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Chilly Wizard Ice Cream Co Ltd v Revenue & Customs [2007] UKVAT V19977 (12 January 2007)

19977

VALUE ADDED TAX – Flat rate scheme – Whether selling ice cream and milkshakes from a kiosk in a public square was retailing or catering? – Held retailing on the facts – appeal allowed

LONDON TRIBUNAL CENTRE LON/2006/0010

THE CHILLY WIZARD ICE CREAM CO LTD Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: ADRIAN SHIPWRIGHT (Chairman)

JOHN ROBINSON

Sitting in public in London on 22 September 2006

Mr T Laine, director, for the Appellant

Mr S Singh, Counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

Introduction

This is an appeal against a decision that for the purposes of The Flat Rate Scheme, the Appellant's business is to be classified as "catering services including restaurants and takeaways" rather than "retailing food, confectionery, tobacco, newspapers or children's clothing". The significance of this is that the flat rate for catering is 12% rather than 2% for the retailing category.

The disputed decision is contained in the Respondent's ("HMRC") letter dated 21 November 2005.

The Issue

The essential issue in this case is whether the Appellant's business is to be categorised as catering ie "Catering services, including restaurants and takeaways" or as retailing ie "Retailing food, confectionery, tobacco, newspapers or children's clothing".

The Law

Section 26B VATA gives HMRC power to make regulations "under which, where a taxable person so elects, the amount of his liability to VAT in respect of his relevant supplies in any prescribed accounting period shall be the appropriate percentage of his relevant turnover for that period".

It is further provided that "A person whose liability to VAT is to any extent determined as mentioned above is referred to in this section as participating in the flat-rate scheme".

It is further provided that "The regulations may—

(a) provide for the appropriate percentage to be determined by reference to the category of business that a person is expected, on reasonable grounds, to carry on in a particular period;…"

Such Regulations have been made and are contained in the VAT Regulations 1995. Regulation 55K of the VAT Regulations 1995 (as amended) is headed "Category of business" and provides:

(1) Where, at a relevant date, a flat-rate trader is expected, on reasonable grounds, to carry on business in more than one category in the period concerned, paragraph (3) below shall apply.

(2) …

(3) He shall be regarded as being expected, on reasonable grounds, to carry on that category of business which is expected, on reasonable grounds, to be his main business activity in that period.

(4) In paragraph (3) above, his main business activity in a period is to be determined by reference to the respective proportions of his relevant turnover expected, on reasonable grounds, to be generated by each business activity expected, on reasonable grounds, to be carried on in the period.

Table

Description	Percentage
Post offices Retailing food, confectionery, tobacco, newspapers or children's clothing	2
Membership organization Pubs Wholesaling food	5.5
Farming or agriculture that is not listed elsewhere Retailing that is not listed elsewhere Wholesaling agricultural products	6
Retailing pharmaceuticals, medical goods, cosmetics or toiletries Retailing vehicles or fuel Sport or recreation Wholesaling that is not listed elsewhere	7
Agricultural services Library, archive, museum or other cultural activity Manufacturing food Printing Repairing vehicles	7.5
General building or construction services* Hiring or renting goods Manufacturing that is not listed elsewhere. Manufacturing yarn, textiles or clothing Packaging Repairing personal or household goods Social work	8.5
Forestry or fishing. Mining or quarrying Transport of storage, including couriers, freight, removals and taxis Travel agency	9
Advertising Dealing in waste or scrap Hotel or accommodation Photography. Publishing. Veterinary medicine	9.5
Any other activity not listed elsewhere Investigation or security Manufacturing fabricated metal products	10
Boarding or care of animals Film, radio, television or video production	10.5
Business services that are not listed elsewhere Computer repair services. Entertainment or journalism Estate agency or property management services. Laundry or dry-cleaning services. Secretarial services	11
Financial services	11.5
Catering services, including restaurants and takeaways Hairdressing or other beauty treatment services Real estate activity not listed elsewhere	12

* "Labour-only building or construction services" means building or construction services where the value of materials supplied is less than 10 per cent of relevant turnover from such services; any other building or construction services are "general building or construction services".

Authorities

No Authorities were cited to us. However, the Tribunal raised the question of the impact of cases such as Whitbread Group plc v C & E Comrs [2005] EWHC 418 (Ch) and associated cases. The Tribunal adjourned to allow Counsel for the Respondent to consider the case. Reference was also made to Prêt à Manger (in which the Chairman had been involved) and the cases referred to in it.

Factual Background

A bundle of documents was produced. No objection was taken to any of them and they were all admitted in evidence.

No witnesses were called and consequently no witness statements were produced.

There was no real dispute as to the factual background.

The factual background was as follows (and insofar as is necessary we find this as fact from the documents and what the Parties told us). The Parties were content for us to proceed in this way.

(1) The Appellant, a limited company, registered for VAT in November 2005.

(2) The Appellant applied to join the Flat Rate Scheme under the retailing classification. HMRC approved this application from the date of registration.

(3) Following a visit from an HMRC officer this classification was amended by HMRC to 'catering' with a consequent increase in the amount said to be due to HMRC.

(4) The Appellant requested a reconsideration. HMRC's amendment was upheld on reconsideration. This is the disputed decision appealed against.

(5) It is said in the Reconsideration Letter:

"I understand your business provides a kiosk in Christchurch for customers to approach and purchase ice cream and milkshakes which may be taken away".

This is not disputed and we accept.

(6) The Appellant sells ice cream and milkshakes (which the Parties accept are foods suitable for human consumption) by way of retail in Saxon Square, Christchurch. We find this as a primary fact.

(7) There is thus a supply of food etc consisting of the supply of ice cream and milkshakes.

(8) Two tables and six chairs are provided for which the Appellant makes payment. There was no evidence as to how many customers (if any) made use of them.

(9) The ice cream and milkshakes were prepared by Mr Laine.

(10) The planning permission for the kiosk was for use within the category A1 and not A3/A5. Accordingly, hot food could not be sold from the kiosk.

(11) There was no closed group of users as the square was open to the public.

(12) There was no element of service of food etc in what was done. It was not 'catering services' that were provided.

(13) The supply of ice cream and milkshakes was not in connection with a specific event or occasion such as a wedding reception. We find that shopping, in this context, was not such an occasion.

(14) No further preparation was involved to eat or drink ice cream and milkshakes other to open the relevant packaging.

There was some discussion as to whether home made lemonade was sold. We were told that it had been supplied but was no longer sold. We have proceeded on the basis that it is ice cream and milk shakes that are supplied. For the avoidance of doubt we record that supplies of lemonade would not have changed our decision overall or in respect of the lemonade.

Submissions of the Parties in outline

Appellant's submissions in outline

Mr Laine, a director of the Appellant, argued cogently and forcefully that the Appellant's business is properly to be categorised as "Retailing food, confectionery, tobacco, newspapers or children's clothing" and not as "Catering services, including restaurants and takeaways". Essentially, the Appellant sells food by retail.

Mr Laine referred to the Oxford English Dictionary definition of "takeaway" as

"Takeaway [Noun] – A restaurant or shop selling cooked food to be eaten elsewhere …"

He argued that the Appellant was neither of these. It was not a restaurant nor a shop selling hot food. It could not do so as it did not have the requisite permissions.

HMRC's submissions in outline

Mr Singh, who appeared on behalf of the Respondents, in essence, argued that the Appellant's business is to be categorised as catering "Catering services, including restaurants and takeaways" and not as "Retailing food, confectionery, tobacco, newspapers or children's clothing".

This was because:

(1) The milk shakes were prepared at the Kiosk and the ice cream was prepared by Mr Laine;

(2) Two tables and six chairs were provided for which the Appellant made payment and which were available to the Appellant's customers;

(3) As one can take away cold food the Appellant was running a takeaway;

(4) The margin the Appellant would be taxed on would not be high enough to be equitable as much of his inputs would have been zero rated;

(5) The wrong amount of tax was accordingly paid if the Appellant was treated as a retailer (a 10% difference in rate);

(6) Accordingly, adopting a purposive approach (to use the chairman's phrase) the correct categorisation was as "Catering services, including restaurants and takeaways";

(7) Consequently, the correct categorisation was as catering not retailing and the higher amount of VAT was due.

No categorisation other than catering or retailing was contended for or sought to be contended for by HMRC.

Discussion

General

The issue here is whether the Appellant's business is to be categorised as "Catering services, including restaurants and takeaways" or as "Retailing food, confectionery, tobacco, newspapers or children's clothing". This raises a number of questions, including the following:

(1) Is there catering here?

(2) Is there a takeaway here?

(3) Is retailing an appropriate categorisation?

Is there catering here?

i. General Matters

In a number of cases the question "was there a supply of catering in the ordinary meaning of the word or a supply of goods?" has been considered in the context of Zero rating in Group 1 of Schedule 8 VATA. This was treated as a separate issue from the question "was there a supply for consumption on the premises within the meaning of Note (3) (a).

These cases include:

Whitbread

Customs and Excise Comrs v Cope [1981] STC 532

Bishop

E&G Catering

Safeway

Armstrong v Customs and Excise Comrs [1984] VATTR 53

Compass

Prêt à Manger

We consider that the supply of cold food such as the ice cream and milk shakes in issue is prima facie a supply of goods and not of services yet alone catering services. Accordingly, our starting point is that the supply of cold food such as such as the ice cream and milk shakes in issue is a supply of goods. The issue is whether the supply in Saxon Square turns the supply into a supply of catering in the ordinary meaning of the word (cf Peter Smith J in Whitbread at paragraph 21).

ii Case Law

The case law referred to above tells that the word "catering" is to be given its ordinary and natural meaning.

In Prêt à Manger it was said:

a. "Whether or not something is catering is a matter of fact and degree. The case law makes it plain that there is no definition of "catering" and that it would be unhelpful to seek to provide one. It is something one knows when one sees it.

b. The starting point in considering the ordinary meaning of catering is the Cope case. We have carefully considered this case and the other cases referred to above.

c. From the case law we draw the following principles:

(a) The word "Catering" is to be given its ordinary meaning;

(b) Catering often involves service and provision of glasses and cutlery for a time;

(c) Restricted access can be an indication of catering but it is not conclusive of the matter. It depends on the particular circumstances;

(d) Where there is a link or nexus between the supply of food and the function or activity to which access is restricted this may be an indication of catering. However, it is not conclusive as the Bishop case involving RNAS Culdrose shows and … E&G Catering. If the food is ancillary or incidental to the main function it is likely to be catering (eg a wedding reception);

(e) It is a question of fact and degree in every case. Each case depends on its own facts (cf Peter Smith J in Whitbread at paragraphs 18 and 19)".

We consider this applicable here notwithstanding that a different provision was under consideration as it dealt with the ordinary meaning of catering.

iii. Catering – what is the proper approach?

Catering is not defined in the statutory provision under consideration here though its general meaning has been extended for some purposes but not in the Table in Regulation 55K.

We consider that the proper approach is to ask whether an ordinary person would recognise what is done here as catering? We apply the test "would the ordinary person regard what was being done as being 'in the course of catering'"?

We draw support for this approach from what Keen J said in the Safeway case. He said (at pages 168-169):

"As was said by the tribunal in the case of Armstrong v Customs and Excise Comrs [1984] VATTR 53 at 62: 'Taking the word in its ordinary and popular meaning, we think an ordinary person can recognise catering when he sees it.' I regard that as being an appropriate definition, in so far as one can be given, of the meaning of that phrase 'in the course of catering'. The tribunal in the Armstrong decision went on to refer to the decision of Sir Douglas Frank QC, sitting as a deputy High Court judge, in the case of Customs and Excise Comrs v Cope [1981] STC 532. In the course of that judgment Sir Douglas Frank QC referred (at 538) to a popular meaning of the word 'catering' as being—

'… 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.'...
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. I recognise there may well be other considerations which will arise in the individual case. I share the tribunal's view in this appeal that no one factor by itself is likely to be decisive and it would be wrong for the tribunal to focus upon one factor in any case to the exclusion of all others. These are decisions to be made in the round, taking account of all considerations of the kind to which I have referred.

The test itself has to be an objective one: would the ordinary person regard what was being done as being 'in the course of catering'?"

We do not consider that this is necessarily inconsistent with the overall approach taken in Cope. To the extent that it is we prefer the approach in the later High Court case, Safeway, as Mr Bishopp does in Compass. The various cases cited are useful illustrations but are not determinative of this case. We might or might not have reached the same result as those cases but they were within the range of possible reasonable decisions that the Tribunal could reach.

We reached the following conclusions in considering Keen J's non-exhaustive list of factors:

(a) Whether the food is indeed supplied in connection with an occasion or other event

The ice cream and milk shakes are not supplied in connection with an occasion or other event such as a race meeting or wedding reception. Shopping in these circumstances is not such an occasion.

(b) The degree of preparation which remains to be carried out by the recipient.

The degree of preparation which remains to be carried out by the recipient is merely to eat or drink the ice cream or milk shake. This is no different from buying an ice cream or drink in a retailers such as a newsagent which is not treated as catering.

(c) 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?

Here it is in a form in which it could be eaten or drunk without more than opening the wrapping etc, as was the case in Prêt.

(d) Whether crockery and cutlery are provided along with the food itself and any other of the usual ancillary items which go with a meal

There is packaging to contain the ice cream or milk shake but crockery is not provided. No cutlery is provided along with the food itself in the way it is in a restaurant or at a social occasion. There is no element of bailment for temporary use as say of a metal knife or fork supplied at a wedding reception or party. Nothing like salt and pepper is provided for the purchaser.

(e) Whether it is delivered, or not, by the supplier may often be a highly material factor

The ice cream or milk shakes in question were not delivered but handed to the customer at the kiosk. There was no delivery or waitress service.

(f) Whether it is served by the supplier to those eating it, at the place where consumption occurs

The ice cream and milk shakes were not served by the supplier to those eating it, at the place where consumption occurs in respect of the items in issue here. There was no waitress or silver service.

These factors are not exhaustive and so we ask ourselves the further question "Would the ordinary person regard what was being done as being 'in the course of catering'?"

In our view the ordinary person would clearly not regard the sale of the ice cream and milk shakes sold in Saxon Square as being catering. In both cases they would consider it not to be catering and we so find as a fact. We find as a fact that the ordinary person would not consider the supply here as being catering.

Accordingly, we decide that there was no 'catering per se' involved here. For the avoidance of doubt we record that we would reach the same conclusion applying the popular meaning in Cope if that is a different test. We find as a fact that what was in issue here was not "… the provision of food incidental to some other activity, usually of a sporting, business, entertainment or social character." What is in issue here is not equivalent to "…food supplied at football matches, race meetings, wedding receptions, exhibitions and theatres".

iv. Conclusion on "Catering"

The supplies here were to individuals to meet their need for refreshment or sustenance. They were not part of some larger experience or enjoyment of Saxon Square or of shopping to be shared with others.

Applying that to the factual situation here we consider that no supply of catering in the ordinary meaning of the word is involved here. This is because this case is only concerned with food sold from the retail unit and not consumed on the premises. This does not turn the kiosk into a "takeaway".

We find that:

(i) On the evidence before us no ordinary person would consider that there was a supply of catering in the ordinary meaning of the word.

(ii) There is no element of service in what is done as there would be in a restaurant. There was no supply of 'catering services'.

(iii) There is no common purpose here as there is at a sporting or social function.

(iv) There is no nexus of the requisite type between the ice cream and milkshakes and presence at Saxon Square;

(v) The supplies here were of goods not services to individuals to meet their need for refreshment or sustenance. They were not part of some larger experience or enjoyment of Saxon Square or of shopping to be shared with others.

Is there a restaurant or takeaway?

There is no evidence that what is involved here is a restaurant. The planning permission categorisation is not one that would allow hot food to be sold and there is no waitress service at a table or anything similar or like the service provided in a restaurant. There was no evidence that any other regulatory requirement relating to restaurants has been applied for. We find as a fact that there was no restaurant involved here.

Is there a takeaway here?

The expression 'Takeaway' is not defined for these purposes. We consider the paradigm of a takeaway is a Restaurant selling hot dishes for consumption off the premises or a Fish and Chip shop. This usually involves taking hot food away from the Restaurant or Shop for consumption at home or somewhere other than the Restaurant or Shop. We do not consider that there is a takeaway here. We find this as a fact.

We have tested this by asking would the ordinary person consider this to be a takeaway? It is clear to us that they would not. Having taken note of the Pannini case's comment on the value of dictionary definitions we find the Oxford English Dictionary definition (see above) useful as confirmatory of the ordinary meaning of the word as generally involving hot food.

Is retailing an appropriate categorisation?

We do not consider that retailing is an inappropriate categorisation here. We find it is an appropriate categorisation.

HMRC only argued for catering and no other categorisation (see paragraph [18]). We do not consider that catering is a more appropriate categorisation. We test this by asking what an ordinary person would consider. We consider such a person would regard what was done here as retailing ice cream and milkshakes and not catering.

Conclusion

We have found that on the evidence before us:

(1) there is no catering and no supply of 'catering services' here;

(2) there is no restaurant here;

(3) there is no takeaway here;

(4) retailing is an appropriate categorisation and catering is not.

Accordingly, as catering is not the right categorisation and retailing is, the appeal is allowed with costs.

ADRIAN SHIPWRIGHT

CHAIRMAN

RELEASE DATE: 12 January 2007

LON/2006/0010