United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2008] STI 2387, [2009] BVC 2086, [2008] UKVAT V20757

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David Baxendale Ltd v Revenue & Customs [2008] UKVAT V20757 (30 July 2008)

20757

VAT – Supply of services – Whether supplied for consideration – Dietary foodpacks supplied together with counselling support, payment made for foodpacks – Whether consideration given for counselling support – Held: yes

VAT – Supply of goods and services – Whether single or multiple supply – Whether support service ancillary to zero-rated food supply – Effect of Talacre – Whether elements of supply physically and economically dissociable – Held multiple supply

LONDON TRIBUNAL CENTRE

DAVID BAXENDALE LTD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: CHARLES HELLIER (Chairman)

ALEX McLOUGHLIN

Sitting in public in London on 10, 11, 12 March 2008

Alun James, counsel, instructed by Vantis plc, for the Appellant

Nicola Shaw, counsel, instructed by the solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

The Appellant is one of a number of persons who operate under a form of franchise from LighterLife. The appeal relates to the VAT treatment of the supplies made by the Appellant to people who participate through the Appellant in the LighterLife weight loss programme.

We were told that there were some 300 other persons in similar factual circumstances to those of the Appellant whose VAT treatment would effectively be determined by the outcome of this appeal.

In bald outline the LighterLife programme is a programme for rapid weight loss for those who are seriously overweight. It enables them to lose about one stone a month, and aims to enable them not to put that weight back on again. The physical aspect of the programme is the total replacement (in the initial months) of normal food with LighterLife food packs; this is accompanied by counselling and advice in weekly group sessions run by the Appellant. The participants pay the Appellant for the special food packs but make no specific payment for the support services provided at the Group sessions.

The questions this appeal raises are these:-

(i) does a participant give consideration for the provision of the support services: when he pays for the food packs is that payment also consideration for the support services, or are they provided free?

(ii) if consideration is given for the support services, is the Appellant making two separate supplies, one of support services and the other of food, between which the consideration should be apportioned, or one single composite supply?

(iii) if the Appellant is making a single composite supply is that supply zero-rated (as a supply of food) or standard rated?

(iv) if the Appellant is making multiple supplies for consideration, how should the consideration be split between the supplies?

We shall start by considering the legal principles relevant to the first three of these issues. We then turn to the facts and then, by reference to each of the questions, consider the parties' arguments and set out our conclusions.

1. The Legal Principles

(i) What does the participant give consideration for: is the support provided free?

Article 2 of the Sixth Directive (being the directive in force at the relevant time) provided that "the supply of goods or services effected for consideration" should be subject to VAT. That is reflected in section 5 VAT Act 1994 which, in subsection (2)(a) provides that "supply" includes "all forms of supply but not anything done otherwise than for a consideration".

The ECJ considered the requirement for consideration in Tolsma v Inspecteur der Omzatbelasting Leeuwarden [1994] STC 509 where it held that a service was supplied for consideration

"only if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient."

In Town & Country Factors v Customs and Excise Commissioners [2002] STC 1263, the ECJ held that the nature of the "legal relationship" was not one which had to be enforceable under local law. What was required was agreement, and reciprocity under that agreement.

In Kuwait Petroleum GB v HM Commissioners for Customs & Excise [1999] STC 488 the ECJ were considering whether goods provided under a promotion linked to the purchase of fuel were to be treated as supplies for a consideration. The court reiterated the Tolsma test and said:

"27. It is for the national court to inquire whether, at the time of purchasing the fuel, the customers of Kuwait had agreed – through the dealers, as the case may be – that part of the price paid for the fuel, whether identified or not, would constitute the value given for the Q8 vouchers or redemption goods. There is nothing, however, in the documents before the court to suggest that there was in fact such reciprocal performance by the parties concerned."

Thus the question for us will be whether it can be said that the participants and the Appellant had agreed that the support services would be supplied at least partly in return for the monies paid.

In HM Commissioners for Customs & Excise v Primback [2001] STC 803 the ECJ applied the test quoted in paragraph 8 above to find that, when Primback provided free credit to purchasers of goods but the price paid was the same irrespective of whether the credit was taken up. Primback had supplied the credit free and not for consideration.

When Kuwait returned to the UK, the appeal against the tribunal's decision (given in the light of the ECJ's guidance) was heard by Laddie J. At paragraphs 31 to 34 he considered two criticisms of the tribunal. The first related to the relevance of literature describing the redemption goods being provided as 'gifts'. He accepted that, like lunches, nothing is ever free in a commercial transaction, but said that even if the promotion scheme caused an increase in pump prices "that does not address the question of what the customers thought they were agreeing to".

The second related to an example of a trader who advertises, 'Buy One, Get One Free' (and raised by this tribunal in the course of the hearing), and whether it could be seriously suggested that the customer was getting the second item at no cost. He said,

"There is a limit to the reasonable gullibility of ordinary members of the public. A promotion of that kind would not persuade most customers that they were really getting half their acquisitions free. They would think they were receiving each of the products at half price and that they were paying for both. … In such circumstances, if one answers the question posed by the Court of Justice in Kuwait, one receive[s] the answer that the parties did not believe they were agreeing to a disposal free of charge. That cynicism does not apply here …"

In Ford Motor Co v R & Commissioners [2007] STC 1783 in the High Court Sir Donald Rattee cited these passages. But he said that in his judgment the question was not what the customer or dealer did or did not himself reasonably believe was the value of the benefits received, but whether the parties had expressly or by implication agreed that part of the price paid, in that case for the car, was paid for the 'free' insurance. When Ford went to the Court of Appeal [2008] EWCA Civ 1370, the Chancellor (at paragraph 46) said he agreed with Sir Donald Raltee's conclusions.

Tesco plc v Customs & Excise Commissioners [2003] STC 1561 was not cited to us but is relevant to issues we raised inter alia in relation to Buy One Get One Free promotions. It concerned the provision by Tesco under its Clubcard scheme of a right to vouchers provided by Tesco when premium goods were purchased. The tribunal held that the customer considered that the price paid at the till was paid partly for a right to get the vouchers. In the Court of Appeal Jonathan Parker LJ, with whom the other member of the Court agreed, said there was an air of unreality about this finding, and that the same applied to Laddie J's conclusion in Kuwait in relation to a 'Buy One Get One Free' offer that the customer would think they were getting each at half price:

"I doubt whether most customers ... would do more than conclude that they were getting two items for the price of one. You might as well ask the customer which of the two items he thought he was paying for and which he was getting free."

Jonathan Parker LJ went on to note that although an objective approach is required, it may be the case that there is not always a clear distinction between an objective and subjective approach to analysing a transaction: it was relevant for example in Professional Footballers' Association [1993] STC 86 that for those who attended the awards dinner, the presentation of the awards was a vital part of the evening, but it was irrelevant whether the diners knew or considered whether the price which they paid included the cost of the awards (see paragraphs 158 and 161). He set out in the context of the Tesco scheme five pointers from the authorities:-

the resolution of the issue depends upon the legal effect of the scheme considered in relation to the applicable statutory provision;

the legal effect is to be determined from the entire scheme (objectively determined);

the terms contractually agreed may not be determinative: it is necessary to consider the economic purpose - 'the precise way in which performance satisfies the interests of the parties';

economic purpose is not the same as economic effect;

equally the economic purpose, the 'cause' of the contract is not to be confused with the subjective reasons which may have led the parties to enter into it (so far as those reasons are not obviously evident from its terms).

On this approach it was irrelevant whether the parties knew or considered whether the price they paid included payment for the vouchers. The correct approach was to examine the entire scheme in order to determine objectively (that is to say without regard to the parties' intentions, save in so far as they are reflected in the terms of the scheme) and having regard to the scheme's economic purpose, whether its legal effect was such that the vouchers were provided free.

In Ford in the Court of Appeal, the issue was whether insurance described by Ford as provided "free" with a car should be treated as a separate exempt supply. The Chancellor considered the question of whether there was one supply of a car to which the insurance was ancillary and then said it was necessary to test that conclusion by reference to the Kuwait principle (paragraph 46). He approved Sir Donald Rattee's approach in the High Court : that there was nothing in the facts to suggest any agreement that part of the price paid for the car was paid for the insurance. The documentary evidence, the fact that the customer was told it was free, the fact that the price paid did not depend on the uptake of the insurance; all these features were to the contrary effect (paragraph 38 in High Court).

The Chancellor indicated that the Card Protection Plan and Kuwait principles overlap and need to be applied together (see paragraph 35 of his judgment). We address that at paragraph 97 below.

Lastly we note that the Advocate General in Kuwait (at paragraph 41) observed that the fact that a consumer may choose not to avail himself of a benefit is irrelevant to whether that benefit has been agreed to be provided for consideration:

"To my mind, when someone purchases a theatre ticket he manifestly provides consideration for the reservation of a seat in respect of an artistic performance service to be provided later. That he may, for one reason or another, be unable to attend the subsequent performance is irrelevant."

There is at first sight some conflict between this approach and that of the ECJ in Primback where the fact that the price was the same whether or not the 'free credit' was taken up was held to point towards the credit being free. It seems to us that the resolution may be in whether there is consideration given for the supply being made available (as in the theatre ticket example) rather than for the supply being made. The failure to take up the first will not be indicative of the supply being free. The precise circumstances will determine which situation is relevant.

From this review of the authorities it seems to us that we must adopt the following approach:-

the object is to determine whether there was an agreement between the Appellant and its customer pursuant to which there was reciprocal performance – the money paid constituting the value given for the goods, the services or the goods and services;

whether or not there was such an agreement requires consideration of objective factors by reference to all the circumstances;

that may involve finding the precise way in which performance satisfies the interests of the parties;

the subjective reasons which led the parties to enter into the agreement, and what a party might have believed or knew are irrelevant save in so far as such reasons or belief are objectively reflected in the circumstances;

the fact that a party may choose not to avail himself of a benefit does not mean that he has not given consideration for its being made available. But, the fact that the provision of an extra service does not affect the price may suggest that the service is not provided for consideration.

(ii) a single composite supply or multiple supplies?

In Tumble Tots (UK) Ltd v Revenue and Customs Commissioners [2007] STC 1171 Briggs J set out a summary of the principles which emerged from the decided cases on this issue (see paragraph 11), a summary later applied in HMRC v Denyer [2008] 633:

(1) the identification of the taxable supply or supplies made by the taxpayer pursuant to a particular transaction is, at least where the transaction consists of a contract, limited to the goods and services provided for which payment is consideration;

(2) prima facie every supply of a goods or services must normally be regarded as distinct and independent;

(3) nonetheless the functioning of the VAT system would be distorted if what is in substance a single transaction is artificially split;

(4) the transaction must be analysed with regard to all the circumstances. Over zealous dissection should be avoided;

(5) the essential features must be ascertained to determine whether the taxable person is supplying the customer, being a typical customer, with several distinct principal services or with a single service; (In HMRC v Weight Watchers (UK) Ltd [2008] STC 301 at paragraph 52, Morgan J said the tribunal should identify a profile of a typical customer);

(6) the fact that goods and services are supplied for a single price may be relevant but not decisive;

(7) where the elements of the transaction are ancillary to a principal supply then there is a single supply of the principal supply of which the ancillary elements will be part. The nature of that supply will determine the nature of the total supply made. An element will be ancillary if it does not constitute for customers an aim in itself but a means of better enjoying the principal supply.

The ordinary meaning of ancillary is subservient, subordinate and ministering to something else. It may also be an 'add-on' (see Lord Walker at paragraphs 30 and 33 of College of Estate Management). In Diagnostiko [2006] STC 1349, the ECJ (at paragraph 18) noted that "closely related" activities had to be ancillary;

(8) even if elements are not ancillary to a principal supply there may be a single supply if non ancillary parts are so closely linked from an economic (or physical see Talacre per the Advocate General at his paragraph 44) perspective as to constitute a single supply;

(9) in cases where (8) leads to the conclusion that there is a single supply its VAT nature may be that of one of the elements if that predominates; alternatively it may have a unique character enjoyed by none of the elements;

(10) where it is necessary for these purposes to identify the essential features of the consideration for a payment which confers a range of benefits under a scheme it is perhaps useful to ask 'why objectively people are likely to want to join it'.

To this helpful summary we need add only two footnotes.

The first footnote concerns Talacre Beach Caravan Sites v Customs and Excise Commissioners [2006] STC 1671. This case was not cited to us; the question it gives rise to was not debated before us but is potentially relevant. The case concerned the supply of a caravan and its contents. The supply of the caravan on its own was zero-rated under Group 9 Schedule 8 VATA; the supply of its contents on their own was standard rated. The Group 9 zero rating excluded moveable contents. The ECJ were asked whether, if the supply of the caravan and its contents constituted a single supply, the contents could nevertheless be treated as VATable at the standard rate.

The ECJ held that the contents could be charged to VAT at the standard rate. This represents a limited exception to Briggs J's ten points, but raises in the context of this appeal the question whether, if the support services were ancillary to the food packs (or possibly if there were a single supply within principle (9) of which the overall character was that of food), it would nevertheless be necessary to treat the supply of the support services element as VATable notwithstanding the zero-rated nature of the principal supply.

The UK legislative context is different in this case from that in Talacre. In that case a caravan's moveable contents were expressly excluded in the UK legislation from the zero rating of the caravan; in this case there is no exclusion in the zero-rating in Group 1 Schedule 8 – "Food", for services supplied with food. It is therefore necessary to examine the reasoning of the ECJ to determine whether this legislative difference affects the outcome.

The question framed and answered by the Court relates only to items specifically excluded from zero-rating by the national legislation.

Zero-rating in the terminology of the Directive is "exemption with refund of tax paid". Such exemptions are not prescribed by the Directive, but by Article 28(2) "exemptions with refund of tax paid which were in force on 1 January 1991 which are in accordance with community law and satisfy the conditions in the last indent of Article 17 of the second Directive may be maintained by the Member States."

The ECJ noted that Article 28(2) was a derogation from Article 12(3) which determined the rate of VAT applicable. We note that Article 12(3)(a) permits a reduced rate of no less than 5% to be applied to supplies within Annex 11 which includes Foodstuffs. The Zero-rating of food is thus also a derogation from Article 12(3).

The Court said that an exemption in respect of the excluded caravan contents would extend the scope of the exemption. That, it said (at paragraph 22), would run counter to Article 28(2)'s purpose – which was to provide a standstill clause to prevent hardship. As a further reason for taxing the supply of the contents the Court pointed out that as an exemption to the general principle of taxing all supplies, the exemption with refund of tax was to be interpreted strictly. The exemption could not cover items (such as the contents) which were excluded at 1 January 1991 from the exemption by the national legislation. It continued:-

"24. The fact that the supply of the caravan and of its contents may be characterised as a single supply does not affect that conclusion. The case law on the taxation of single supplies, relied on by Talacre and referred to in paragraph 15 of this judgment, does not relate to the exemptions with refund of the tax paid with which Article 28 of the Sixth Directive is concerned. While it follows, admittedly, from that case law that a single supply is, as a rule, subject to a single rate of VAT; the case law does not preclude some elements of that supply from being taxed separately where only such taxation complies with the conditions imposed by Article 28(2)(a) of the Sixth Directive on the application of exemptions with refund of the tax paid.

25.. In this connection, as the Advocate General rightly pointed out in paragraphs 38 to 40 of her opinion, referring to paragraph 27 of CCP [1999] STC 270, [1999] 2 AC 601, there is no set rule for determining the scope of a supply from the VAT point of view and therefore all the circumstances, including the specific legal framework, must be taken into account. In the light of the wording and objective of Article 28(2)(a) of the Sixth Directive, recalled above, a national exemption authorised under that article can be applied only if it was in force on 1 January 1991 and was necessary, in the opinion of the Member State concerned, for social reasons and for the benefit of the final consumer. In the present case, the United Kingdom of Great Britain and Northern Ireland has determined that only the supply of the caravans themselves should be subject to the zero-rate. It did not consider that it was justified to apply that rate also to the supply of the contents of those caravans.

26.. Lastly, there is nothing to support the conclusion that the application of a separate rate of tax to some elements of the supply of fitted caravans would lead to insurmountable difficulties capable of affecting the proper working of the VAT system (see, by analogy, Centralan property Ltd v Customs and Excise Commissioners (Case C-63/04) [2006] STC 1542, paras 79 and 80)."

The Advocate General had emphasised the specific exclusion of a caravan's removable contents in the UK's domestic legislation and noted (a) that splitting the supply would not seriously adversely affect the functioning of the VAT system (paragraph 4), and (b) that whilst the composite supply doctrine could result in the exemption of normally taxable elements, such exemption was enshrined in the scheme of the directive, whereas Article 28 exemptions with refund of tax were derogations.

Group 1 of Schedule 8 was in force on 1 January 1991 (in a different Act) and we understand satisfies Article 28(a) of the Sixth Directive. Does it matter to the ECJ's approach that there are no specific exclusions from Food, services which are ancillary to, or indissociable from, the food and supplied with it? The use of one word by its nature may exclude other meanings: if it were the supply of "dogs" which were zero-rated that word would exclude "cats". Would it make a difference if the item relating to "dogs" had an express exclusion: "but for this purpose excluding cats"?

It seems to us that the semantic description should not affect the outcome. If Group 8, rather than saying "Caravans … this … does not include removable contents", had said "the shell of a caravan and all things affixed thereto" it would have had the same effect. It seems to us that the words used by the national legislation should not affect the principle that Article 28(2) is to be interpreted strictly or the applicability of the reasoning in paragraphs 24 and 25 of the decision set out above.

We therefore conclude that if a single composite supply which comprises elements which on their own could be both standard and zero-rated would otherwise be treated as wholly zero-rated, it should not be treated as a single zero-rated supply, but standard rated to the extent of the standard rated components.

Thus if the supply of the Appellant's support services were ancillary to the supply of the foodstuffs, then zero-rating would apply only in relation to the element comprised of the food packs.

The second footnote relates to the process of determining whether supplies do or do not fall within step (7) or (8). We have already interpolated the guidance from the case law into step (7). In HMRC v Weight Watchers (UK) Ltd [2008] STC 301 Morgan J, at paragraphs 21 to 26, reviewed the available guidance on the artificial to split test of step (8), noting that while it is not possible to spell out an exhaustive schematic analysis it may be helpful to refer to actual decisions in decided cases. From that discussion we note in particular,

(a) the Advocate General's statement in Levob Verzakerington BV v Staatssecretaris van Financien 2006 STC 766 at paragraph 69:

"The essential issue is still to determine the substance of the supplies, taking all the circumstances into account. In this connection, it is important whether both supplies are so closely linked that in isolation, from the perspective of the average consumer, they do not have the necessary practical benefit for customers." (our emphasis); and

(b) again in Levob the ECJ's guidance in relation to the modification of the pre-existing software which without modification "was … of no use for the purposes of [the consumer's] economic activity, and only … the customisation … made that software useful to it." (our emphasis).

(iii) If there is a single supply is it zero-rated or standard rated?

The principles relevant to this question are set out in points (7) and (9) of Briggs J's steps : if there is a principal supply to which another element is ancillary, the whole has the VAT nature of the principal element; if there is a composite indissociable "table top" (see Laws LJ in Customs and Excise Commissioners v FDR Ltd 2000 STC 672 at paragraph 53), its nature may, but need not, be determined by the predominant supply: see Warren J in Byrom (t/a Salon 24) v HMRC [2006] STC 992 at 46-48 and 51 : it is a matter of applying the statutory language to a description of the supply reflecting economic and social reality (paragraph 70 ibid)

2. The Evidence and the Facts

We had before us a wealth of documentary evidence relating to the LighterLife programme. This included advertising material, material given to participants, the DVDs which were shown at group sessions, LighterLife's manuals for its counsellors and documents relating to the relationship between LighterLife and the counsellors. We also had samples of the food packs.

We heard oral evidence from David Baxendale, a director of the Appellant, who ran the business of the Appellant, and from Octavia Morley the chief executive officer of LighterLife UK Ltd. We also heard the evidence of two people who had participated in the LighterLife programme through providers other than the Appellant: they were Sara Anne Jamison, the current marketing director of LighterLife UK Ltd, and Susan Elizabeth Smith an officer of HMRC. All of the witnesses provided witness statements. From that evidence we find the facts as follows.

(1) The LighterLife Programme

The LighterLife Programme is a weight management programme for those who have a body mass index over 29 and in particular for those who have failed to lose weight by other means. It is a combination of nutritionally complete food packs and specialised counselling techniques. The Programme has three main stages:

(i) Foundation. This stage lasts 14 weeks for women, and 8 weeks for men. Participants adhering to the programme abstain from normal food completely during the period, eat only the food in the food packs, and attend weekly meetings with a LighterLife Counsellor such as Mr Baxendale. During this stage participants should lose some 3 stone.

(ii) Development. This stage is for those participants who have more than 3 stone to lose. Participants adhering to the programme in this stage continue to abstain from normal food and eat food packs only and attend weekly sessions.

(iii) Route to Management. This is the stage at which conventional food is gradually re-introduced. This stage lasts some 12 weeks. Participants adhering to the programme gradually reduce the number of food packs they eat each day and begin to eat conventional food. They attend weekly sessions.

In addition there are programmes for the lapsed and the continuing clients:

(i) Management : four week courses with food packs for those who have completed the earlier stages but wish to rebalance their diets or who wish for further support;

(ii) Refreshers : for the lapsed who wish to rejoin the programme; and

(iii) Holding : for those who have not managed to stay on the diet. Participants in Holding Sessions do not purchase food packs; they may attend to be weighed or receive advice. Not all LighterLife consultants ran Holding Programmes : the Appellant is one such.

Of some 24,000 current participants approximately 13,000 are in Foundation and Development, 8,000 in Management in some form, and 3,000 are in Refreshers.

Overall the LighterLife Programme appeared to us to achieve for many participants what its advertising material claimed for it:

"It uses a powerful combination of nutritionally complete meal replacements, which enable fast and effective weight loss, along with group counselling sessions with a qualified LighterLife Counsellor, to help clients make lasting changes and achieve long term results."

Some clients gave up along the way. Not all completed Foundation, Development or Route to Management. Some returned to old habits, but many achieved initial weight loss and did not return to their previous weight.

(2) How the Programme Works

The physical side of the early stages of the LighterLife Programme works by reducing the calorie intake of the participants to 500 calories per day. The lack of energy intake causes the metabolism of body fats. This process is called ketosis. One side effect of the process is that the participant no longer feels acute hunger after it has started and no longer therefore feels a physical need to eat.

The mental side of the programme, at a basic level, consists in the provision of a set food regime which means the participant no longer needs to think about food; and at a more complex level in group support and detailed well developed behavioural counselling techniques which help the participant change the way he or she approaches eating.

The food packs contain food which, whilst nutritionally adequate, is not especially appetising. LighterLife found that if the food packs were too tasty some participants over indulged.

(3) What happens

The Initial Approach

Participants very often come to hear of LighterLife through the experiences of friends and acquaintances particularly those who have been successful with weight loss through LighterLife Programmes. LighterLife also advertise and have a website.

From recommendation or from the website a potential participant will approach a LighterLife Counsellor such as Mr Baxendale. There will then be a telephone call or short meeting with the counsellor who will provide some written material and forms for the participant to take to his or her doctor.

The participants are required to obtain clearance from a doctor before starting the programme. Either before or after such clearance is obtained the participant will attend an introductory session.

At that session there will generally be other potential participants. They are all weighed and measured. The extreme nature of the diet is explained, an introductory DVD is played and questions are answered. It is explained that the programme is a mixture of group meetings and total food replacement through the food packs. Questions are answered and booklets provided. No payment is made and no food packs are provided.

At this point we note that it is at the end of the stage that the framework for what happens thereafter in Foundation is determined. The information obtained up to this point shows objectively what a participant is going to get from the counsellor.

The Foundation Sessions

The weekly group meetings comprise a group of women or of men. After the first couple of meetings in the Foundation Stage women's groups are closed and no new members join.

The first meeting differs slightly from the other 13 meetings. There are introductions and photographs and printed material is given out. Participants sample the food packs and place their orders. Then they are measured and weighed privately. There are then group discussions and a DVD followed by more discussions, and the receipt of the 28 food packs for the coming week and payment. Payment is made in exchange for the food packs at the end of the session. The session lasts about 2 to 2½ hours.

At later sessions participants are again weighed. Since by this time they will have been almost fasting for at least a week the ketosis process should have started. A urine test is used to check its progress and other checks on the participants' health are made. The participant orders the food packs for the coming week, and then there follow discussions, a DVD, more discussions or group exercises, and then the collection of the food packs and payment. 28 food packs are purchased.

At the first session the participant will also complete an undertaking (we make no finding as to whether or not this was an enforceable contractual commitment):

to remain abstinent from normal food for the time on the programme

to purchase 28 food packs each week

to drink at least 4 litres of water a day

to attend all weekly meetings

to keep information confidential and

to be responsible for their participation in the programme.

At this point we note that this undertaking shows a nexus between what the participant is going to get and what he is going to pay. The undertaking is to "purchase food packs" but that purchase is linked to the support sessions.

The food packs consist of flavoured bars, and powdered soups and drinks to which water must be added. There are a selection of flavours. The participants choose the flavours for a set of 28 packs (4 meals on each of 7 days). The price is the same whichever flavours are selected.

The charge made is a recommended retail price set by LighterLife and is thus the same at each counsellor. It is somewhat more than the cost of the ingredients for meals for one person for a week but considerably less than the cost of meals for one person eating out for every meal.

The topics covered in the support sessions and videos change as the programme progresses. In the very early Foundation Stages they relate to a larger extent to getting used to eating only the food packs but also cover subjects such as exercise, posture, clothing, reasons for eating behaviour and ways to modify it. After the early sessions the emphasis shifts to the latter subjects – those relating to keeping the weight off.

The counsellors also make themselves available for short pop-in sessions.

The men's sessions are slightly different in style. There is no DVD, and they last about 1½ hours.

If a participant could not make a session he or she could arrange to get the food packs for the next week either in advance or by going to see the counsellor. The price paid for the food packs was the same as if he or she had attended.

The Development Stage sessions are run in the same way so far as is material to the issues in this appeal.

Route to Management

These sessions last about 1½ hours and do not have a DVD viewing. Participants are weighed and there are group exercises and discussions. The participants acquire fewer and fewer food packs and pay proportionally less and less. The group will not generally be closed: members will join and leave. The content of the sessions now includes support on the path back to eating normal food.

Whereas during the Foundation Stage participants will have committed to buy, and will purchase, 28 food packs a week, there is no commitment at the route to management stage to buy any number of food packs. On occasions fewer than 28 will be bought perhaps because the participant has some left over from previous weeks.

Management

The management stage is the stage where the participant is managing his or her ordinary eating. No dedicated sessions are run for such participants but they may attend Route to Management sessions and purchase up to four weeks' food packs if they wish to adjust their diet. The only payment such persons make is that made when they acquire food packs.

Refreshers

Those joining refresher courses commit to acquiring 28 food packs a week for 4 weeks. The session format is similar to Foundation.

Holding

Those attending these courses acquired no food packs and make no payments.

Attendance

We find that the typical customer committed to attend all the support sessions and, during the time he or she adhered to the programme attended almost all the support sessions, and at the end of each support session picked up the relevant food packs and made payment.

(4) The relationship between LighterLife and the Counsellors

LighterLife licences its trademarks to counsellors such as the Appellant. It sells the food packs to the Appellant at a price below the price charged for their sale by the Appellant. The counsellors are trained by LighterLife before they are licensed. LighterLife provides printed material and other items to the counsellors for them to sell or provide to the participants and also detailed course manuals setting and the way the programmes are to be provided to participants. Counsellors are expected to follow LighterLife practices and policies.

(5) Statements in the documents

It seems to us that the documentary evidence is relevant only in so far as it sheds light on the objective determination of what was agreed; whether a typical participant would view a particular element as an aim in itself; and the practical benefits or usefulness of particular elements. We set out below examples of those elements of the documentation which seemed particularly relevant to those factors. We do not believe every participant reads every document. But the following quotations provide a flavour which we believe was communicated to the typical participant, and which informed and illuminates our decisions in relation to those factors.

An advert:

… The LighterLife Programme is the only national weight loss and weight management plan that looks beyond food to examine lifestyle and emotions in order to help clients to understand, address and overcome their relationship with food.

Promotions with a testimonial:

"Counselling didn't appeal to me at first. But I soon realised how important it was … I found the support of the groups vital to my success."

"What really made the difference though were the group sessions with a qualified Counsellor"

"To begin with you have only the soups, starters and bars provided while the weekly group sessions with qualified Counsellors help you to get to the root of the problem."

Initial Client information booklet

"By taking food out of the picture, we focus on helping you to discover and control the reasons behind your overeating."

"Groups are held once a week and last for approximately two hours. Each week your Counsellor will weigh you, supply you with enough LighterLife soups, shakes and bars for the week and check your ketone levels to ensure you are burning fat … The group work element of the LighterLife Programme is vitally important …"

"… even though Sue has been maintaining her weight she still attends weekly meetings to see her friends and get her Counsellor's continuous support."

"How much does the LighterLife Programme cost?

It costs [£x] per week which covers all the LighterLife Food packs you will need for the week … In addition to this we provide complimentary materials to help you including … DVDs, handbooks and an exercise programme complete with pedometer."

Customer Charter

"Payment

Total Balance Food packs are paid for weekly in advance and will cost you [£66] per week … You contract to buy 28 Total Balance Food packs every week for the first 14 weeks."

LighterLife Women's Price List

"14 weeks Foundation programme £66 per week

(28 Food packs per week)

The Developer Programme £66 per week

(28 Food packs per week)

Route to Management

Weeks 1-2 £49.50 per week

… weeks 3-8 £33.00 per week

… weeks 9-12 £16.50 per week

… Refresher Programme

- Pre fresher Booklet Free of charge

… 28 Food pack per week £264 in advance per

4 week

… Holding Programme

- Holding Booklet Free of charge"

Your First Week:

"Four Food packs a day help the fat go away."

"… during weeks 2-14 your counsellor will:

Weigh you …

Check your ketone level …

Collect your payment and give you enough food packs …

Show you that week's … DVD

Introduce you to Cognitive Behaviour Therapy and

Analysis …"

Men's Customer Charter:

" Before starting Foundation and taking total Balance Food packs you must …

"Weekly meetings:-

You will need to pay for and collect your weekly supply of products at your weekly meeting …"

(6) Other Matters

The food packs provide a Very Low Calorie Diet. We understand that the lack of calorific content in the food packs and their purpose mean that their composition, marketing and labelling has to comply with the provisions of particular European Directives and domestic regulation. Some medical checking is effectively required before such products may be sold.

The diet foods one might obtain in high street shops are not comparable to Very Low Calorie Diets. But other Very Low Calorie Diets which, like the LighterLife food packs, are a total replacement for conventional food are marketed to the public. Two are available for purchase via the internet. One of these is advertised for a price comparable to that attributed to the LighterLife foodpacks. Its provider requires purchasers to submit certain medical information before a purchase is permitted. It provides some online support to purchasers if they require it, but no regular counselling support in any way comparable with that provided by LighterLife. The other is fairly new to the market but appears to operate in a similar way to the first.

LighterLife food packs have also been offered for sale on E-bay at prices above those charged by LighterLife.

We heard no evidence as to whether the type of regular counselling and support which LighterLife counsellors provided would be available from any other provider to someone who had acquired LighterLife or other Very Low Calorie Diet food packs separately. It was clear that LighterLife counsellors would not provide such counselling in relation to the Foundation stage; but it was possible that they might unknowingly provide it at other stages, if a client had purchased alternative products.

Susan Smith told us that it was important for her to be able to go to one provider for everything, and that it had been important to participate in groups where everyone was in the same situation. Sara Jamison said that if she had bought food packs from another supplier, some group support would have been useful.

Focus Groups

Ms Morley told us that the clients understand that they were buying the food packs and that the counselling is a free service. She said "The clients understand that they can attend the groups for free or visit their counsellor without paying". She told us that her understanding of the clients perception was drawn from focus groups of clients who had attended the LighterLife sessions. We accept that this impression was gained by Ms Morley but we doubt whether the investigation of this understanding was a substantial aim of the focus groups and do not accept that it reflects the understanding of all clients.

(7) Inferences drawn from the facts

It was clear to us that:

(a) a typical participant would wish to receive and be expected to receive both counselling support and food packs;

(b) a typical participant would be required to pay at the time of receiving the food packs;

(c) a typical participant would be expected to benefit both from the food packs and from the counselling: both would be of material use from the perspective of such a customer;

We also find that a large part or even the majority of the counselling support was forward looking. A minority related to adherence to the food packs.

3 Is Consideration Given for the Support Services?

Mr James submits that what counsellors such as the Appellant sell, and what the customer buys are the food packs; the counselling is offered and provided for no consideration. He says that there is nothing artificial in this: attendance on the course is intended to encourage best use of the food packs and success for the client. He says that there is no global consideration for the programme and the food packs, but a single consideration paid only for the food packs. He refers us to the judgment of the Chancellor in Ford at paragraph 46 (see [14] above) and to the approach of the ECJ in paragraphs 26 and 27 of Kuwait. He says that there was no agreement between the Appellant and the participant that part of the price was paid for the support services.

Miss Shaw says, inter alia, that the food, as food, was expensive: it must have been expected that the participant was getting something else for his or her money.

Discussion

It was clear to us that what was marketed to potential participants was a package. A person who chose this means of losing weight would objectively be expected to receive both food packs and support. (It may also be the case that participants subjectively expected to receive a programme but we are dealing here only with what objectively he or she would be expected to obtain by an outsider who saw and heard the elements of the offering we have seen and heard.)

In contrast to the facts in cases such as Ford and Kuwait there was here no express representation that one part of the programme would be provided free.

We noted above Ms Morley's evidence that she had gathered from focus groups that the clients understand that they are buying the food packs and that the counselling is a free service. We do not consider this relevant to the issue : as we note at paragraphs 13 and 17 above, the question is not what, subjectively, the participants thought they were getting, but the objective question – what, having regard to objective factors, was expressly or implicitly agreed. The objective features: the communications to participants, did not describe the sessions as free: the only occasions that payment was mentioned were in connection with the purchase of the food packs but there was no express indication that the sessions were free.

We take into account the following:-

(i) whilst some of the marketing material described payments as made for a programme, the majority merely indicated that payment was made for food packs at the end of the sessions. That to our mind is very different from saying that the support was free but leaves open the possibility that either it was free or that payment was being made both for the support and for the food pack;

(ii) the timing of the payment – at the time of getting the food packs suggest a link to the food packs only, but that time was also generally at the end of a session. We do not think this factor points strongly in either direction;

(iii) the participants' interest, in our view, was to obtain both the support and the food packs;

(iv) the undertaking signed by participants linked together the attendance at the session and the purchase of the food packs;

(v) in practice, in Foundation, Development and Refreshers participants attended most sessions or committed to do so: objectively they would be expected to do so - their interest was not just to attend to pick up the food packs but to go to the support sessions as well;

(vi) it was not the case that the food packs were to be taken, or generally were taken, without being able to take the support: the price was not variable depending upon whether or not the support was used because the support service was part of what was, objectively, agreed to be provided (and generally expected to be used);

(vii) in our view,, in relation to those who missed a session but picked up their food packs later for full payment, the situation was parallel to the theatre ticket which was paid for and not used rather than to the insurance (in Ford) which could or could not be taken and whose uptake did not affect the price.

(viii) the nexus between the purchase of the food packs and the provision of the support services is apparent from the information supplied at the introductory session and the written undertaking. It could be said that the participant got the counselling because he or she had purchased, or would purchase, the food packs but to our minds that points to a link in the nature of agreement between payment and receipt both of the support services and of the food packs. The existence of such a link is not denied by any of the other objective factors.

Overall, in relation to Foundation, Development and Refreshers, our conclusion was that the support was not provided free and that the payment made was directly linked both to the food packs and to the support. We conclude that it can fairly be said that there was an agreement under which the payment would be made and support and food packs provided such that the payment made was consideration both for the food packs and for the support sessions.

We were addressed by both parties on the wording of the Price List (see paragraph 60 above. We do not consider that list to be more relevant than other features. It does not when taken together with the other material compel a conclusion that there was agreement (objectively considered) under which it was only the food packs which were to be received for the consideration and indeed points gently to the opposite conclusion.)

In the Introduction to Management and Management Stages, there was no such strict formal commitment to acquire food packs and attend the sessions, and the payment made diminished as fewer food packs were bought. Nevertheless it seems to us that there was a link between the payments which were made (both at those sessions and in the past) and the support sessions such that it could be said that the support sessions were available because the payments had been or were to be made. The participants in these stages were receiving the programme which they had commenced earlier, which was what they were to be expected to get and which satisfied their requirement for longer term lower weight maintenance. The deal was that they would get it if they had paid. The payments made both at these stages and at the earlier stages were linked not just to the food packs obtained, or just to the support provided in the session after which the food packs were obtained, but also to the programme of support which would be available in the future. They were in our judgment payment (in part) for that support.

During Holding courses, when no food packs were bought, there was no payment. Since the Appellant did not provide such courses, it is not in this appeal necessary to determine whether there was consideration given for the support during these courses. However, other appeals stand behind this appeal; we should therefore express a view. From the evidence before us the Holding courses were part of the services agreed to be made available to a client who participated in Foundation and were provided in consideration for the payments made "for" food packs.

4. A Single Supply or Multiple Supplies

(a) Ancillary

Mr James says the food packs are of the essence. They achieve the core aim of weight reduction on their own. He says that the counselling support ministers to the diet: it helps the participants stay on the diet in the early stages, the weighing and medical checks ensure the diet can be safely pursued, and the future behavioural counselling helps the average customer get more out of the diet and not revert. He says that the diet could be taken on its own, but the counselling cannot be an aim in itself: the client wants to lose weight and counselling does not achieve that; the food packs achieve the weight loss (by enabling the client to abstain from normal food) and thus achieve the aim. The fact that it is only the food packs that are paid for shows that they are the essence of the supply.

He accepts that the marketing focuses on the programme but says that as soon as the introductory session has taken place it is clear that the food packs are of the essence of the programme. He accepts that counselling is an important part of the programme but says that it may still be ancillary to the food packs.

He draws our attention to Healthcare at Home Ltd [2007] VAT 20379 where nurses administered drugs to patients in their own homes. The tribunal held that, whilst the patient could not have had the drug if the nurse did not administer it, the patient's need for the drug determined the essential characteristics of the supply.

He says that for a client in the Foundation Stage, the food packs are the client's only food for three months: it is ridiculous to treat that as a supply of services, and results in precisely the kind of distortion which CPP warned against.

Discussion - Ancillary

Who was the typical customer? The typical customer was, in our view, someone who was (at least at the start) obese and wished to lose weight and to retain that weight loss. It was someone who had tried to lose weight and had failed or had put it back on. That person wanted assistance in losing weight and keeping slimmer, and recognised that such assistance would come in the form of food replacements and support sessions over a period of time.

One of the aims the typical client wished to achieve was the weight loss. This, it seems to us, was, in fact, achieved by abstaining from normal food. The food packs (or their consumption) enabled such abstinence without dire medical consequences; and some of the support aided the participant safely to keep to the food packs. The other aim was to make that weight loss permanent: that was to be achieved, not by the food packs, but by learning to change eating behaviour. Although to consider simply what the client wishes to achieve is to consider the wrong question because the formal question is what elements of the supply are an aim for the customer, rather than what aim the customer intends to pursue once in possession of those elements, the customer's wishes inform an appreciation of which elements are an aim for the customer. The two objects of a typical customer, immediate weight loss, and maintenance of a lower weight are expressed in two elements of the supply each of which is for such a consumer an end in itself: the food packs (coupled perhaps with the weighing, medical checks and some associated counselling) – the object of which is to get the weight off, and the longer term counselling – the object of which is to keep it off.

We agree that some elements of the support might be regarded as ancillary to the food packs because they aid and support the consumption of the food. Those parts, particularly of the early counselling, which help a participant stick to eating the food packs might be regarded as closely linked to them or subservient to them, and the weighing and the medical advice given might be similarly regarded. But there is a large part of the counselling which is not about food packs or their consumption: it is about adapting a participant's outlook and behaviour so that once the weight is lost it is not put back on again. These parts are significant and do not minister to the food packs and cannot be described as subordinate to them.

In Healthcare at Home the patient's need for the drug made the drug the predominant supply. If the need of the typical consumer is what determines whether a supply predominates then, in our judgment the food packs do not predominate but rank alongside the forward looking support and counselling since the typical consumer needs not just to lose weight but to remain slimmer, and the counselling is highly relevant to that later need.

Put another way, the food packs minister to fasting – something which is not supplied by the Appellant, and the forward looking support ministers to reduced eating later on (again something not supplied by the Appellant) but that neither the food packs nor that support minister to the other or are subordinate to the other.

We therefore conclude that the forward looking counselling support is not ancillary to the food packs. Neither party suggested to us that the support services should be split into different elements each of which with different VAT categorisations. The physical intertwining of the elements of the counselling makes such a course awkward and possibly artificial. The forward looking counselling was in our view too important a part of the support to treat it as ancillary to the food packs. We are therefore of the view that the whole of the support should not be treated as ancillary. However, if we are wrong, and part of the support should be treated as ancillary, then, for the reasons in paragraphs 19 to 29 above, we would find that the single supply constituted by the food packs and those ancillary elements of the support services should nevertheless be apportioned between the zero-rated food pack element and the taxable services element.

It was not argued by the Respondents that the supply of the food packs was ancillary to the supply of the support. We believe it was not.

(b) Artificial to Split – Dissociability

Miss Shaw says that the participants are buying a programme, not its separate elements. For that reason it is properly categorised as a single supply.

She says we must have regard to the costs of each element of the supply, but that they will not be determinative: in International Masters Publishing v HM Revenue and Customs [2007] STC 153 a CD and a book were supplied together. The book contributed the greater part of the cost, but the supply was determined to be principally that of a CD, whereas in Levob the customisation of the software cost more than the basic software. She accepts that the cost to the Appellant of the food packs contributed the majority of its expense but says that that is not determinative of the nature of the supply. We agree.

Miss Shaw takes us to the Advocate General's opinion in Levob and the passage quoted at paragraph 30(i) above. She says that the typical customer wanted a package and that the food packs on their own, or the counselling support on its own, would be of no use to such a customer: such a customer's objectives are both to lose weight and to get to grips with the root causes of their over-eating. She highlights the comment of Morgan J at paragraph 64 in Weight Watchers (where the question was whether printed material and the help provided at meetings was one supply or two):-

"… The links between the services and the printed material are very strong, the purpose of the printed material is to contribute to the usefulness of the services provided at the meeting, and to strengthen the commitment and staying power of the member of the Weight Watchers programme. In my judgment it is more accurate to regard that which is provided at a subsequent meeting as a single supply of weight loss services."

For these reasons he held that, whereas it would be wrong to reverse the tribunal in relation to its conclusion that there were separate supplies at the first Weight Watchers meeting, the tribunal had erred in reaching the same conclusion in relation to subsequent meetings. Miss Shaw says that the purpose of the Appellant's support services is to encourage customers to stick with the programme, and that Morgan J's approach therefore indicates that because of that close link there is a single supply.

The Respondents accept that the food packs are an integral part of the supply, just as food is in an integral part of the supply of restaurant services (Faaborg Gelting Linien Als v Finanzamt Flinsbury [1996] STC 774), and as books may be integral to educational services (College of Estate Management), but they say that they are a means to an end and that economically and commercially they are therefore part of a single supply: it is artificial to split that supply.

Mr James says that in College of Estate Management the tone of their Lordships' speeches is that the conclusion reached by the tribunal was a dramatic result and that such an approach should be used sparingly. He says that 'closely related' as used in Levob indicates that the separate elements must feed off each other: each must not be adequate on its own for the consumers' needs. Here the food packs are enough on their own. He says a supply is only a single supply if none of the elements taken separately can represent a coherent supply. In the hairdressers cases (see Denyer) the right to use the salon chairs was of no use – was not coherent – without the use of the working areas and other services.

Artificial to Split – Discussion

We have found that a package is supplied for a single consideration. The question is whether that package is properly to be split into its component parts. We take into account the following:-

(i) a single supply from an economic point of view should not be split so as to distort the functioning of the VAT system, (CPP). In Talacre, at paragraph 41, the Advocate General regards the "functioning of the VAT system" as a practical concern: it was there apparent that "separate indications of the relevant components of the price and the application of different rates of VAT" would not "present significant difficulties". And we note the approach of the ECJ in Centralan Property v Customs and Excise Commissioners [2006] STC 1542 at paragraph 80: there, although a particular approved approach gave rise to practical difficulties, it did not lead to "insurmountable difficulties capable of affecting the application of the VAT system";

It seems to us that if it is necessary to split the consideration between the food packs and the support that may create some difficulties but not serious or significant difficulties in the practical operation of the VAT system. This is a world apart from the dissection of the elements of a restaurant meal;

(ii) it is important to consider whether the supplies are so closely linked that in isolation for the average customer they do not have the necessary practical benefit. (Levob : Advocate General paragraph 69). In Levob the customer could not use the software without customisation and whilst customisation could have been provided by a third party, legal, technical and practical difficulties would arise from such a course. The Advocate General thought that pointed to inseparability (paragraph 72-75 of his opinion);

In this case there is, in our view, not the same degree of need for the two elements of the supply to come together. That a customer may prefer getting the two elements together from the same supplier may indicate that they are of more use when received together, but it does not indicate that they are of no practical use when received separately. The customisation in Levob was no use without the software itself; here the forward looking support is of separate use ;

The ECJ in Levob characterised the economic purpose of the supply at issue in that case as the supply of functional software specifically customised to that customer's requirements: the uncustomised software was of no use for the purposes of the customer's economic activity. In this case the food packs could be used on their own. Similar very low calorie food packs could be separately obtained and separately used by a typical customer. That customer might want something else as well, but the lack of the counselling would not preclude the separate use of the food packs. The fact that LighterLife counsellors would not provide the counselling unless the food packs were also purchased does not affect the separate usefulness to the average customer of the separate elements of the supply. Likewise in our view the counselling would be of use even if food packs were acquired elsewhere;

In our view, a normal customer would not regard one element of the supply without the other as 'largely useless' (paragraph 45 Advocate General Talacre).

(iii) the food packs and the support have different uses. The first is predominantly to get the weight off – to permit fasting; the second is predominantly to keep it off. Those are the essential characteristics of each element of the supply. Although the average customer wishes to achieve both objects each element principally serves one object only;

(iv) the elements of what is supplied do not need to be enjoyed at the same time. A restaurant customer needs both the food and the service together and in the same place; a patient receiving an injection requires the vaccine and the doctor's service at the same time and place : the elements are associated in time and space. The same is not true of the food packs and support. There is no closeness in time or space;

(v) the separate costs to the supplier of each element of the supply do not point clearly to either a single supply or multiple supplies;

(vi) there are clearly links between the two elements of the supply by the Appellant. The counselling, particularly in the early stages, "strengthens the commitment and staying power of the" participant. The weighing and medical checks are closely linked to the fasting. But that commitment is as much to abstinence from normal food as it is adherence to the food packs. The ability safely to fast is linked to the use of the food packs, but we do not see a resultant very strong or close link between the medical checks and the food packs. Further, in contrast to Weight Watchers, the predominant part of the support is looking to future management rather than sticking to the diet. There is a link, but in our view it is not a strong link;

(vii) we accept that what is obtained can be described as a "programme"; but we believe that programme has two distinct elements. There are links between those elements but overall they are not very strong or very close links. The closest is that between the food packs and that element of the counselling which helps the participant to stick with the food packs and to abstain from normal food. But in our view even that element displays as close a link to fasting as it does to eating the food packs.

We conclude that the support services are not so closely linked to the food packs as to constitute with them a single indissociable supply.

(c) Conclusion : single or multiple supply

We therefore conclude that there is not a single composite supply made by the Appellant but two supplies : one of the food packs, and the other of the counselling and support services.

As we note at paragraph 87 above, we considered whether the support service should be treated as comprising separate elements: some of which were ancillary to, or indissociable from, the food packs, and some of which were neither ancillary to nor indissociable from them. Into the former category might come weighing, medical checks and support in sticking with the food packs; and into the second the support services related to keeping the weight off in the future. We concluded that the elements of the support services were indissociable : they were closely physically linked to each other and even though different parts achieved different aims it would be artificial to split them. Even if it were correct to split them our conclusions on the Talacre principle would lead us to the conclusion that those elements indissociable from or ancillary to the food packs would be standard rated.

As we note at paragraph 15 above, the Chancellor in Ford saw a connection between the question of whether something that had been provided with something else was provided for a consideration, and the question of whether that something was ancillary to or indissociable from that something else. He said at paragraph 35:

"But, to my mind, the authorities show that it is unsafe to treat the principles of Card Protection Plan and Kuwait as being mutually exclusive. They overlap."

And at paragraph 24,

"This issue can be broken down into the two sub-issues of "supply" and "consideration" but each may throw light on the other".

It does not seem to us that the Chancellor was saying that it was inevitable, if it was concluded that consideration was given for both A and B when it was ostensibly given for B, that A must be ancillary to B. Nor, if A was ancillary to B, that no consideration could be attributed to A. The conclusion that the principles may overlap is not the same as a conclusion that one subsumes the other. The principles are closely associated and consideration of one may throw light on the other, but will not necessarily determine the other.

Thus we do not see ourselves as bound by the Chancellor's judgment to hold that the support services and the food packs were a single supply merely because we have found that consideration was provided for the two of them together. Nor are we bound to conclude that because we have found the elements dissociable, consideration was not given for the support services. The two questions at the root of the principles (the centres of the overlapping circles) are different: one is what was agreed expressly or implicitly; the other concerns whether or not the separate elements were of practical use separately or were separate aims in themselves.

The link between the consideration of the two principles in this case exists principally in the idea that the participants were buying "a programme". Because they were buying a programme it might therefore be said that they were giving consideration for all its elements, and that it was a single composite supply. But it seems to us that to start from the description of the supply as "a programme" is to beg both questions: the use of the word suggests a single supply for a single consideration. Whilst the word "programme" was used in some of the literature and information given to participants and that is suggestive of a single supply, its description as such does not compel the conclusion that there was one single composite supply.

5. How would a single supply have been VATable?

Had we concluded that a single composite supply was made by the Appellant we would have held that it was a standard rated supply. Neither of the elements predominate and the single supply is not properly covered by any head of exemption or zero rating: in particular it cannot in our view be described as a supply of food.

6 How should the consideration be split between the two elements?

The Respondents suggest that an appropriate appointment would be 60% food, 40% services; the Appellant 91% food, 9% services.

We approached the apportionment of the consideration between the supply of the foodpacks and the supply of the support services thus:

(i) the task is to determine the consideration properly attributable to each element (see s.19(4) VATA 1994);

(ii) the simplest possible method should be used for this (see paragraph 31 of the ECJ's judgment in Card Protection Plan v CCE [1999] STC 270 at p.293);

(iii) neither a market value method not a cost method is compelled: a number of factors may need to be borne in mind –

(a) whether margins are consistent over the various ingredients of the package,

(b) whether it is right or possible to regard the price for separately sold ingredients as a useful guide to the proportion of their value when sold as a package, and

(c) whether a cost or a market value method would lead to considerable work for the trader (see Lindsay J at paragraph 30 of Public and Commercial Services Union v CCE [2004] STC 376).

The evidence before us on this issue was limited:

(i) whilst we had evidence of the price at which some foodpacks had been offered on eBay we had no evidence relating to the price at which the counselling services n their own might be sold. It seemed to us that it would be very difficult to find such evidence;

(ii) there was evidence, which we accept, that the Appellant's costs comprised:

(a) the purchase of the foodpacks,

(b) other items and services supplied by LighterLife, and

(c) the costs of stationery, heat, light, telephone and the rental of premises;

(iii) there was evidence of the cost to the Appellant of the foodpacks and of the services and other items purchased from LighterLife but only indirect evidence (from VAT input tax correspondence) of other costs;

(iv) Ms Morley gave us her view as to the margin a retailer of food might expect to make;

(v) we had evidence of the Appellant's turnover.

We did not think that any consideration of the margins made by LightLife in relation to its supplies to the Appellant was relevant to this issue. It did not affect the bargain struck between the Appellant and its customer.

On the basis of the evidence available to us:

(i) it seemed to us that an apportionment on the basis of market value was neither practical nor simple. We therefore set aside consideration of that method:

(ii) we did not consider that an apportionment based on profit margins percentage would be practicable or simple: there was no evidence that the profit margin on foodpacks would be different from or the same as that on counselling services. Nor would the definition of a percentage profit margin be simple in a case where the principal employee of the Appellant was its owner (as appeared to the case in this appeal) and treated its income as his.

It therefore seemed to us that an approach based on the cost of the supplies made was the only practicable one available to us.

In determining the relative cost of each of the two elements supplied, we concluded that ¼ of the Appellant's costs (excluding the cost of the foodpacks) should be allocated to the foodpacks and the remaining ¾ to the supply of counselling support. That was on the basis of our estimation of the relative use of time and premises involved in the provisions of the foodpacks and the support services. In determining the "costs" we include a fair figure for the remuneration of the counsellor or counsellors.

Bearing in mind the relative costs we believe an apportionment of ? to the food packs and ? to the counselling is about right. We take into consideration in this approach the approximate costs and profit margins which the Appellant would bear and be expected to make.

We have set out the basis of our ? : ? apportionment in a direction to the parties. The direction requires the parties to apply within two months of the release of this decision for clarification (if required) in the light of any particular facts not available to the Tribunal. Formally the appeal is therefore adjourned for two months or until such application is made and determined.

7. Conclusion

We conclude:

The support services are provided for consideration (paras 74 to 77);

The Appellant makes separate VATable supplies of food packs and support services (paras 96-101);

The consideration received by the Appellant in the form of payments for the food packs should be apportioned ? to zero-rated food packs and ? to standard rated support services (para 109).

The appeal is therefore allowed in part.

Our decision was unanimous.

CHARLES HELLIER

CHAIRMAN

RELEASED:30 July 2008

LON 2007/0579