United Kingdom VAT & Duties Tribunals Decisions

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U U Bibliotech Ltd v Revenue & Customs [2006] UKVAT V19764 (13 September 2006)

19764

ZERO-RATING – Books and periodicals – Undertaking to make books and periodicals available by loan or hire to University – Operation of libraries for benefit of University – Single supply – Whether supply is zero-rated – No – Value Added Tax 1994 Schedule 8, Group 3, Item 1

LONDON TRIBUNAL CENTRE

Appellant

U U BIBLIOTECH LIMITED

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: STEPHEN OLIVER QC

Sitting in public in London on 21, 22 and 23 February 2006 and 23 July 2006

Andrew Hitchmough and Sadiya Choudhury, counsel, instructed by Ellis Chapman and Associates, Accountants, for the Appellant

Phillippa Whipple, counsel, instructed by the acting general counsel and solicitor for Her Majesty's Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

This appeal is brought by UU Bibliotech Limited ("UUB"), a wholly owned subsidiary of the University of Ulster ("the University"). UUB has lodged two appeals the substance to which is identical in each of them. By the first appeal UUB challenges the decision dated 4 February 2002 of the Commissioners ("the Customs") by which the Customs refused to accept that UUB was entitled to repayment of full input tax claimed; and by the second appeal UUB challenges the Customs' rejection of its voluntary disclosure dated 29 June 2004 (relating to the period 1 June 2001 to 31 July 2002.)

UUB has submitted voluntary disclosures, on 25 June 2004 (the rejection of which is appealed against and is referred to in the proceeding paragraph) and on 1 July 2005, so as to protect its position.

This case, a Northern Ireland appeal heard in London, concerns the VAT treatment of the supply or supplies by UUB to the University. The central issue is broken down into three potentially discreet sub-issues. These can be summarised as follows:

(a) Does UUB make a single supply of services? If so, what is the VAT classification of that supply?

(b) If it does not make a single supply:

(i) What separate supplies are provided by UUB, and what is the VAT liability of each?

(ii) How is each supply to be valued for VAT purposes?

A Brief Outline of the Facts and Issues

The main sources of the facts are the evidence of Elaine Urquhart BA (TCD) and MA (Queens University Belfast), director of UUB, and of Peter Hope BA, Fellow of the Institute of Chartered Accountants of Ireland, Director of Finance for the University and a director of UUB. The documentary evidence to which they referred is, where relevant, identified in the fuller review of the facts found later in this Decision.

At this point it is sufficient to say that in 2001 the University granted leases of land or buildings at five sites which were then operated as libraries or in the course of being developed as "Learning Resource Centres" ("LRCs"). On 31 May 2001 the University and UUB entered into three agreements:

(i) for the sale by the University to UUB of library assets,

(ii) for the provision by the University to UUB of the services of employees and

(iii) for the provision of learning resources by UUB to the University ("the Learning Resources Agreement").

Since 1 June 2001 UUB has made supplies to the University and the University has made payments to UUB. UUB's case is that it has been making multiple supplies to the University, a substantial one of which is the supply of books and periodicals. The Customs say that in the circumstances UUB is making a single "overarching" supply of learning resources.

The Law

The supply of "Books, booklets, pamphlets and leaflets" is zero-rated in pursuance to Item 1, Group 3, Schedule 8, VAT Act 1994.

The supply of "newspapers, journals and periodicals" is zero-rated in pursuance to Item 2 of that Group.

The note to Group 3 provides that the above items "include the supply of the services described in paragraph 1(1) of Schedule 4 in respect of goods comprised in the items."

Schedule 4, paragraph 1(1) provides that "any transfer of the whole property in goods is a supply of goods; but … the transfer … of the possession of goods is a supply of services."

The legal principles and authorities are sufficiently explained and identified by Warren J in Byrom and Others (t/a Salon 24) v R & CC [2006] STC 992 as to require no further summary here. I adopt paragraphs [22] to [40] of that decision in their entirety for the purposes of this decision. Where relevant to the present issues I will refer to those authorities. At this stage it is necessary only to set out the passage in Lord Rodger's speech in College of Estate Management & C&EC [2005] 1 WLR 3351 and [2005] STC 1597. Addressing the "single or multiple supply issue" he said in paragraph 12:

"The answer to that question is not to be found simply be looking at what the taxable person actually did since ex hypothesi, in any case where this kind of question arises, on the physical plane the taxable person will have made a number of supplies. The question is whether, for tax purposes, these are to be treated as separate supplies or merely as elements in some over-arching single supply. According to the Court of Justice in Card Protection (at para 29), for the purposes of the directive the criterion to be applied is whether there is a single supply 'from an economic point of view'. If so, that supply should not be artificially split, so as not to distort (altérer) the functioning of the VAT system. The answer will accordingly be found by ascertaining the essential features of the transaction under which the taxable person is operating when supplying the consumer, regarded as a typical consumer. Since the 1994 Act has not adopted any different mechanism to give effect to this aspect of the directive, the same approach must be applied in interpreting the provisions of the Act. The key lies in analysing the transaction."

This Decision

This decision approaches the "single or multiple supply issue" from the starting point that "on the physical plane" (College of Estate Management, para 12) UUB can be said to have made a number of supplies to the University. The greatest part of the decision will be directed at assembling the facts presented in evidence under relevant headings, e.g. descriptions of the libraries and LRCs, listings of UUB's assets and real property, an explanation of how UUB actually operates its book-related activities, a summary of how UUB deploys its staff and a statement of the features that contribute to UUB's business and undertaking. The decision will then examine the contents of those headings from the economic perspective, the perspective of the registered users of UUB's services (e.g. the students and staff) and finally the legal perspective in order to determine UUB's obligations.

That approach is designed "to ascertain the essential features of the transaction under which [UUB] is operating when supplying" the University. The aim is to identify the various elements of the supplies and consider them from "an economic point of view" (College of Estate Management, para 12). This lays the ground for then addressing the main point of dispute on the single or multiple supply issue. Would it be artificial to split the book-related supplies from UUB's other learning resource supplies? (See para 12 of College of Estate Management and the European Court of Justice in Levob Verzekeringen BV v. Staatssecretaris van Financiën (Case C-41/04) [2006] STC 766, paragraph 22.) Here UUB contend that none of the elements are so integrated and organized that they cannot be split; UUB's books and periodicals can be supplied without also supplying, e.g., the workstations. The Customs in response say that to give independent VAT status to the provision of printed material would be to "artificially split" the supply made by UUB so producing a result that was incompatible with the economic reality of the relevant transaction which is a single supply comprising the many elements of which the provision of printed materials is one.

The Campus Libraries

Each University campus has its own library or LRC. Students and staff are entitled to use the services and stock of all libraries. That entitlement is conferred on them by virtue of their registration as students of the University or their terms of employment as the case may be.

The great majority of printed books in the libraries (some 999000 items in 2001/2, 997,000 in 2002/3 and 1 million in 2003/4) are loanable to students and staff. Journals are not, explained Elaine Urquhart, normally loanable. All items may be consulted within the libraries.

Coleraine Libraries

There are two libraries at Coleraine. Central Library houses material for the arts, sciences and technology. South Building Library contains material for health services, business and management, social services and informatics.

Coleraine Central has 10,681 shelves of printed books holding about 152,000 items. 4348 shelves hold journals, bound and unbound.

The Coleraine Central Library is on one floor. There is an "issue desk" and an "IT Users Services" information point/computing helpdesk. The shelves of printed books and periodicals are collected into blocks according to their subject matter. A large part of the floor area contains 412 study desks and at least 36 of these hold fixed desk-top computers for use by any users. Many journals and periodicals are on microfiche kept in draws and at least one microfiche viewing point is available for users. The photographs exhibited as evidence reveal five photocopiers. There are three rooms for "special collections".

There are two study rooms that accommodate two users and 28 study rooms for one user.

Coleraine South Library is on two floors. It has 4138 shelves of printed books again collected into blocks according to their subject matter. These hold some 142,000 items. 1414 shelves hold journals and newspapers, bound and unbound.

There are 2037 study desks and 28 of these hold fixed computers. There are several photocopying machines.

The Library at Portrush

The Students Guide to Information Services states that this supports courses in leisure, tourism, hospitality and consumer studies. It has 265 shelves of printed books (7286 items) and 120 shelves of journals, bound and unbound. All items may be consulted in the library.

There are 83 study desks, 13 of which hold desk-top computers. There are seven photocopiers and at least two printers.

The Belfast Library

The Students Guide to Information Services states that the library at Belfast mainly serves the needs of staff and students of art and design. It also supports Belfast-based courses such as architecture, cultural heritage, American, Irish and Celtic studies. It has a 35mm slide and DVD/video collection.

There are 1156 shelves of printed books holding about 77,000 items. 322 shelves hold journals. There are 33 reader desks (without computers) and 24 soft chairs situated near the journals. There are 55 desks with desk-top computers.

A helpdesk/IT information point is placed near the entrance, as are issue desks. There are several photocopiers, video storage racks and so-called CAD labs.

The Jordanstown Learning Research Centre

This LRC is on two floors. The entrance floor holds periodicals and non-book media and computers for student use; the lower floor holds the main collection as well as silent and group study room facilities and an information skills classroom.

Overall there are 7785 shelves of printed books holding some 271,000 items and 4383 shelves of journals. There are 721 study desks, 655 of which are on the lower floor. The lower floor has book shelves around the outer part; the centre (which appears to be much the greater part of the floor area) is covered by work desks. Five of the eleven study rooms accommodate twelve users: the rest accommodate six. There are 375 computers. Photocopying facilities are available as are facilities for watching videos and CDs and for viewing microfiche.

Magee Learning Resource Centre

The Guide to Information Services describes the Magee LRC as a new "state-of-the-art LRC … on three floors." The ground floor houses periodicals and non-book media. The middle floor has the main book collection, study rooms and café. The upper floor has over 120 student computers, quiet study areas and an information skills classroom.

There are 5754 shelves of printed books holding some 83,000 items and 1976 shelves of journals. The LRC has 240 study desks with 75 on the ground floor, 96 on the first floor and 69 on the top floor. There are 168 computers on the top floor. It has three group study rooms that can accommodate twelve users and two study rooms that can accommodate six users.

The centre has a microfiche reader and facilities for watching and viewing videos, tapes and CDs. Photocopying and printing facilities are provided.

Magee LRC participates in the Foyle Scheme which gives local people the opportunity to consult its books and journals.

UUB's Assets

Library assets

These are listed in UUB's accounts as "Library Assets" and "Buildings". The "Buildings" are summarised in paragraphs 35 to 41 below under the heading "UUB's Property Interests". The library assets are, to use the words of the annual Accounts, non-capitalised and partly books which figure as fixed assets.

By the "Agreement for the Sale and Purchase of Assets" of 31 May 2001 between the University and UUB, the University sold to UUB (i) books (defined to include books, pamphlets and periodicals) for £4,850,000, (ii) furniture and equipment (e.g. shelves, reader spaces, chairs, microfiche readers, video equipment and detection systems) for sum £800,000 and "library materials" (defined to include music, maps, audio-visual materials, CD Rom slides and "other information held in any form whatsoever") for some £360,000. The purchase price was funded by an issue of 5,989,790 shares of £1 each to the University. Those assets are shown in UUB's balance sheet as at 31 July 2002 as "Library Assets"; in subsequent accounts the Library Assets, including additions, have been recorded at cost and depreciated over two years.

Special Collections

Special book collections of rare or early books are housed mainly on the Coleraine and Magee sites. There are subject to restricted access and they only be consulted in the libraries. They are managed by UUB but belong to the University. Those that are in view in the libraries are kept in display cases.

UUB's Property Interests

UUB has leasehold interests in the buildings comprising Coleraine Centre and Coleraine South. These leases started with effect from 1 June 2001. UUB pays rents of £110,000 and £67,408 per annum respectively.

UUB has a ten year lease of the Portrush premises starting on 1 August 2002 at an annual rent of £12,474.

The Belfast premises are leased to UUB, as to part, for ten years from 1 January 2001 at a rent of £16,285 per annum and as to a further part from 2 July 2004; the revised rent since then has been £34,485.

The Jordanstown premises were leased to UUB for 25 years by the University on full repairing and insuring terms with effect from 1 June 2001. UUB can determine the lease at any time on six months notice. When the lease commenced the premises were in the course of redevelopment involving extensions to provide additional space to support the phased increase in computers and greater access to books and other reference materials. The rent, determined by professional valuers was £275,000 per annum; this reflected, among other factors, that the lease limited "the market almost to the actual user (UUB) or arguably to another similar likely occupier" (see letter of 17 September 2003 from Lisney, Valuers). The premises are contained and integrated within the University campus and are accessed from the Mall, the principal thoroughfare in the University buildings. Lisney reported that UUB was to provide library services to the University. The permitted use is defined under clause 1.9 of the Lease as "the provision of library services and any ancillary services thereto". The redevelopment was fully completed in 2002.

The Magee premises comprised, in June 2001, an existing building which has been leased by the University to UUB. That lease terminated in January 2003 when UUB moved into the new premises. The new premises stand on a site occupied by UUB under a 25 year lease starting on 23 April 2001, at a rent of £62,607 per annum. UUB leases out the café part of the premises to another wholly owned subsidiary of the University at a rent at £7500.

The construction contract for the new premises at Magee was entered into by UUB with builders. The construction costs were (Peter Hope explained) incurred by UUB using funds provided by private donors and from a government grant.

Enlargements and redevelopments to the above premises have all been carried out as part of a University plan.

UUB's Business and Undertaking

This part of the Decision is directed at assembling UUB's undertaking from the evidence. By "undertaking" is meant UUB's business and the whole wherewithal with which it carries on its business and makes supplies. The sources of this start with the directors' description of UUB's principal activity in the accounts and the terms of the Learning Resources Agreement. Published statements made to suppliers and to the students and other users of the library resources have been taken into account in determining the scope of UUB's undertaking.

Directors' Report

UUB's Directors' report describes its "Principal activity" as "the lending of books and periodicals and the provision of workstation facilities".

Learning Resources Agreement

Clause 4 of the Agreement for the Provision of Learning Resources of 31 May 2001 between the University and UUB requires UUB to "lend or otherwise make available the Books by hire to the University for students and employees of the University … for use inside or outside of the Libraries" and "to ensure that the Books are available for loan or hire during normal operational hours of the Libraries". Books are defined to include books and periodicals and the "Libraries" are the libraries of the Magee, Coleraine, Jordanstown and Belfast campuses.

Clause 4 of the Learning Resources Agreement obliges UUB to "lend or otherwise make available by hire the Library Materials to the University for use by students and employees …": "Library Materials" are defined to include "music, maps, audio-visual materials, CD ROMs and all other information held in any form whatsoever".

"Workstations" are defined to mean the computers located at the libraries which offer word processing and library database access. UUB agrees to make these available to the University for use by students and employees of the University during normal library hours. The Learning Resources Agreement covers "special materials" i.e. the special book collections described above, which are in UUB's possession and which UUB agrees to store, display and maintain and to "provide services as the University may direct in respect of" them.

Other published statements describing UUB's objectives

At around the time that UUB started its activities it made a number of statements.

Suppliers were notified. The heading of a letter from UUB to a supplier in the USA reads "UU Bibliotech Limited: library facilities and services provider to the University of Ulster". It starts with these words:

"I am writing to inform you that the University's library services, including the purchasing functions, will in future be delivered by a wholly owned subsidiary called UU Bibliotech Limited".

The UUB staff were notified on 28 May 2001 that "The University has set up a wholly owned subsidiary company … to operate the learning resource centre and libraries at each campus" and that UUB would "be responsible for the daily operations of the library including the organisation of staff and resources".

A message from Nigel Macartney, director of UUB, states that –

"The use of UU Bibliotech Limited is solely to facilitate a more efficient structure within the University".

The Student Charter

The University's own public statements to students indicate the scope of the library activities conducted by UUB. The Student Charter, for example, covering "Information Services" specifies two features that are the responsibility of UUB, namely the Library and Reprographics. Under the heading "Library" is the passage that covers library services:

"The role of the University of Ulster library service is the provision of materials, study environments and services which meet the needs of all students in accordance with the University's overall aims and objectives. Close liaison is maintained with Faculties/Schools by a team of subject librarians who liaise with teaching staff and relevant committees to ensure that Library services are planned to meet students' requirements. High quality services are provided by well trained staff who are responsive to user demands and proactive in the development of services and in the use of new technology.

What students can expect from us:

- a helpful and courteous service from staff at all times

- a library environment that is suitable for studying

- students will be provided with library materials and information they need to successfully undertake their course of study or research, within the limits laid down in the library collection development policy.

- students will be fully supported in their use of library resources through the provision of users guides, induction sessions, subject classes and one-to-one help

- the library will provide additional resources and support for client groups with extra demands; these groups include students with disabilities, part-time students and distance learning students

We expect students to:

- adhere to the published library code of conduct

- adhere to published rules and regulations of library"

There then follows a statement of the standards to be expected of the library. The student can expect basic help and advice on using library services at all opening times and that more detailed subject enquiries will be responded to within three days. Library staff undertake to provide induction or subject classes on request through teaching staff. The library undertakes to provide a range of electronic resources (databases, e-journals etc). The Student Charter goes on to say:

"We aim to provide students with access to all books, journals and online resources on reading lists that are submitted in accordance with the library collection development policy."

The Students Charter says of the Reprographic Division that it provides a commercial standard print service to students, offering value for money, printing, copying and binding. Constant monitoring of usage and student requirements takes place to ensure that appropriate services are offered.

Guide to Information Services

The Guide to Information Services 2004-2005 starts with a "Welcome to the University of Ulster" by Nigel Macartney which expresses the hope that "you will make use of all our library and IT resources". The Guide tells the students what they need to know about borrowing books and about periodicals. It lists as library facilities the following, among other, services: "Online Help Information" and "Expert Help and Advice from our Subject Teams". The former heading states that the library catalogue, found on the library home page, is the library's most important and heavily used facility; it contains details of almost everything in all the libraries and "will be your main tool in finding materials you need". The online service records the take-out book loans and reservations of each student. Under the latter heading it is emphasised that "subject librarians" are there to help students to make the best use of their time in the library, giving advice to individual students and running seminars on how to locate relevant information in their subject areas. The classes, it is said, focus on using the databases and electronic journals relevant to the students' needs.

The subject librarians are listed in the Guide under five faculty heads. The Guide explains how to "borrow" books in a passage (referred to later) describing the take-out loan facility available to students. It covers self-service photocopying facilities provided to users for a fee. It says of the provision of "Electronic Information Services – Databases and Electronic Journals" that the student is automatically entitled to use "a wealth of premium information resources on the internet and that where possible the libraries will provide access to their databases and electronic journals from any computer with internet access both on or off campus".

Study facilities are explained to the students in the Guide as follows:

"Group study rooms are now available in the Jordanstown and Magee LRCs. They can be booked at the issue desk for groups of four or more students for two hours at a time.

Jordanstown, Magee, Belfast and Coleraine South Libraries now provide areas for quiet study.

Private study carrels (rooms) are available in Coleraine Central Library. These are intended for post graduate students and, exceptionally, for others who wish to pursue research. Almost half of these carrels are allocated daily on a "first come - first served" basis. The rest are allocated for a term at a time."

Distance learning through the "Campus One" facility is another feature explained in the Guide. It states that "Improving the library service for students who are off-campus has been a priority for us. If you cannot come into a library campus as often as you would like, you should make the most of the services listed below." There are then listed a series of online services such as, "help, information and advice", help and advice offered by subject librarians, book loan renewal facilities, access to electronic journals and databases and web pages containing the "faculty subject guide".

Information Access Policy

The University's "Collections and Information Access Policy" was published in 2005. This states that the University's aim is to serve the members of the University and to "meet their information needs for teaching, study and research". It states that "information resources in all formats" will be covered and that resource lists will refer to "a wide range of print and on-line resources such as books, e-books, journals, electronic journals, digitised book chapters, electronic databases and external websites". It goes on to say that "journals are increasingly available in electronic form" and that "other things will be equal on-line will be preferred to print".

Guide to Library

The Guide to Library published in 2002 is introduced by reference to the many books and periodicals available from the library service, and the "rapidly increasing range of on-line databases, subject guides and other electronic services … We hold a significant range of resources in other media including videos, DVDs, slides and microfilm". A separate section is devoted to Electronic Information Services.

Newsletters

In the Autumn of 2001 the Newsletter relating to Information Services noted that many Universities have "brought their libraries, computer and media services into a single organisation …. The new Learning Resource Centres at Jordanstown and Magee … will be examples of the benefits of cooperation between previously separate services."

In the Newsletter of Spring 2003, Nigel Macartney talks of the TALIS system – "a computerised library system, the automated telephone renewal and information line (TALIS message)." The director goes on to state that "uptake of IT services in the new LRC at Magee is improving and the facility is expected to be well established by the commencement of the incoming year. In both LRCs we operate a joint helpdesk service with our library colleagues, providing students with a single point of support; again the service is proving very popular." Of the Talismessage service, the newsletter states that "it takes a routine activity away from staff enabling them to focus on other areas of work".

The Autumn 2003 newsletter contains a message from Elaine Urquhart stating that "Work has continued on developing and improving our range of services. Support for on-line services continues apace …. It is now possible to request and receive the same-day delivery of journal articles through our improved inter-library loan service." She notes that work has started on the Belfast campus that will be a "state of the art" facility. She records that demand is growing for study rooms as a resource, as students are using these rooms for group study and collaborative projects and the rooms are "a regular part of student life". Referring to the transfer of non-book media, e.g. videos, DVDs and CDs, to Magee and noting that all the associated equipment is available, Elaine Urquhart points out that "we believe that this new facility represents an important expansion of our service and we hope that it will come to be used by students and staff as much as our more traditional books and journals."

The Autumn 2004 newsletter includes a message from Elaine Urquhart stating her objectives for the year 2004/5, the result of which will be "to provide better services and resources to all our users and to be ready to take advantage of the new opportunities provided by the exponential growth in electronic information". She concludes with this statement:

"… it is important that we support our users' information needs and part of this includes the Information Skills training offered by the Subject Librarians. … that represents a substantial part of our work for several weeks at the beginning of the academic year."

Inferences to be drawn from the facts set out in this heading

The Accounts, which separately record income from "Books" and "Periodicals" coupled with the description of "Principal Activity" and this wording of the Learning Resources Agreement tends to indicate a separate book-related supply by UUB. The rest of the information under this heading paints a different picture. UUB is described as "delivering the University's library services", "operating the LRCs and libraries at each campus", facilitating "a more efficient structure within the University". The students are informed that the role of the University's library service is to provide materials, study environments and services that meet their needs in accordance with the University's overall aims and objectives. The Information Access Policy states that information resources are covered "in all formats"; the Guide to Library refers to the increase in its electronic services. The Newsletters give a high profile to the growth in electronic services available to students and through Campus One. Subject librarians are introduced as being there to help students and to inform them how to locate information in their subject areas, to use databases and electronic materials.

All those individual features, comprehensively offered by the University as its library service for the use of its students and staff, are delivered by UUB. They were transferred by the University to UUB as, apparently, a package under the Agreement for the Sale and Purchase of Assets (see para 33 above); and the evident arrangement was for all those features to be made available as a package by UUB to the University. That analysis, so far, tends to the conclusion that the transaction by which UUB makes its supplies to the University is a single supply of library or learning resource facilities. It also indicates that the Learning Resources Agreement covers only a section of the totality of services provided by UUB to the University.

UUB's Book-Related Activities

In 2003/4 475,000 take-out book loans were made. "Take-out book loans" are the occasions when students and staff use their rights given them by the University and take books out of the particular library. There were no precise figures for the number of in-library book consultations. The total number of visits to the libraries in the year was about 1.6 million. Elaine Urquhart's evidence indicated that eleven per cent of monographs or books used in a library never result in a loan; a study in Newcastle had found that for every book issued 4.47 books were consulted but not issued.

UUB's stock of books has been selected to meet the needs of the various faculties of the University. Each book is catalogued, classified and tagged. The cataloguing and classifying is carried out by the particular library's TALIS library management system. The tag for each item will have been fixed by the library staff at some stage in the ownership of the book and it operates as a anti-theft device. To judge from Elaine Urquhart's estimates, much the greatest use of UUB's books is by consultation within the various libraries. A large proportion of that is the "short-loan" consultation (limited to four hours) of books in the short-loan section of each library. In-library consultation of books involves the borrower making use of the study facilities provided within the libraries.

The intending "take-out loan users" make use of their ID cards and numbers (issued to them by the University at the start of their registration or employment). Students and staff who consult books in the library or LRS and do not take them out do not have to notify the fact that they are taking the book off the shelf and consulting it.

To find the required book the users either access the relevant databases using their ID passwords or ask at the helpdesk or seek advice from the subject librarian or use their own knowledge. When take-out borrowing is effected through the TALIS system, the loan users key in their ID numbers, the details of the books they are borrowing and the nature of the loans.

The take-out loan user has the choice of three types of loan. The terms of these loans are contained in, e.g., the Student Guide to Information Services. Under the "Standard loan" eight books may be borrowed for four weeks at a time: research students may borrow up to 25 books for eight weeks. Loans maybe renewed twice. The library can call in loans after one week to meet reservations by other students. There is a 50p fine for overdue books. Administration of this is the responsibility of the University. Under the "one-week loan" scheme (which applies to books with blue dots on their spines) four may be borrowed at a time and renewed once with a £1 per day fine if overdue. Under the "part-time loan", part-time students may borrow for one week with the right to renew once and subject to a £1 per day fine. (These fines also are administered by the University.)

Overnight loans may be made to students under the "short-loan" arrangements covering books that are in high demand on the reading list for student users. They are kept in a special area and there is an "area where students can consult the material and get it issued to them on a short-term loan basis for a period of four hours." There was no evidence whether these short-term loans, overnight or just daytime, were included in the number of 435,738 book loans made by UUB in 2003/4.

Renewals of book loans can be made unless the books are reserved for other users. Renewals are effected by going to the issue desk in person, by telephoning a automated renewal service or by using "borrower service" option on the on-line catalogue.

Books are physically returned to a member of the library staff or by being placed into a returned box if the library is closed. The TALIS system alerts the library and the borrower when a loan goes overdue.

Unavailable books required by users, both for consultation in the library and for borrowing under UUB's book loan scheme, may be obtained by inter-campus loan and in some cases by inter-library loan. There is no charge on the user for this facility.

Periodicals are consulted inside the library. They may be photocopied and they may be accessed on-line. But, according to Elaine Urquhart's summary, these not normally available for take-out loans.

The rights of students and staff call for the provision of a wider range of facilities than simply access to printed publications. Students are entitled to expect the libraries and LRCs to stock materials (printed, on line, on micro file etc) on their course reading lists. Staff and students expect study space, work desks and study rooms to be provided. A range of support and guidance services have to be available. Those expectations are given by the University in, e.g. its "Guide to Information Services" summarized in paragraphs 52-56 above. Those features tend to the conclusion that the provision of books and periodicals for in-library use is part of a package that cannot usually be enjoyed without access to other facilities. And even the take-out loan facility has to be serviced by a range of supporting services that UUB provides to the University. The evidence produced by UUB gave no reliable indication as to the relative scales of its book-related activities, divided between take-out loans and in-library consultation. Nor was there reliable evidence pointing to the relative scales of all book-related activities as compared with electronic facilities. It is reasonable to infer from the facts collected under this heading that the arrangement was for UUB to provide the University with all its learning resources as a comprehensive package to enable the University to "deliver" on its commitments to staff and students. One thing that is clear is that the University's libraries and LRCs are far removed from old fashioned lending libraries, like those that used to be located at the back of Boots the Chemists, that stocked books for the public who borrowed them for a modest charge. By contrast, they are key ingredients in the University's stock of learning resources.

UUB's Income

In all years since June 2001 when UUB took on the responsibility of running the libraries for the University, its principal sources of income have, according to its published accounts, been "Periodicals", "Books" and "Facility charges", those headings being apparently derived from the Learning Resource Agreement. The Schedule to the Learning Resource Agreement provides for £8.50 to be paid for each take-out book loan and £4.75 for each take-out loan of periodicals. £8.50 is to be paid for the take-out loan of library materials (e.g. music and maps). Fees for the workstation services (which I take to be the "Facility" charges referred to in the accounts) were fixed in that Agreement at £134,000 for the first period to 31 July 2002. Further amounts have been received in all the years for photocopying services and, for 2003 onwards, for printing.

In 2001/2 the income from "books" and "periodicals" worked out at £5.3 million out of a total income from all sources of £5.5 million. For 2002/3, 2003/4 and 2004/5 the figures were £5.3 million, £5 million and £5 million out of total incomes of £5.9 million, £5.8 million and £6.9 million respectively.

The charging system summarized in paragraph 75 above remained in operation until August 2004 when it was found to be producing an insufficient revenue for UUB. The shortfall was some £1 million. The original system had been devised on the basis of a five-year write-down. A two–year write-down was considered to be more appropriate and was incorporated into the new system which, for 2004/5 onwards, was designed to be more specifically cost-related. The new system of charging was based on a "cost plus model" (Mr Hope's expression). It was to be reviewed annually. Those costs included staff costs apportioned on the basis of (i) time spent by each member of staff on the acquisition, shelving of periodicals and the loan of books, (ii) premises costs such as rent, rates, insurance and maintenance apportioned on floor area basis and (iii) direct costs being the direct cost of the books depreciated over two years and periodicals written off in the year of purchase. Overhead costs, including audit, legal fees, telephone and postage were also apportioned on the ratio of direct purchases of books and periodicals to total direct purchases including computers and electronic media. To calculate what Mr Hope called "the book loan rate" the gross costs were divided by the expected number of loans in the year in order to arrive at the initial lending rate.

The charging for periodicals needs some explanation. While the Learning Resources Agreement provides that £4.75 per item is payable for periodicals and journals, Elaine Urquhart said that they were "not normally loanable". How was it that in each year the hire income for periodicals was roughly 1/6 of the total hire fees for books? Peter Hope explained that a charge is made using a formulaic allocation which estimates in-house periodical consultation throughout the year. This was needed because there was no way of directly measuring consultations of periodical stock in the libraries. The Formula is expressed as follows:

"The number of requests for loan or photocopy of periodicals from other libraries is available and has been used as a substitute measure.

Using figures for the base year 1999/00, 2/3 of those requesting material externally (through inter library loans) requested periodicals, it was therefore assumed that 2/3 of the user population are likely to consult periodicals within the library. On average those requesting periodicals externally needed 14 articles per year. An estimate of in-house periodical consultations in that year – 164,732 – was arrived at by taking 2/3 of the using population (11,953) and multiplying it by average number of periodicals requested externally (14). This estimate of in-house periodical consultations in that year - 164,732 – divided by the number of known periodical requests (30,885) gives a ratio of 5.33 in-library consultations for every external request.

Each month the number of periodical requests not held by the library is multiplied by 5.33 to provide an estimate of in-library consultations for that month which are then charged at an appropriate figure per consultation."

Apart from Mr Hope's explanation there was no evidence of the manner by which the Formula was agreed or by whom.

Mr Hope accepted that the pre-August 2004 system had resulted in a disproportionally large part of the value of income and expenses of each year being attributed to books and periodicals. For the first year, the charge for books and periodicals had been £1,093,706 and for facilities it had been £14,772. That, Mr Hope accepted, resulted in the proportion of zero-rated items of around 93%. He also accepted that for the second year the charge for books at £5,311,000 and for facilities of some £200100 resulted in a 90% zero-rating proportion. The later years gave a zero-rating recovery at the rate of 87%. None of those rates of zero-rated recovery were, he accepted, proportionate to the range of services offered; they did not reflect the value of book lending. On the other hand, for the year ending in 2005, the charge for books and periodicals was some £5 million and the facility charges plus photocopying and printing income worked out at £1.8 million. That charge had been increased and consequently the rate of recovery for zero-rating was down to 74%. Mr Hope did not accept that this did not represent the true value of zero-rated supplies.

Regarding UUB's expenditure, typically the largest item has been staff, then depreciation and then other operating expenses. Elaine Urquhart explained that each faculty within the University has a budget set by the University for the purchase of information resources. Provided that the purchases are within budget, the subject librarian approves the request for the purchase of stock. UUB then places the order, confirms the delivery, processes the invoice and arranges for payment to suppliers. She explained that each library is "plugged into" the University's plans for supporting the University's teaching, learning, research and technical transfer. To this end the library works as closely as possible with faculties within the University and consultations take place in early spring each year to provide the basis of estimates for the following academic year.

The examination of UUB's income shows that take-out book loan fees and the application of the formula for charging for use of periodicals between them have provided the annual revenue support for substantially the entirety of UUB's operations. Income from those sources funded the provision of, for example, study space, E-materials, workstations, advice and the provision books for in-library consultations, at least until the new costing arrangements came into operation in August 2004..

Staffing the Libraries

Four senior members of staff have at all times been seconded to UUB by the University. The rest of the staff, around 150, are employed directly by the University. All staff are supplied by the University to UUB on the terms of the Supply of Services Agreement of 31 May 2001 between the University and UUB. Half of those work part-time during the University terms.

The Supply of Services of Agreement describes "the Services" for which the staff are provided as "all duties and services associated with the staffing and day to day running of the University library". UUB pays the University monthly in arrears (plus VAT) a fee "equal to the gross cost to the University of employing the relevant employees during that month".

The staff comprise the Information Services Department. This covers library and IT resources and reproductive resources. Prior to the establishment of UUB, explained Elaine Urquhart, there had been separate entities under a "head of library", a "head of computing," a "head of management of information systems", a "head of information structure" and a "head of reprographics".

Nigel Macartney is director of the Information Services Department. In his welcome at the start of the University's Information Services Newsletter (of Autumn 2001) he stressed the improved services and advantages of a single organisation, one of which was reducing the number of communications sent out to academics and other staff. He expressed the view that "the new LRCs at Jordanstown and Magee would be examples of cooperation between previously separate services."

Elaine Urquhart, an assistant director, is under the line management of Nigel Macartney. She described her role as to further the development, extension and modernisation of the range of materials available to students and users. Periodically she provides the statistics and materials to enable the University to make its SCONUL returns. Her responsibilities cover "frontline" service delivery to users, "back office" activities, e.g. security tagging and maintaining a catalogue that is assessable on-line from anywhere, and the acquisition and "delivery" of electronic media. Back office activities include arranging inter-library loans. Mainly, she said, she was involved in recruitment. In this connection a recruitment for a "Subject Assistant Librarian" stated that the post holder's duties would include assisting with the management of stock, the exploitation of information resources and IT developments and the development of electronic media.

The staff falling within Elaine Urquhart's area of responsibility include information assistants who are under the immediate control of the particular campus library manager. They staff the helpdesks, the service desks and the issue desks. Some work on the back-office functions. Most are required to do shelving. They issue non-book media such as DVDs, directing users to DVD rooms. They refer complex IT matters to IT staff.

A range of professional librarians are employed to work exclusively on E-media, which cover E-resources, network and library automated systems; they provide frontline user services and back-office services.

The actual number of staff to be employed is the University's decision and it depends on the budget set by the University for the year. Implementing the budget is Elaine Urquhart's responsibility.

Steven Drake is Resources Management Librarian. His staff work in the back-offices. These are three assistant librarians and some senior information assistants. They process orders, make monthly reports to library management teams following liaison with the faculties. The identify resource needs, e.g. books, journals, microfilm, slides and see that these full within budgets set by the University.

John Kennedy, the Systems Librarian, looks after the electronic library. He oversees the IT staff. This includes responsibility for the management system underpinning the automated cataloguing system. (There is a separate University Department of IT Services; this is wholly outside John Kennedy's area of responsibility.)

Faculty and subject librarians are "front liners." Their responsibility is to consult with the faculty boards, to identify faculty needs and, within the limits of budgets, to acquire the requisite materials. The quantity and nature of the materials required by the faculties vary from faculty to faculty. The art and design faculty requires more in the way of E-materials and slides than some other faculties. These librarians are responsible for cataloguing, classifying materials, providing updated lists of materials to be put on the web. Their responsibilities extend to deciding what sort of loans, e.g. short-term, intermediate (one week) and regular, should be made available for the materials. Their roles include the direction of students to sources of information required by them for their studies.

Experienced information assistants run induction courses at the start of each academic year.

The evidence provided for the hearing contained no reliable information as to what proportion of staff time was attributable to servicing UUB's take-out book loan facility, to servicing the in-library use of books and periodicals, to E-resource, to advising students and to other library and LRC activities. The staffing structure and the responsibilities of the individual members of staff appear to be organized so as to provide an integrated all-round library/learning resource service. The book-related activities of UUB are not at any level separately staffed or managed. In particular the take-out book loan facility does not, from the staffing viewpoint, operate as a stand-alone activity. Dividing the book and periodical related functions of UUB's staff from their other duties, however done (e.g. on a time-apportionment basis), would be an artificial exercise.

The Users' Perspective

All University staff and all 20,000-plus students (full-time, part-time and on-line) and some external users are registered by the University and provided with an ID card. Registration entitles them to use the library facilities. They are entitled to consult and borrow books, borrow E-media, consult journals and use microfiche facilities. There are entitled to use library computers which are accessed by their individual passwords. Nigel Macartney's statement at the start of the Guide to Information Services says:

"Welcome to the University of Ulster.

We hope that you will make full use of all our library and IT resources during your time at the University. Remember we are here to help, so whatever you need to know, just ask any member of staff."

In 2001/2 the number of users visiting the library was some 1.2 million and in the next two years the figures were in the region of 1.6 million. visitors to the libraries/LRCs come to consult books, to photocopy materials for their own use, to use the take-out loan facility, to use group study rooms or to sit and study in the library's quiet, warm and clean environment. They are free to use all the facilities, or just one of them such as consulting a book or working at a workstation. In the older libraries users are able to have individual study rooms. There is, Elaine Urquhart said, a trend to increased use of IT, e.g. internet and E-media, particularly at Jordanstown and Magee. Users consult CD ROMs, DVDs and slides. She added that few students made use of the special collections.

There are workstations where users can operate laptops and there are workstations where fixed computers are available. Student use the library resources to send e-mails, access databases, operate word processors and even book their own holidays. Users can seek help from the helpdesks on where to find relevant materials and how to use them. Users can make use of reprographic facilities in the libraries. They have access to "technology transfer" facilities and to inter-library loan arrangements. They have access to displays of special materials and of special collections. The Campus One facility is available through the Information Services Department; this provides on-line facilities (within the heading Library Materials in the Learning Resources Agreement).

Registration with the University gives the student or member of staff a comprehensive right of access to libraries/LRCs and the right to make as much or as little use of the facilities as they choose. UUB provides the University with the means to offer those facilities to its registered members. Library regulations relating to take-out book loan facilities distinguish between research students (who may take out 24 books at a time) and others who may only take out four books at a time. Subject to that, however, all users have access to all UUB's facilities in right of their registered member status. The separate existence of UUB is a matter of indifference to the registered users. Those features tend to the conclusion that all the facilities provided by UUB are "a single overarching supply" in the sense that that expression is used in paragraph 12 of College of Estate Management.

The Economic Perspective

UUB's undertaking is essential to the functioning of the University. It is a wholly owned subsidiary of the University and it operates the LRCs and libraries. The University controls its budget and, through the faculties of the University, prescribes material to be stocked in the libraries. (There is a provision in the Learning Resources Agreement which states that UUB should not be bound by the University's recommendation of books and materials to be acquired; but there was no evidence that UUB had ever gone against the wishes of the University.)

In the eye of users and the general public there is, as just observed, virtually no perceptible separation between UUB and the University itself. The publications made available to users and put in evidence show University of Ulster as the authority. The notices and signing within the LRCs and libraries show them as premises of the University of Ulster. Nothing put in evidence showed UUB as the owner; no signs or notices indicate that UUB has any responsibility for any of the University's activities. With one exception the same goes for the publications, e.g. the Student Guide to Information Services, the Information Services Newsletters, the lists of library officers, the University News, the advertisements for new staff and the Student's Charter. The exception is the University's website. Under the heading University of Ulster, Library Services, are the words "library operated by UU Bibliotech Limited"; it states that the University provides stock and services on its campuses "through UU Bibliotech." The library services are found on the University's website and UUB and the University appear to share the same e-mail address. Even the Information Services Department's two most senior officers are included apparently as University staff and not as UUB staff. Invoices issued by UUB, letters to UUB's suppliers and annual accounts necessarily show UUB as a separate entity.

The inference to be drawn from these features is that UUB's information resources are regarded by the University and the public at large as an essential part of the University's own higher educational undertaking. The day to day management is the responsibility of UUB's senior staff. Save for its status as a separate company, but in substantially all other respects, UUB's various functions and activities comprise an integrated and essential part of the University's higher education undertaking. And in the first four years of its existence UUB had to fund substantially all its services out of book and periodical fees.

Taking the "economic point of view" one can infer that the University could not operate without the totality of the facilities provided by UUB. It would not be fulfilling its commitments to its funders, its staff and its students. The staff and students need a comprehensive range of information resources to draw on to meet their varying needs. Before June 2001 the libraries and their facilities had been integral parts of the University's higher educational undertaking from which it made its own supplies of education. Since then the situation, from the University's standpoint, has remained the same. The facilities provided by UUB have been used by the University to give it the resources to enable it to offer its educational services. To the outside eye the structure has not changed (see paragraphs 98 to 100 above), although the standard of service may well have improved. It is those features that underpin the conclusion that the facilities provided by UUB constitute a "single overarching supply".

The Legal Perspective

The Learning Resources Agreement is, so far as books and periodicals are concerned, an undertaking on the part of UUB for the benefit of the University to make the books and periodicals available to students and members of staff by loan or hire. It is no more specific than that. When students register with the University and when members of staff take up their engagements, the University draws on its entitlement to give them access rights to the library and the facilities covered by the Learning Resources Agreement. The access rights are expressed in, for example, the Guide for the Information Services i.e.:

"Each University of Ulster campus has it own Library or Learning Resource Centre. Students and staff are entitled to use the services and stock of all libraries."

As and when the students and members of staff exercise their rights to consult books and periodicals within the library premises or to make use of the take-out loan facilities, they are exercising the rights conferred on them by the University when they were first registered or employed. And the University's authority to grant those rights is derived from the Learning Resources Agreement. When the students and staff visit the libraries and exercise their borrowing rights, they have to abide by the libraries' rules. But there is not, as I read the documents and as I understand the arrangements, a fresh contract of hiring or lending between UUB and the student or between UUB and the University that comes into operation every time a book or periodical is taking off the shelves and consulted in the library. And when the students or members of staff exercise their rights to take books out of the library and register the borrowing with the members of staff or directly through the TALIS system, they are going through a mechanical compliance process rather than committing UUB and the University to a new supply contract in respect of each book taken out. The exercise of the take-out right causes the meter registering loan fees to tick up, but no more.

Applying the VAT rules in the light of that analysis it is debatable whether UUB makes any actual supplies of books or periodicals under the Learning Resources Agreement. Its obligation under that Agreement is to make the books and periodicals "available". That is not a supply of the books and periodicals in the sense of being a supply of goods. Nor is it a supply of services in relation to the books and periodicals; there is no transfer of possession of the books and periodicals for the purposes of Schedule 4, paragraph 1(1)(a).

That point, if taken successfully by the Commissioners, would result in UUB's appeal being dismissed. The conclusion that there is no zero-rating supply is clearer when directed at the in-library consultation use of books and periodicals. But the Customs have not taken it and UUB have addressed no argument to the point. I am therefore prepared to assume without deciding the matter that UUB does make supplies of goods or services that are, on the face of it, within Item 1 of Group 3 of Schedule 8.

Having said that, the point has a bearing on the question of whether UUB makes a single supply of library resources to the University "from an economic point of view" (College of Estate Management para 12). The analysis that I have adopted of the Learning Resources Agreement in the context of the arrangements as a whole shows that "the essential features of the transactions under which the taxable person [UUB] is operating when supplying the consumer [the University]" (Lord Rodger's words in para 12 of College of Estate Management) include the feature of UUB providing the University with the means of discharging its own obligations, as a higher educational establishment, to make properly resourced and staffed library facilities available to its members, i.e. students and staff. The fee mechanism has been installed in the Learning Resources Agreement (as modified by subsequent arrangements) as an essential feature to provide UUB with funding to enable it to provide its whole range of learning resource facilities.

Summary of services made available by UUB

The evidence shows that the following "services" are available at each of the libraries or LRCs operated by UUB:

• Access to and use of books and periodicals in the library/LRC

• The right to make use of the take-out book loan facility

• E-media, such as CD ROMs, electronic databases, electronic journals

• Other library materials such as slides, tapes, microfiche

• Access to internet and e-mail

• Staff advice to students etc on the resources available including training offered to all students

• The support of faculty librarian staff

• Access to study areas, being both individual desks with or without computers or computer access and study rooms (these are found more in the new facilities than in the old ones)