamt München I (Case C-346/95) [1998] STC 336. On this point, I agree with the analysis of the tribunal in Procter & Gamble v Customs and Excise Commissioners (2002) VAT Decision 18381, at paragraph 41.
- The zero-rating of food is an exemption from the normal rule that supplies of goods by a trader acting as such are standard-rated, and the differentiation of supplies made in the course of catering is an exception to that exemption. I agree therefore with Mr Thomas that I should approach the matter in a manner which does not unduly limit the scope of catering supplies, as that term is to be interpreted for the purposes of the domestic legislation, and thus extend the scope of zero-rating beyond its justifiable extent.
- However, in doing so one must not lose sight of the context in which supplies are made, and of the impact of differential tax treatment. As Jonathan Parker LJ put it in Customs and Excise Commissioners v Electronic Data Systems Ltd [2003] STC 688 at [126] and [129]:
- Thus it is necessary to undertake a balancing exercise: exemptions must be construed narrowly, but not so narrowly that distortion of competition is the result—the purpose of the provisions must be ascertained and respected. But, although they may influence the proper approach to it, neither of those (potentially) competing considerations provides an answer to the essential question, namely, whether Compass's supplies are properly to be regarded as supplies "in the course of catering", a question which must be addressed before any other factor can come into play. I share the evident view of the tribunal in Carpenter Catering v Customs and Excise Commissioners (2003) VAT Decision 18148 (see paragraph 30) that distortion of competition must be considered after the primary question has been answered, as a means of checking that the answer at which one has arrived does not lead to an inappropriate result.
- The Value Added Tax Act 1994 makes no attempt to define the term "catering", which is used only within Group 1 of Schedule 8. The presumption must normally be, therefore, that the draftsman intended the word to bear its ordinary English meaning—see, for example, Brutus v Cozens [1973] AC 854. However, the manner in which Group 1 is set out prompts the question, whether Note (3) is intended to provide an exhaustive definition of the word "catering" as it is used in the Group, and has been included merely by way of clarification and in order to avoid doubt, or instead is designed to extend what the draftsman perceived to be the ordinary meaning of the word. The Note was originally enacted, as Note (3) to Group 1 of Schedule 4 to the Finance Act 1972, in the terms of the present Note, but without paragraph (b); that was added by the Finance Act 1984, section 10 and Schedule 6. Plainly paragraph (b) constitutes an extension of the ordinary meaning of catering since, before the 1984 Act was passed, catering (at least, as the term was to be construed for the purposes of VAT) did not necessarily include all supplies of hot food. It seems to me probable, therefore, that the draftsman's intention was that what is now paragraph (a) should be construed in the same manner.
- The earliest of the High Court decisions on catering, in the context of VAT, appears to be Customs and Excise Commissioners v Cope [1981] STC 532. There, Sir Douglas Frank QC, sitting as a deputy High Court judge, was required to determine whether supplies of seafood made at a racecourse were to be regarded as supplies in the course of catering. The case was heard at a time before paragraph (b) had been added to Note (3). I shall need to return to his judgment later, since it has assumed some importance, but on the significance of Note (3) in its original form he said, at p 538:
- Despite a number of doubts which have since been expressed about other features of the judgment—doubts which, as I shall explain, I share—the judge's view of the correct approach to the interpretation of the Note has, I think, been generally accepted, and I take it to have been when it was pronounced, and to remain, a correct statement of the law.
- Even so, the interpretation of the legislation presents considerable problems. In Armstrong v Customs and Excise Commissioners [1984] VATTR 53, the tribunal said that "we think an ordinary person can recognise catering when he sees it", and, more recently, in Whitbread Group plc v Customs and Excise Commissioners (2004) VAT Decision 18706 at paragraph 32 it said "Like the proverbial elephant, catering is difficult to define but recognisable when one sees it." For my part, I have not found that catering is so readily recognisable and, as many of the cases to which I was referred show, there are in fact marked differences of opinion about the meaning of the term. It is abundantly clear that it is not a word susceptible of easy definition.
- Resort to a dictionary provides a little help. In the Oxford English Dictionary, "catering" is defined as "purveying of food and other requisites" and, a little more fully, a caterer is "one who caters or purveys provisions for a household, club etc; one who supplies the viands at an entertainment, fête, etc". In other dictionaries, "catering" is not separately defined, and one is left to derive its meaning from that given for "cater": "to provide food, services etc" or "caterer": "one who as a profession provides food for large social events etc" (Collins).
- Although those definitions describe catering adequately for most purposes none, apart perhaps from the last, provides much assistance in identifying those characteristics of catering which differentiate it from supplies of food made otherwise than in the course of catering, and it is necessary therefore to examine the legislation and those of the many decided cases in which the point has been considered and which do not turn entirely on their own facts. In some, the meaning of "catering", without more, and of "for consumption on the premises on which it is supplied" have not called for separate consideration, and those cases therefore offer limited guidance on the unextended meaning of the word. They are, however, of relevance to the "on the premises" issue, and they are of value in that they illustrate the approach which has been adopted.
- If, as Mr Peacock suggested, and Mr Thomas (in my view rightly) agreed, the paradigm case is a restaurant—which, almost axiomatically, makes supplies for consumption on the premises—one can be forgiven for wondering why the draftsman provided for such supplies by way of an extension to the definition of what he apparently perceived amounted to catering in the ordinary sense of the word. A possible explanation was advanced by Sir Douglas Frank in Cope. He gave, at p 538, what he appears, at first sight, to have intended as an example of the meaning of catering:
- However, later in his judgment (at p 539) he said:
- That passage suggests that the deputy judge considered that the "popular meaning", as he described it, of catering which he had given was, if not exhaustive, at least a reasonable working definition of the term, and his analysis, if it is correct, also explains the draftsman's approach: the primary meaning of "catering" is that it encompasses supplies of food made as an incidental to some activity or event, while its extended meaning (as it was before paragraph (b) was added) incorporates supplies, whether or not incidental to some activity or event, which are made for consumption on the same premises. That analysis has been accepted in several subsequent cases, although, as will emerge, not always without difficulty.
- For example, it is evident that in DCA Industries Limited v Customs and Excise Commissioners [1983] VATTR 317 the tribunal did not question the underlying correctness of the comments made in Cope, but it added the criteria that, if it is to be of catering, the supply must be of food suitable for consumption at the event, and there must be an intention on the part of the supplier that the food should be so consumed. In Armstrong, which I have already mentioned, the tribunal went further than Sir Douglas Frank. It cited his comments with approval, and went on (at p 62)—although it was not necessary for its decision to do so—to extend the scope of catering supplies to
- In Cope, the court, on appeal from this tribunal, was required to consider whether sales of seafood from stalls or tents within those parts of racecourses which (on payment of the requisite admission charge) were accessible to the public were supplies made in the course of catering. The taxpayer provided his own stalls and tents, but (save in one case, immaterial for present purposes) did not make any seating accommodation available for his customers. He paid a fee to the holder of what was described as the "catering franchise"; the franchise include the right to sub-let parts of the concession. The seafood was sold in disposable containers which the customers took elsewhere on the course; it was ready for immediate consumption. The tribunal had concluded that the stalls and tents were the premises from which the supplies were made, and that the racecourse was to be regarded as separate premises, but the judge took the contrary view, doubting that tents and stalls could constitute premises, and holding that the place of supply was the racecourse itself. He appears to have been influenced to some extent by two assumptions: that the main catering contractor's concession extended to the whole racecourse (a supposition for which, so far as the tribunal's decision shows, there was no evidence), and that the supplies, if made by the main catering contractor itself, would be standard-rated (a proposition which, if I may say so, rather assumes the answer to the question the judge was required to consider), and by the absurdity, as he regarded it, which would be the result if supplies made by a sub-lessee of part of the concession were nevertheless zero-rated. Although the deputy judge decided that supply and consumption took place on the same premises, the appeal was determined primarily upon the basis that the supplies were of catering.
- The relevance of the fact that the food supplied is ready for immediate consumption appears to be derived from one of the earliest tribunal decisions on the meaning of catering, Bristol City Football Supporters' Club v Customs and Excise Commissioners [1975] VATTR 93, to which the judge referred in Cope. That appeal was decided principally on the "on the premises" extension of the meaning of catering. The tribunal was required to consider supplies of hot drinks and snack food made by the Supporters' Club to spectators at Bristol City football matches. It did so from several "stands", as they were described, some within the ground and some outside but in its immediate vicinity. None of the stands had space within where customers could consume the food they had bought, which had therefore to be taken elsewhere within the football ground, or nearby, for consumption. All the relevant land was owned by the football club, which also provided the stands. Paragraph (b) had at this time not been added to Note (3). The taxpayer claimed at the hearing that it had an oral lease of the stands, but the tribunal decided that the payments it made were not of rent, but represented an annual fee for the catering rights. Thus the taxpayer had no more than a gratuitous, or bare, licence to occupy the stands in the course of exercising its catering rights. The tribunal concluded that the existence of such a licence did not have the consequence that it was making its supplies from premises separate from those of the football club; thus the supplies were of food for consumption on the premises from which the supplies were made. As for catering itself, the tribunal said, at p 97:
- In Armstrong, the supplies were made from a kiosk within a shopping centre. The centre was under cover and within it, near but not adjacent to the kiosk, were tables and chairs which the owners of the centre had provided for the general use of shoppers and other visitors to the centre. Some of the taxpayer's customers sat at them while eating the food they had purchased, but others took the food elsewhere within the centre—the customers included people who worked at the shops it contained who were assumed to take their purchases to their places of work—and in some cases out of the centre altogether. This appeal, too, was decided before the legislation was amended in order to bring supplies of hot food within its extended definition of catering. The tribunal decided, on the facts of the case, that the supplies were not of catering:
- Although, in DCA Industries and Armstrong, Sir Douglas Frank's analysis was adopted without question, it has not been universally approved. In Crownlion (Seafood) Limited v Customs and Excise Commissioners [1985] VATTR 188 at 197 the tribunal said:
- The facts of Crownlion were similar to those of Armstrong. The tribunal was again required to consider the law as it was before it was amended to bring supplies of hot food within the scope of catering. The supplies in that case were also made from a kiosk within a shopping centre. It was one of ten kiosks, each supplying a different type of fast food, surrounding an area containing tables and chairs which the owner of the centre had provided for the use of customers of the kiosks and of others within the centre, whether or not they had bought food from a kiosk. The owner was responsible for the regular cleaning of the seating area, including clearing the tables. Unsurprisingly, in the light of the comment which I have set out, the tribunal went on to determine that the supplies made in Crownlion were not of catering in the ordinary sense of the term: they were not incidental to the activity of going shopping. I will need to return to Armstrong and Crownlion when I deal with the "on the premises" argument.
- The next of the High Court cases to which I was referred is R v Customs and Excise Commissioners ex p Sims [1988] STC 210 whose facts bear some resemblance to those of the instant case. The taxpayer was granted a licence by one of the occupiers (I deduce the major occupier) of a large office complex in respect of a small unit from which she operated a snack bar. The grantor intended to benefit its own employees, by ensuring that food was readily available to them, but the taxpayer was at liberty to sell food to employees of other occupiers of the complex, visitors and members of the public. There was no evidence about the proportions of the taxpayer's trade attributable to those employees and to other customers, though the taxpayer's estimate that 70 per cent of her customers worked within the office complex was assumed to be correct. Taylor J, as he then was, was invited to, and did, accept the Cope analysis of the meaning of catering, and went on to consider whether the taxpayer's customers had a sufficient "shared activity", giving them a "linkage or nexus". The judge went on to hold (at p 213) that they did not:
- That case is to be contrasted with Bergonzi trading as Beppi's Buffet Service v Customs and Excise Commissioners (1994) VAT Decision 12122, in which the taxpayer was also supplied with accommodation within an office block from which he ran a snack bar. Here, however, the grantor intended that the taxpayer should be limited to making supplies to the grantor's own employees (although the evidence showed he circumvented that restriction to some extent). The tribunal said:
- In St Benedict Trading Limited v Customs and Excise Commissioners [1994] VATTR 376 the tribunal was required to consider supplies of food made from a school tuck shop. The customer base was restricted to those lawfully on the school premises, but the tribunal found that the restriction was poorly enforced. Although it concluded that "[t]he only thing to which the supplies are incidental is some nebulous concept incapable of identification such as 'being in school'", so that they were not of catering, it did so by applying the test suggested in Cope, which it took to be "generally accepted" as correct. It added the observation that the examples identified in Cope were of occasions, rather than of a continuing state of affairs. And in Travellers Fare Limited v Customs and Excise Commissioners (1995) VAT Decision 13482 the tribunal concluded that the mere fact that sales of food were made from areas of railway stations lawfully accessible only to persons in possession of a ticket did not imply that the supplies were of catering:
- Bergonzi and Travellers Fare appear, if only indirectly, to have introduced another consideration: that the potential customers are restricted to a closed group—the grantor's employees or rail travellers—is an indication that supplies of food to them are supplies made in the course of catering. This point was not mentioned in Cope, although the potential customers there were, as a matter of fact, limited to those who had paid the entrance fee to the racecourse; and one can deduce, with the tribunal in Bergonzi, that Sims might have been differently decided had there been a sufficient limitation on the potential customers.
- Thus by early 1995 the courts and the tribunal had described three criteria by which a supply in the course of catering might be identified: that it was ancillary to an activity or event; that the potential customers were restricted to a closed group; and that the food was ready for immediate consumption. Mr Thomas was to rely on all of those factors.
- However, a rather different approach to the identification of catering emerged in Emphasis Limited v Customs and Excise Commissioners [1995] V & DR 419. The taxpayer supplied sandwiches and other items in response to orders placed electronically from terminals located in offices; the terminals had been installed in accordance with agreements between the taxpayer and the employers whose offices they were (the case pre-dated the universal availability of e-mails and the internet). The sandwiches, once ordered, were delivered by van to the customers. The tribunal considered that orders placed by this means were identical in principle to telephoned orders. It distinguished Cope, Sims and Bergonzi because there was no connection, beyond the relationship of customer and supplier, between the taxpayer and the employers and because the supplier was not on the same premises as the customer; and it rejected the argument that the supplies of sandwiches were ancillary to the employment, since the sole link between the two, as it found, was that the ordering service could be used only by people working in offices in which the terminals had been installed. Without expressly doubting the test suggested in Cope, the tribunal went on to say, at p 422:
- The notion that catering involves an element of service was taken up in the next of the High Court judgments to which I was referred, Customs and Excise Commissioners v Safeway Stores plc [1997] STC 163, in which Keene J was required to consider supplies of "party trays" made by the taxpayer from its supermarkets. The trays contained no hot food and were not intended to be consumed on Safeway's premises; thus the only issue before the court was whether their supply amounted to catering, in the ordinary sense of the word. The trays contained, typically, 12 or 20 servings of food made up of constituents decided upon by Safeway rather than by the customer; some items, such as coleslaw, were provided in plastic pots. The trays, made of foil, and which the customer was intended to throw away after use, could be used as serving dishes, or the purchaser could transfer the food to crockery before it was laid out on a table. The presentation of the food in the trays and pots was such that most customers would undertake that transfer. Some of the food could be re-heated, but most was designed for immediate consumption without further preparation. There were a few exceptions, such as prawns which needed to be peeled before they were eaten. The tribunal had concluded that it was the customer—by laying out the food, and undertaking such other, albeit limited, preparation as it required—who catered for the guests who were to eat it, and that Safeway did not make supplies of catering.
- The judge upheld that conclusion. He did so after agreeing with the view that "catering" had to be given its "normal meaning". Then, after quoting the "popular meaning" of catering as it was set out in Cope, he said:
- In E & G Catering Services Limited (1998) VAT Decision 15552, supplies of food were made to airport workers from a nominally mobile vehicle, without seating accommodation, situated in a restricted airside area of Heathrow airport (pursuant to a licence granted to the taxpayer by the operators of the airport) to which a limited class of persons (workers permitted to be in that area, and not passengers) had access. The tribunal found that the supplies were not made in the course of catering. After considering both Cope and Safeway, the tribunal set out its reasons as follows:
- Lastly, in this section of the decision, I must deal with Whitbread Group plc v Customs and Excise Commissioners [2005] STC 539. The judgment of Peter Smith J was not given until after this appeal was heard, although I was addressed on the prior tribunal decision. I cannot tell whether the judge and the tribunal were referred to Safeway, but it is conspicuous that neither mentions it, while both mention Cope, without critical comment. The supplies in question were made from the departure lounges of various airports, where the only possible customers were travellers who had passed through the security barriers and were intending to board aircraft, and airport workers who were permitted to be in the same area. Most of the supplies were held to be of catering because the food was to be consumed within the departure lounge (and the taxpayer failed because of the "on the premises" argument), but the judge went on to decide that supplies to customers who intended to consume the food on the aircraft, and to holders of staff discount cards who consumed the food elsewhere, were not made in the course of catering and should be zero-rated.
- The tribunal had concluded, apparently applying Cope, that the passengers were "a closed group, all having the same intention or purpose, and constitute air travellers once they have passed into airside departure areas. In those cases, there is no need to consider Note (3)" because, it is implied, the supplies were of catering by reason of the common intention or purpose of the customers. That conclusion appears to have been reached without the chairman's having been referred to E & G Catering Services (which neither he nor the judge mentions).
- I am bound to say, with respect, that I find the reasoning of Peter Smith J in Whitbread a little difficult to follow. Although he said that the tribunal had not dealt with supplies made to customers who intended to consume the food on aircraft, and proceeded to make a finding himself, it seems to me that his conclusion is difficult to reconcile with the chairman's view (which the judge appears, at [20], to endorse) that common purpose is determinative: if that were so it would make no difference whether the customer intended to consume the food on the aircraft or in the lounge—in either case the supply to him would be of catering since he had the purpose, in common with the other passengers, of boarding an aircraft. It could be only by the application of Note (3)(a) that a distinction between the two categories might be drawn; but that is not how the judge puts it.
- I have dealt with the cases at some length because it is necessary to do so in order to explain the background to the parties' arguments. While Mr Thomas supported what can conveniently be called "the Cope approach", as it has been interpreted by the tribunal, Mr Peacock argued that it, or at least the tribunal in following what it appeared to say, had taken a wrong turning. Although Keene J, in Safeway, did not expressly disapprove it, it is clear that he had significant reservations about Sir Douglas Frank's approach and the test which he proposed, and there is much in Safeway which cannot be reconciled with Cope. Although Cope is, of course, binding on the tribunal so too is Safeway; and, as Safeway is the more recent decision, it seems to me appropriate that I should prefer it where there is conflict between the two.
- I am satisfied therefore that Cope must now be treated with some caution and that the test it proposed, if it is correct at all, must be applied with great care. I am fortified in that view by the observation of Taylor J in Sims, which I have set out above, that the common purpose test casts "the net far too wide"—a comment made despite his having been invited to accept Cope as correct. I agree with Mr Peacock that in some of the tribunal decisions a wrong turning has been taken, and that the better approach is to be found in Safeway.
- The presence or absence of a nexus between the food and the occasion or activity at which it is supplied, it seems to me, underlies the reasoning of Keene J in Safeway. His suggestion, as one of the possible tests, of "whether the food is supplied in connection with an occasion or other event" implies, as I interpret it, a much closer link than Cope suggests; there must, I think, be an expectation that food will be provided, and probably without charge (or, in the case of an event for which an admission fee is levied, without additional charge). If the customer can choose from several suppliers, can bring his own food or can go without, it is difficult to see how it can properly be said that the food is supplied "in connection with" or as an "ancillary" to the event; it is merely made available for those who want to buy it.
- Supplies of food and drink at an event such as a wedding reception must, I think, clearly be classed as catering. The consumption of food might be regarded as "incidental" to the wedding itself, but it is an important and, in most cases, the central feature of the reception. All of the guests would be expected to eat the food offered; they would not go elsewhere, nor would they bring their own supplies of food, or abstain. By contrast, at an event such as a race meeting, the consumption of food is optional: the race-goer may buy food from any of the available outlets, he may take his own or he may go without eating at all. Food is not made available as an integral or, in my opinion, even incidental constituent of the event, but because people need to eat at various times of the day, whether or not they are at the races. Food outlets are provided as a convenience to those attending (and, no doubt, as a means of earning profits). Leaving Note (3) to one side, it is, in my view, difficult to discern any reason, of principle or otherwise, why the race-goer's sandwich should be zero-rated if he buys it on the way to the racecourse, but standard-rated if he buys it inside. Wherever he buys it, it is not a sandwich he will eat because he is going to the races; he will eat it, regardless of his whereabouts, because he is hungry. In other words, if there is a link, or nexus, between the event and the food, the supply of that food will probably be made in the course of catering; but if the food is made available to those attending the event for no more intimate reason than that the human metabolism requires fuel at regular intervals, it probably will not.
- I also find the "common purpose" approach unconvincing. Again, I see no reason of principle or otherwise why a passenger, on his way to catch an aeroplane, should be able to buy a zero-rated sandwich landside, while if he waits until he is airside his sandwich, otherwise identical, is standard-rated; and I see nothing in the legislation which points to that distinction. Although no adequate common purpose was found in Travellers Fare, the decision suggests that had all the customers been intending to board a train, the supplies would have been of catering. I regret to say that I am unable to understand why the sale to them of sandwiches should be regarded, for that reason alone, as supplies in the course of catering. Moreover, the test of common purpose seems to me to be impossible to apply. If a customer goes, alone, into a sandwich shop he cannot be said to have a common purpose (other than to buy a sandwich) with anyone else; but if he enters with a friend, on their way to catch a train together, he has a common purpose with that friend, and their purchases should be standard-rated. That is plainly a nonsense, and if that were the law life would be impossible for the shop-keeper; but the retort that the test is to be applied only when all the potential customers have the same common purpose cannot, it seems to me, be reconciled with the decision in Whitbread, where (as the judge accepted, even though he recorded there had been no clear evidence before the tribunal on the point) some of the customers had the intention of eating their purchases in the lounge and others on the aircraft, and the distinction between them was drawn without recourse to Note (3). Indeed, they did not even all have the purpose of taking a flight, since some of the customers worked at the airport (as the judge, again, assumed although there was no evidence about it before the tribunal). Here too, the passengers did not buy the sandwiches because they were about to board an aircraft; they bought them because they wanted to eat. There was no nexus between the supply and the purpose. That view appears to form part of the rationale for the tribunal's conclusion in E & G Catering Services, with which I respectfully agree.
- I do not altogether understand the origin of the view that if supplies of food are made to a closed group, those supplies are made in the course of catering. It appears to have been thought by the tribunal in Bergonzi that Sir Douglas Frank had endorsed the test, perhaps because Mr Cope's customers were, in fact, so restricted, but (as Mr Thomas acknowledged) it is not a factor which featured in his reasoning and it seems to me that the tribunal has extrapolated this test from what he did say. The mere fact of a restriction seems to me to be of no relevance at all. In my view, the tribunal's comment in E & G Catering Services, to the effect that the restriction of the potential customers is an unavoidable consequence of the placing of the premises from which the supplies are made, demolishes the argument that restriction alone is enough. There is, moreover, no support for it in Safeway nor, as I see it, in the legislation.
- While Keene J did not entirely exclude supplies made at an occasion or event, without more, from the scope of catering (although, as I have said, it is inherent in his comments that there must be there must be some connection, or relationship, between the event and the supplies), the essence of the test which he proposed, non-exhaustive though it is, is that the supplier should provide something, and usually an element of service, in addition to the food itself. Put another way, it is not sufficient, if a supply is to be regarded as one made in the course of catering, merely to supply food; the customer must receive something else, beyond the trivial (such as disposable cutlery), together with the food. That "something else" may be the event of which the supply of food is a part, or it may be the service of presenting the food, for example by laying it out on plates. In many cases there will be both features. Even without Note (3) that test includes restaurants, wedding receptions and similar events, dinner dances and other occasions when guests or customers are supplied with a package, such as a day at the races with lunch included. In all of those cases the informed layman would, I think consider the supplies to be made in the course of catering whereas, with respect, I think it unlikely that he would regard Mr Cope's sales of seafood in disposable containers in the same way. If that is the correct approach, Note (3)(a) brings into the scope of catering such supplies as those made by sandwich shops which, without offering any element of service (such as the provision of crockery and durable cutlery), provide tables and chairs at which customers may eat their purchases.
- Whether the food supplied is ready for immediate consumption seems to me to be a test capable of application only in the negative sense that food which is not so ready is, at least, unlikely to have been supplied in the course of catering, as the purchaser will be required to undertake some further preparation himself. A sandwich is, of course, designed to be eaten without further preparation but since, even on the Respondents' case, it is possible to make supplies of sandwiches otherwise than in the course of catering, this factor seems to me to be of no relevance in this case. All one can say is that Compass's supplies are not disqualified for this reason from being supplies in the course of catering.
- In my opinion, the answer to that question is plainly "no". The sales with which I am concerned are of sandwiches and similar items packaged in precisely the same way as they are presented in high street shops. Compass provides no element of service. Its supplying disposable cutlery is, as I have already remarked, trivial and I do not consider that it could possibly be argued that it amounts to a service since it is the customer, in my experience, who selects the cutlery; moreover disposable cutlery is commonly provided by high street shops without affecting the zero-rating of their supplies of sandwiches and salads. There is in my judgment nothing to distinguish the supplies made by Compass from those made by high street sandwich shops.
- I do not think the answer changes even if one considers the potential customers, despite my doubts about the validity of applying such a test. It is true, as Mr Thomas argued, that they are on BBC property, having passed through security barriers, and that they all have some business, whether as workers or as visitors, on that property. But that, as it seems to me, is no more of a common purpose than that of the customers in St Benedict Trading, who were "at school", which the tribunal, in my opinion rightly, considered to be insufficient. I have already indicated that I do not accept the view that sales of sandwiches airside, without more, are properly to be categorised as supplies of catering while sales of the same sandwiches landside are not. Catching an aeroplane is not, in my view, "a function or activity" of the kind Keene J had in mind in Safeway; nor, as I have concluded, is being within the Television Centre. There is no more significance to the fact that the customers here were in a closed area than there was in E & G Catering Services with which, as I have said, I agree. Accordingly I determine the first issue in the Appellant's favour, and now move on to consider whether Note (3)(a) affects the matter.
- Shortly put, the Respondents maintain that the premises from which the supplies in this case are made are the entire Television Centre and that, therefore, all of the food supplied by Compass, save so much of it as can be shown to have been taken off the site altogether, is necessarily "for consumption on the premises on which it is supplied"; while Compass argues that the "premises" are confined to the units it occupies and, since there is no facility within the units enabling customers to consume their purchase there, the only conclusion must be that paragraph (a) of Note (3) is of no application. It is, accordingly, necessary first to determine what is meant by "premises", as the word is used in the Act. As in the case of catering, no special meaning is given.
- Again, resort to the dictionary is of limited help. The Shorter Oxford Dictionary gives the meaning "A house or building with its grounds etc" although, of rather more significance, it goes on to add "Also, (a part of) a building housing a business etc." The latter definition allows for the possibility that there can be premises (the units) within larger premises (the Television Centre) but it does not answer the questions, are the units occupied by Compass capable of being premises in their own right?; and, if the former is answered in the affirmative, are Compass's supplies made from the units, or from the Television Centre as a whole? It is thus necessary to consider some further authorities.
- In Maunsell v Olins [1975] 1 All ER 16 at 19, Viscount Dilhorne said:
- In Phillips v Whieldon Sanitary Potteries Ltd (1952) 33 TC 213 Donovan J was required to consider whether the cost of constructing a new barrier separating a factory from a canal was allowable as a deduction in the computation of profits; the taxpayer company argued that its construction constituted a repair of the premises it occupied for the purposes of its trade and that the expenditure was correspondingly deductible under what was then Rule 3(d) of Cases I and II of Schedule D. The outcome of the appeal depended on whether the barrier formed part of the factory premises, or was to be considered as "premises" in its own right. At page 219 the judge said:
- The possibility that different parts of an overall whole might constitute premises in their own right was further explored in Wynne-Jones v Bedale Auction Ltd [1977] STC 50 in which Foster J concluded that a cattle ring within an auction mart comprised premises in its own right. The ring was, as he found, the "nerve centre" of the business, where all the buying and selling took place, and that was sufficient. The rest of the mart was merely ancillary to the ring, even though the ring occupied less than ten per cent of the entire area.
- In Cope, although he had already determined the appeal on the basis that the supplies were of catering in any event, the deputy judge went on to conclude that the premises of supply and consumption were the racecourse as a whole. The tribunal had concluded that the tents and stalls were capable of constituting premises, but the judge disagreed, saying that "it strains the meaning of language to describe a mobile stall or tent as 'premises'", though, again, he appears to have been influenced both in making that comment and in reaching his overall conclusion by his belief that to hold that the tents and stalls were discrete premises would have the effect of zero-rating supplies which, if made by the main catering contractor, would have been standard-rated, a proposition on which I have already commented.
- The only other High Court case in point is, I think, Sims, the decision of Taylor J to which I have already referred (I leave Whitbread out of account as the judge merely accepted that the tribunal's finding on this issue was one which it could reasonably reach on the facts, without adding any analysis of his own). In Sims, the taxpayer was provide with a room within an office building, Unitair House. Customers did not enter the room, which was 12 feet square; they were served at a counter set into one of the walls. At [1988] STC 210 at 214, the judge said
- From those cases it is apparent that whether anything constitutes premises is a question to be answered by reference solely to the facts of the individual case. Though the word "premises" implies, I think, some kind of structure, that structure need not (as in Whieldon Sanitary Potteries) have four walls and a roof and (as in Bedale Auction and Sims) it may be contained within other premises. Sims also indicates that the occupier's sphere of control is a material consideration.
- Several of the cases to which I was referred explore the meaning of "premises" in the specific context of catering, and I should deal with them, since they are illustrative of the principles and were relied on by the parties, though I shall do so as briefly as possible. In Bristol City Supporters' Club, which I have already mentioned, the tribunal concluded that, because the taxpayer had only a bare licence to occupy the stalls, they must be regarded as part of the football ground and not as premises in their own right; accordingly, since no distinction could be drawn, the food sold from them was supplied for consumption on the premises. In Armstrong, having decided that the taxpayer's supplies were not of catering per se, the tribunal went on to conclude that they were additionally not made for consumption on the premises since "there is no delineated area capable of constituting 'premises' where the actual consumption takes place": customers could eat wherever they chose, and the fact that the owner of the shopping centre provided seats for the use of visitors generally, which the taxpayer's customers could use if they wished, was immaterial. In Crownlion, by contrast, the tribunal distinguished Armstrong on its facts, because although others could use the seats, they had been provided by the owner of the centre in a semi-confined, and readily identified, area and the centre owner provided a service of clearing and cleaning the tables. The tribunal decided that the kiosk and the seating area were together to be considered as the premises on which the supplies were made with the result that, save for an identified proportion of the sales where the customers took their purchases away from the shopping centre altogether, the supplies came within the extended meaning of catering.
- In Mylo's of Reading, which I have also mentioned above, the tribunal came to the conclusion that the shed from which the supplies were made and the surrounding park of some 360 acres together constituted the relevant premises with the result that, albeit the supplies were not of catering per se, they fell within the extended meaning since supply and consumption took place on the same premises. The tribunal appears to have reached that conclusion largely because the taxpayer did not have a lease or tenancy of the shed but (as in the Bristol City case) was found to have no more than a catering franchise, which carried with it a gratuitous licence to occupy the shed. By contrast, in Ashby Catering Limited v Customs and Excise Commissioners (1989) VAT Decision 4220, the taxpayer had a formal lease (of a clearly identified unit, described as a shop, within a large hospital complex) and the tribunal had no difficulty in deciding that the shop constituted premises separate from the hospital.
- The facts of the last case with which I must deal, Bishop and Elcocks v Customs and Excise Commissioners, bear some resemblance to the facts of this case. The taxpayers were granted a licence by the Ministry of Defence to "place" a canteen at the Royal Naval Air Station at Culdrose. The canteen—a portacabin permanently installed, with mains water, drainage and electricity—had in fact already been placed in position and the taxpayers simply took it over. The Ministry reserved the right to require the portacabin to be moved for operational reasons, although the right had not been exercised. Customers entered the portacabin to make their purchases. It contained a small number of stools, intended for customers waiting to be served. A few customers sat on the stools while eating, but most took their food elsewhere on the site, and some took it off the site altogether. There were some other suppliers of food and drink nearby. The only customers were those who were permitted on the site, which was a secure area.
- The Commissioners did not argue that the supplies made from the portacabin were of catering per se, but maintained that the portacabin and the air station together constituted the premises, and that Note (3)(a) applied. Surprisingly, in the light of the arguments Mr Thomas pursued, and to which I shall come shortly, they argued that the nature of the legal relationship between the Ministry and the taxpayers was irrelevant, but the tribunal rejected that argument, concluding that the legal relationship was, on the contrary, critical, identifying a clear distinction between those cases in which the taxpayer had a right to occupy an identified space, and those in which there was no more than a licence to supply a catering service. This case fell into the former category, with the consequence, the tribunal concluded, that the portacabin and the remainder of the air station were to be considered separately, and Note (3)(a) did not apply.
- Before dealing with the parties' arguments I must mention a further point which, of itself, was not contentious. It is the correct interpretation of the word "for", as it is used in Note (3)(a). The point was dealt with by Taylor J in Sims, and I need do no more than set out the relevant passage from his judgment, which both parties accept to be correct. He said ([1988] STC 210 at 215):
- Mr Peacock's argument was essentially simple: Compass occupies identifiable units, which can be locked, and which are therefore separate from the larger premises of the Television Centre (there being no impediment to the existence of premises within premises), and customers cannot and do not consume food within the units. Even if it should be concluded that the units are not to be considered separately from the Television Centre, Compass does not have the purpose or intention that the food it sells should be consumed within the Television Centre; its concern is to sell food and once it has done so it has no interest in what the customer does with that food. It is no answer to say that in practice most of the food is consumed within the Centre—there must, as Taylor J made clear, be an intention and, moreover, that intention has to be established in relation to each individual sale since otherwise Compass cannot know whether that sale is standard-rated or zero-rated. No distinction is to be drawn between the units near to which the BBC has installed tables and chairs and the remaining units since the tables and chairs are not within Compass's control, and it equally has no interest in whether customers do or do not use them.
- Mr Thomas contended that the contractual background made it clear that Compass does not have the right to occupy defined spaces, but has no more than permission, which the BBC can vary or withdraw almost at will, to use those parts of the Television Centre which are allocated to it from time to time. It is, he said, immaterial that at any given moment Compass uses units which it can lock; in that its position is identical to that of the taxpayers in Bristol City Supporters Club and Mylo's of Reading. In each case they, too, had the use of units they could lock, but they had that use merely in order that they could carry on the catering concession which had been granted to them. Compass's position is quite unlike that in Ashby Catering and Bishop and Elcocks, and unlike that of the retailer, since in each of those cases the occupier has, or had, a lease or licence defining the area to be occupied and granting formal rights of occupation. To the extent that Compass could demonstrate that food it sells is taken from the Television Centre for consumption elsewhere it might have a claim for zero-rating, but the bulk of its supplies are made to a closed class of customers, like those in Whitbread, within the identifiable premises of the Television Centre, and those supplies must be regarded as supplies for consumption on the same premises. It was not sufficient, he said, to argue that Compass had to do no more than establish that it had no intention, or purpose, about where the food was eaten; it had to show that the food was intended by it to be eaten off the premises, that is outside the Television Centre, if it was to succeed. He accepted that Compass did not provide an additional service, such as the supply of plates and cutlery, but he argued that its service of being open for long hours was supplied to the customers as much as to the BBC.
- Mr Thomas advanced his arguments most persuasively but I have come to the conclusion that they are wrong. It does not seem to me to be a matter of great moment that Compass does not have a lease or licence to occupy the units, nor that the identification of the units it occupies is rather less precise than one might ordinarily expect. The fact is that it does occupy them and not only Compass but also the BBC and LST know precisely their position and extent; and, while it may not have security of tenure in the legal sense, in reality it has the same level of security as a formal tenant. Its contract could be terminated if it were in breach of it; but the same is true of a tenant who does not pay his rent, or breaches some other covenant imposed by his lease. Until that should happen, Compass will remain at the Television Centre, unusual though the basis on which it does so may be. It is true that the BBC may ask it to move; but it is by no means unusual for a landlord and tenant to negotiate variations of a lease mid-term. That the BBC's security staff has keys to the units seems to me to be no more than a sensible precaution against the possibility that some emergency might occur while a unit is unattended. It does not point to the conclusion that Compass's occupation of the units is, in any practical sense, non-exclusive.
- The issue as I see it is not whether Compass is a tenant or licensee, but whether it occupies premises and, in my view, the lack of a formal lease or licence does not prevent it from doing so. I am satisfied that the units which Compass occupies are properly to be regarded as "premises", separate from the Television Centre. I do not share the view of the tribunals which heard Bristol City Supporters' Club and Mylo's of Reading that the absence of a formal lease or licence leads to the conclusion that the taxpayer has a gratuitous right to use the accommodation provided by the grantor in order to carry on a catering business, which is consequently to be treated as carried on over the whole of the grantor's premises. One has only to ask whether Compass could, if it chose, sell sandwiches elsewhere within the Television Centre than the units. The answer is obviously no; the BBC would not permit it to do so. The reality is that Compass is confined to the units. The argument that it makes its supplies from the Television Centre as a whole does not reflect the facts.
- I am fortified in that view by a comment of Taylor J, in Sims. He said, at page 213:
- Here, Compass controls the units it occupies but, as the evidence clearly showed, it has no control over any other part of the Television Centre, including the tables and chairs near to two of the units. On the latter point, if there is an analogy to be drawn, it is with Armstrong rather than with Crownlion. I acknowledge that Compass has, or perhaps has purported to, grant a licence to Costa, but it has done so only with the consent of the BBC and of LST, and in respect of premises which, as I am satisfied, the BBC has defined, even if only informally. Although the BBC and LST retain some measure of control over the units, in the sense that they might ask Compass to move from a unit to a different place within the Television Centre (and have done so), in practice they are left to Compass, which maintains and cleans them, without interference by either the BBC or LST.
- It does not seem to me to be material that Compass pays no rent, or that it receives payments from the BBC, via LST, for remaining open at unprofitable times. Those payments do not affect the fact that Compass occupies the units; indeed, if they point to anything, they point to the conclusion that Compass is intended by the BBC to remain in occupation of the units, and that it has a reasonable expectation that it will be permitted to do so.
- I am satisfied, therefore, that Compass's units constitute "premises", separate for the purposes of Note (3) from the remainder of the Television Centre. It follows from that conclusion that Compass's supplies are not made for consumption on the same premises. That being so, I do not need to deal with the argument that Compass must have a positive intention that the food be consumed off the premises of supply, though for what it is worth I do not think the argument is supported by the words used in the Act, which in my view point in the opposite direction. I should add, for completeness, that if I am wrong in my view that the units and the Television Centre are to be regarded as separate premises, I do not accept Mr Peacock's argument that each of the buildings in the centre—the Doughnut, the Design Building, and so on—is to be treated separately, so that if a sandwich is sold and eaten within the Doughnut its supply is to be regarded as one made in the course of catering, whereas if the customer takes it to the Design Building it is not. The integration of the buildings, as it was described to me, is intimate; and if one has to identify "the BBC's premises" they must, in my view, constitute the whole.
- I am not persuaded by Mr Thomas's argument that Compass's extended opening hours assist the Respondents. In the widest sense of the term, its doing so might be regarded as a service to the customer, but it does not seem to me, even if it is, to be of the kind of service contemplated by Keene J in Safeway. Those he had in mind, I think, were those connected with the food itself—of presentation, delivery and the like—rather than the mere convenience of making food available during long hours. I do not think that the sale by a sandwich shop of a sandwich would become a supply in the course of catering because it was made at 2 am.
- I should add that I have considered whether my conclusions lead to any possible distortion of competition (plainly not, since Compass will be placed on the same footing as the retailer and the shops in nearby streets—it is the Respondents' approach which might lead to distortion) and whether, in reaching it, I have failed to apply the purposive approach to which I referred earlier. The purpose of the legislation, as I perceive it, is to zero-rate supplies of cold food in general, while excepting from zero-rating supplies of certain kinds, including those made in the course of catering. If I am right in my view that "catering" imports the supply of something additional to the food itself or, in its extended meaning, a supply for consumption on the same premises, it does not seem to me that I am failing in the purposive approach by concluding that supplies of cold food, without more, should be treated in the same way whether they are made in the high street, in a place to which only a limited class of people may gain access, or to persons who have an—in the event, somewhat nebulous—common purpose unconnected with the supply of food. The supply in each case is the same and there is no evident purpose in discriminating between them.
- The appeal is allowed and I direct that the Respondents pay the Appellant's costs; Mr Thomas did not resist Mr Peacock's application in that respect.
- I have dealt with the issues in some detail in part in deference to the parties very well presented arguments, and in part because, at present, there are only four High Court decisions on the subject of catering, and none of them deals with more than a part of it. The manner in which food is supplied has changed in recent years and some of the cases do not, I think, reflect those changes. There is an obvious need for guidance by the Court of Appeal, and, in accordance with rule 30A of the Value Added Tax Tribunals Rules 1986 (SI 1986/590), I give the parties permission, if they wish, to appeal direct to that Court. I certify, pursuant to Article 2(b) of the Value Added Tax Tribunals Appeals Order 1986 (SI 1986/2288), that this decision involves a point of law relating wholly or mainly to the construction of an enactment which has been fully argued before me and fully considered by me.
19053
VALUE ADDED TAX — zero-rating — supplies of cold food from outlets within larger building — VATA 1994, Sch 8 Group 1 Item 1 — whether supplies made "in the course of catering" — meaning of "catering" — supplies not made in the course of catering — whether food to be consumed "on the premises" — Note (3) to Item — food not consumed on premises of supply — appeal allowed
MANCHESTER TRIBUNAL CENTRE
COMPASS CONTRACT SERVICES UK LIMITED Appellant
- and -
HER MAJESTY'S REVENUE AND CUSTOMS Respondents
Tribunal: Colin Bishopp (Chairman)
Sitting in public in London from 7 to 11 February 2005
Jonathan Peacock QC, instructed by Reynolds Porter Chamberlain, for the Appellant
Owain Thomas, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2005
DECISION
Introduction
"The supply of anything comprised in the general items set out below, except—
(a) a supply in the course of catering; and
(b) a supply of anything comprised in any of the excepted items set out below, …
General items
Item No
1 Food of a kind used for human consumption …
Excepted items
…
2 Confectionery …
NOTES
(1) 'Food' includes drink …
(3) A supply of anything in the course of catering includes—
(a) any supply of it for consumption on the premises on which it is supplied; and
(b) any supply of hot food for consumption off those premises …"
The facts
The issues
"First … the concept of 'supply' for the purposes of VAT is not identical with that of contractual obligation. Secondly, in consequence, it is perfectly possible that although the parties in any given situation may conclude their contractual arrangements in writing so as to define all their mutual rights and obligations arising in private law, their agreement may nevertheless leave open the question, what is the nature of the supplies made by A to B for the purposes of A's assessment of VAT … There may be cases, generally (perhaps always) where three or more parties are concerned, in which the contract's definition (however exhaustive) of the parties' private law obligations nevertheless neither caters for nor concludes the statutory question, what supplies are made by whom to whom. Nor should this be a matter for surprise: in principle, the incidence of VAT is obviously not by definition regulated by private agreement."
"[126] The starting point is SUFA. I agree … that SUFA establishes the general proposition that exemptions must be construed strictly. However, that does not mean, in my judgment, that context and surrounding circumstances are to be left out of account. As the Court of Justice said in SUFA (at para 11), the exemptions 'constitute independent concepts of Community law which must be placed in the general context of the common system of VAT introduced by the Directive'. I take this to mean they are not to be interpreted in a rigid formulaic way, regardless of context, but rather in a manner which gives effect (for example) to the objective of the common system of VAT … viz that of securing equal treatment for taxable persons."
"[129] There is, as it seems to me, a degree of inherent tension between on the one hand the need to interpret the exemptions strictly and on the other hand the adoption of a purposive approach to the interpretation of wide and general words. In my judgment, that tension falls to be resolved by interpreting the exemptions in a way which does not have the effect of extending their scope beyond their fair meaning, as ascertained by adopting a purposive approach to their interpretation."
The meaning of "catering"
"The first question to be decided is whether the word 'includes' in note (3) is intended to be restrictive as counsel for the taxpayer contends, that is to say, should be construed as 'includes and means' or whether, as counsel for the Crown contends, the note operates to extend rather than circumscribe the scope of para (a) in Sch 4. The word 'includes' is generally used in order to enlarge the meaning of words, but, as counsel for the taxpayer says, it is capable of the restrictive meaning if the context of the statute requires; see Stroud's Judicial Dictionary. Counsel for the taxpayer submitted that there was no situation imaginable where 'supply in the course of catering' can mean for consumption off the premises on which it is supplied. However, as counsel for the Crown pointed out, that situation is quite common, as, for example, with wedding receptions, if the point of supply is taken to be the caterer's premises. Accordingly, I do not find it imperative to give the word 'includes' a restrictive meaning but, on the contrary, I think it has its ordinary meaning, that is it does not limit but, in accordance with the general rule, it has the extended meaning."
"A popular meaning of the word 'catering' is the provision of food incidental to some other activity, usually of a sporting, business, entertainment or social character. Thus, it covers food supplied at football matches, race meetings, wedding receptions, exhibitions and theatres."
"I think it would be useful for me to explain what I conceive to be the purpose of this note [ie Note (3)]. It will have been seen that in the examples I have particularised of the use of the word 'catering', I have not included premises where the dominant purpose is the supply and consumption of food, for example, a restaurant. There may be room for doubt in such a case and as I see it, the draftsman skilfully devised a formula for the purpose of exempting the supply of food likely to be consumed at home from tax and imposed a tax in most other cases."
"social lunches and dinners, Club and Association dinners, air travel, rail travel and a variety of functions and activities where people foregather for a specific purpose. In our view the provision of food is ancillary to the function. The field of activity so marked out is a wide one and there may be many combinations of circumstances in which it could not be said to be wrong to arrive at a conclusion one way or the other."
"We are of the view that the Appellants were making a supply in the course of catering in that in each of the four [specimen] supplies with which this appeal is concerned a cup of either hot tea or coffee and a heated item of food were served to customers for what could only be, in the particular circumstances, immediate consumption."
"We cannot agree with the submission that shopping at the Centre is such an activity in the sense contemplated by Sir Douglas Frank QC and inherent in the ordinary meaning of catering. The sale of food from the kiosk is not incidental to anything."
"In Cope it was held that a popular meaning of the word 'catering' was the provision of food 'incidental' to some other activity and in Armstrong that it should be 'incidental or ancillary'. In the context in which they are used we can see no difference between these two expressions. But either of them seems to us, as conceded by Sir Douglas Frank, to remove a meal taken in a restaurant from the ordinary meaning of 'catering' and he invokes Note 3 to restore the position. With the greatest respect it seems to us that an example of the ordinary meaning of the word 'catering' which would come to the mind of most people would be a meal taken in a restaurant, whether by a person alone because he was hungry or by ten persons as a party in order to celebrate the birthday of one of them. The latter would come within the definition of Cope and Armstrong whereas the former would not. Although we have considerable misgivings about the incidental or ancillary test as being unnecessarily restrictive we are prepared for the moment to follow it until such time as it is overruled or modified but subject nevertheless to the caveat in Armstrong that shopping in a precinct is not such an incidental activity in the sense contemplated in Cope and inherent in the ordinary meaning of catering."
"… simply to say that because a snack-bar is frequented by persons who work in adjacent offices gives a sufficient linkage to cause what a snack-bar does to be catering seems to me to be casting the net far too wide."
"The difference between this case and that of Sims is that here we are dealing with a licence granting rights to supply food only to a particular group of people—the employees, whereas in Sims the licence was intended to allow the grantee to deal with the general public. In other words, the present case is in the Cope line of cases rather than that of Sims, so that we must reject [counsel for the taxpayer's] claim that the facts of this case are in all material respects identical to those in the Sims case … In the present case we find the supply of food by Mr Bergonzi was incidental to the business activities of the [grantor], so that it formed a supply of catering which fell to be standard-rated …"
"… there is insufficient linkage between persons at railway stations to cause sales of cold food items made to them from kiosks on the platform side of the ticket barriers of closed stations to be defined as catering. At most, such persons all have some sort of railway business: they may be persons planning future journeys, persons buying tickets in advance of travel to obtain the advantage of special fares, train spotters, persons seeing off or meeting travelling friends or relatives or, of course, rail travellers themselves. Those persons cannot be said collectively to be involved in the activity of rail travel: they may become so involved once having boarded a train. For that reason I hold that sales of cold food items in the circumstances with which I am dealing are not incidental or ancillary to rail travel."
"One of the principal features which distinguishes catering from the mere sale of food is that a service is provided on the premises in addition to the food."
"I have to say straightaway that I share the reservations expressed by the tribunal in the present case about excessive emphasis being placed on the need for there to be a function or activity involving a gathering of people not assembled together simply for the purpose of having a meal. In my view it is perfectly possible for a supply to be 'in the course of catering' when made to a family having a meal together, though in such a case one would tend to expect certain other of the indicia of catering to be present, such as delivery, service at the table or the provision of cutlery and other ancillary articles … In my judgment whether a particular supply is 'in the course of catering' is a matter of fact and degree. There will be a range of factors to be taken into account by the body which is making the decision. Those factors would seem to me to include such matters as whether the food is indeed supplied in connection with an occasion or other event; the degree of preparation which remains to be carried out by the recipient is likely to be a relevant consideration, as is the presentation of the food itself—in other words, is the food in a form where one would ordinarily put it on the table with no further steps being taken? One would want to bear in mind whether crockery and cutlery are provided along with the food itself and any other of the usual ancillary items which go with a meal. Whether it is delivered, or not, by the supplier may often be a highly material factor. Whether it is served by the supplier to those eating it, at the place where consumption occurs, will also be a relevant factor. I do not propose to list any more factors. The ones I have listed are not intended to be exhaustive."
"We do not regard the fact that the Appellant's customers were confined to those permitted to be on airside constitutes a relevant nexus … It was unavoidable that if the licence was to provide supplies on airside, the customers would be those permitted to be airside … There was no service in the catering sense: there was no element even of laying out food for self-service."
Do Compass's supplies amount to "catering per se"?
The meaning of "premises"
"'Premises' is an ordinary word of the English language which takes colour and content from the context in which it is used. A reference to Stroud's Judicial Dictionary shows this to be the case. It has, in my opinion, no recognised and established primary meaning."
And Lord Wilberforce, at page 21, added:
"I think that I would not be alone in finding that the key word 'premises' invites reflection. It is true that it is a general word or, rather, a word of some generality but I know of no rule of construction which requires general words to be interpreted literally regardless of their context. If appeal is made to the principle that the plain meaning of a word should be taken, unless at least some other indication appears, it must be said that a word does not necessarily have a plain meaning just because it appears to be general—certainly not such a word as 'premises'."
"In my judgment, the 'premises' for the purposes of Rule 3(d) may sometimes be the whole of the trader's business premises and may sometimes be a specific building forming part of those premises. Thus, if a factory window were blown out and had to be repaired, it would be obviously wrong to argue that as the entirety of the window had been restored it was not a repair to the premises. In such a case the 'premises' would be the entire factory, in relation to which the window would be a repair and nothing else. But if, for example, a retort house in a gasworks was destroyed and had to be rebuilt, one would hardly call that a repair to the gasworks. The size of the retort house would compel one to regard that as the premises … These examples illustrate what I think is the truth, that there is no one line of approach to the problem which is exclusively correct. In some cases it will be right to regard the premises as the entire factory, and in others as some part of the factory. Whichever alternative is the right one to adopt will depend upon the facts of the particular case."
"Since the snack-bar was itself within the construction of the three joint blocks which constituted Unitair House, [counsel for the Crown] submits that that whole block should be looked at as the premises, and therefore anyone who entered this snack-bar, bought some sandwiches, then went out, as he would have to, into the road, and went along into another part of the premises and ascended to his office and ate the sandwiches there was consuming them on the premises.
In my judgment, that argument is fallacious. The premises here which this taxpayer had and where she supplied the food, and the only premises over which she had any control, consisted of one room that was 12 ft by 12 ft. In the ordinary meaning of the phrase 'any supply of food for consumption on the premises on which it is supplied' must, in my judgment in the circumstances of this case, refer only to that room. If the food is not supplied for consumption there, then the phrase has no application in this case. It seems to me to be impermissible to latch on to the mere geographical fact that other quite discrete and separate commercial premises happen to be in the same block and for that reason to lump them together as 'the premises' within the meaning of the phrase in note (3)(a). If this snack-bar had been across the road from Unitair House, as a separate entity, it would be legally no more separate than it was, and the effect, as counsel for the Crown accepts, would be that it would be impossible to say that anyone who took food from it over to Unitair House to consume was consuming it on 'the premises'."
"The subsidiary argument was raised, however, as to whether the word 'for' in the phrase 'for consumption on the premises' imported some intention on the part of the taxpayer who was the supplier of the food, or whether one had simply to look objectively at what was happening. If it were necessary to decide the point, I would have concluded that the word 'for' was purposive in its nature in this context."
The "on the premises" argument
"The premises here which this taxpayer had and where she supplied the food, and the only premises over which she had any control, consisted of one room that was 12 ft by 12 ft. In the ordinary meaning of the phrase 'any supply of food for consumption on the premises on which it is supplied' must, in my judgment in the circumstances of this case, refer only to that room."
COLIN BISHOPP
CHAIRMAN
RELEASE DATE: 6 May 2005
MAN/03/0707