HM Revenue & Customs v Weight Watchers (UK) Ltd

This is an appeal from a decision of the VAT & Duties Tribunal released on the 8^th March 2007.

The question before the Tribunal, which is the same question raised by the appeal to the High Court, was expressed by the Tribunal in paragraph 1 of its decision in these terms:

“This appeal concerns whether customers of [Weight Watchers (UK) Limited], who attend weekly meetings at which they are weighed and can then remain to attend a talk and discussion period but in any event also receive a handbook and other printed material at the meetings, receive single standard-rated supplies of a weight loss programme or separate supplies of zero rated printed material and standard-rated support services.”

The Tribunal’s findings of primary fact were set out in paragraphs 5 to 28 of the Tribunal decision. I will repeat those findings verbatim. I will also include paragraphs 2 to 4 of the Tribunal decision by way of introduction to those findings.

The supply of certain printed material is zero-rated if the material is of a description specified in schedule 8 to the Value Added Tax Act 1994: see section 30(2). Group 3 in schedule 8 includes the following:

It is common ground that all or the greater part of the printed material which was described by the Tribunal in its findings of fact came within group 3 in schedule 8 to the 1994 Act. (There is a loose end which I will address at the end of this judgment as to whether the Points Tracker, the Points calculator and the Membership Card were properly to be regarded as zero-rated printed material.) Accordingly, if the relevant printed material was the subject of a separate supply, that supply would be the supply of zero-rated goods.

It was also common ground that the supply of services by Weight Watchers to its customers, if that supply was a supply separate from the supply of printed material, was a supply of standard-rated services. If it is not appropriate to regard the supply of printed material as separate from the supply of services and, instead, it is appropriate to regard the case as one where there is a single composite supply then, in principle, a question could arise as to the character of that supply and the treatment of that supply for VAT purposes. However, that question does not appear to have been a live question before the Tribunal. I say that because in paragraph 1 of its decision, as quoted by me in paragraph 2 above, the choice expressed by the Tribunal was between separate supplies and “single standard-rated supplies of a weight-loss programme”. Thus, the Tribunal is proceeding on the basis that if the correct conclusion in the present case is that there is a single composite supply then the character of that supply would not come within group 3 of schedule 8 to the 1994 Act but would be regarded as a composite supply of services and that supply would be standard-rated. That reading of paragraph 1 of the Tribunal’s decision is supported by the fact that nowhere in the decision do the Tribunal pose for themselves the question as to how one would characterise the supply if the supply were held to be a single composite supply.

Accordingly, on this appeal I will confine myself to answering the same question as is posed in paragraph 1 of the Tribunal’s decision and that question only requires the decision whether it is right to regard the present case as a case of a single composite supply or of separate supplies.

There was little, or no, difference between the parties as to the legal tests to be applied for the purpose of answering the question which arises in this case. Mr Mantle, who appeared on behalf of HMRC submitted that the Tribunal had not applied the correct legal test. He further submitted that even if they had applied the correct legal test to the primary facts they had found, they arrived at the wrong legal answer. Those submissions make it necessary for me to refer in a little detail to the decisions which express the relevant legal tests.

For the purpose of deciding, in a particular case, whether the correct characterisation of a transaction is that there is a single composite supply or separate supplies, there are two tests which can be used. The first test I will call the “principal/ancillary test”. The second test I will call the “artificial to split” test.

One finds the principal/ancillary test being used in a number of the decided cases. Indeed, it appears that for a period of time, the courts and tribunals deciding these cases approached the matter on the basis that the principal/ancillary test was the only test which was to be applied. Because it was thought to be the only test which could be applied, there were signs of the courts straining the meaning of “ancillary” beyond what would be considered its normal meaning. This process of straining was referred to by Lord Walker of Gestingthorpe in College of Estate Management v Customs and Excise Commissioners [2005] STC 1597. At [25] Lord Walker referred to the Judge at first instance in that case (Lightman J) attempting to make sense of the various decisions but handicapped by the belief that the only relevant test was the principal/ancillary test. In that way, Lightman J suggested that there were two different types of ancillary supply; one where the different elements were component parts of a single supply such as food in a supply of restaurant services and another where there were “add-on” supplies such as the delivery of a sold car to a purchaser. Because it is now clear that the principal/ancillary test is not the only test which is to be applied, the courts have now been able to restore to the word “ancillary” its ordinary meaning which was given by Lord Walker in the College of Estate Management case at [30] as:

“Subservient, subordinate and ministering to something else”.

I will not explore the principal/ancillary test further in this case as both sides agree that the elements of the transactions in the present case can not be characterised in a way whereby one element is the principal element and another element is ancillary to it.

Both sides in the present case agree that the answer to the relevant question is to be found by applying the “artificial to split” test.

The “artificial to split” test is to be found expressed in three decisions, namely, the decision of the ECJ in Card Protection Plan Limited v Customs and Excise Commissioners 1999 STC 270, the decision of the House of Lords in College of Estate Management v Customs and Excise Commissioners [2005] STC 1597 and the decision of the ECJ in Levob Verzekeringen BV v Staatssecretaris Van Financien [2006] STC 766. The last two decisions were reached in October 2005, seven days apart. Mr Mantle for HMRC described the decision of the House of Lords in the College of Estate Management case and the decision of the ECJ in the Levob case as “watershed” decisions which caused HMRC and practitioners to rethink their approach in cases such as the present.

The key passages in the judgment of the ECJ in the Card Protection Plan case are in paragraphs 27 to 31. In paragraph 27, the Court stated that in view of the diversity of commercial operations, it was not possible to give exhaustive guidance on how to approach a problem such as the present. In paragraph 28, having referred to the restaurant services case (Faaborg-Gelting Linien A/S v Finanzamt Flensburg [1996] STC 774) it was stated that regard must be had to all the circumstances in which the relevant transaction took place. At paragraph 29, the Court stated:

“In this respect, taking into account, first, that it follows from article 2(1) of the Sixth Directive that every supply of a service must normally be regarded as distinct and independent and, second, that a supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical consumer, with several distinct principal services or with a single service.”

Before continuing with the decision of the ECJ in Card Protection Plan, it is right to comment on the English translation of paragraph 29 (in that case) as set out above. That translation was critically examined by Lord Rodger of Earlsferry in College of Estate Management v Customs and Excise Commissioners at [8] – [9]. Lord Rodger compared the English translation with the French text and suggested a revised English translation which, in respect of the last part of paragraph 29, would read as follows:

“…….the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical consumer, with several distinct principal supplies or with a single supply.”

In paragraph 30 of its decision in Card Protection Plan, the ECJ then considered the application of the principal/ancillary test. Although it was not so clear at the time, it has now become clear that the principal/ancillary test referred to in paragraph 30 of the judgment is not the only available test and that the “artificial to split” test is an alternative test which may be applied.

Paragraph 31 of the decision of the ECJ in Card Protection Plan discusses the significance of a single price being charged for a transaction. The single price is not decisive in favour of the contention that the transaction is a single composite supply. If the conclusion is that the transaction involved separate supplies, it is then necessary to divide or apportion the single price between the separate supply, for which purpose the simplest possible method of calculation or assessment should be used.

The fact that the “artificial to split” test is a second available test clearly emerged from the decision of the House of Lords in College of Estate Management v Customs and Excise Commissioners. At [12] Lord Rodger identified the question of whether a transaction involved a single composite supply or separate supplies. He said:

“The question is whether, for tax purposes, these are to be treated as separate supplies or merely as elements in some over-arching single supply. According to the Court of Justice in Card Protection (at paragraph 29), for the purposes of the directive the criterion to be applied is whether there is a single supply “from an economic point of view”. If so, that supply should not be artificially split, so as not to distort (alterer) the functioning of the VAT system. The answer will accordingly be found by ascertaining the essential features of the transaction under which the taxable person is operating when supplying the consumer, regarded as a typical consumer. Since the 1994 Act has not adopted any different mechanism to give effect to this aspect of the directive, the same approach must be applied in interpreting the provisions of the Act. The key lies in analysing the transaction.”

In College of Estate Management, Lord Walker at [30] clearly identified the existence of a separate “artificial to split” test. He singled out two earlier cases in which the result was to be analysed by reference to the artificial to split test rather than the principal/ancillary test. He said:

“But there are other cases (including Faaborg, Beynon and the present case) in which it is inappropriate to analyse the transaction in terms of what is “principal” and what is “ancillary”, and it is unhelpful to strain the natural meaning of “ancillary” in an attempt to do so. Food is not ancillary to restaurant services; it is of central and indispensable importance to them; nevertheless there is a single supply of services (Faaborg). Pharmaceuticals are not ancillary to medical care which requires the use of medication; again, they are of central and indispensable importance; nevertheless there is a single supply of services (Beynon).”

At [33], Lord Walker suggested that experience and authority indicated that the present was an area in which it was “unwise to attempt any exhaustive schematic analysis”.

I next refer to the Opinion of the Advocate General in Levob. The centrally relevant passages are at paragraphs 65 to 79. At paragraph 66, the Advocate General stated that splitting a comprehensive supply into too many separately classified individual supplies would over complicate the application of the rules on VAT. An objective criterion must be used and the subjective perspective of the provider and/or recipient of the supply was irrelevant. The artificial to split test could be used where the transaction involved a bundle of services but could also be used where the transaction involved goods and services provided together. At paragraphs 67 and 68, the Advocate General indicated that the principal/ancillary test was a permissible test but not an exhaustive one. At paragraph 69 the Advocate General stated:

“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.”

At paragraph 71, the Advocate General referred to the inseparable connection between the two elements in the transaction so that one could not be used without the other. At paragraph 76, it was suggested that splitting the price for the transaction into two price components was not conclusive that there were two supplies. At paragraph 110(1), the Advocate General proposed this answer to the question referred to the Court:

“The acquisition of standard software on a data carrier and the subsequent customisation thereof to meet the customer’s requirements must be regarded as a single supply within the meaning of the Sixth Directive where the subsidiary supplies are so closely linked that, in isolation, from the perspective of the average consumer, they do not have the necessary practical benefit for the customers. In assessing this question, it is irrelevant whether separate prices have been agreed and separate invoices have been made out for the subsidiary supplies.”

The centrally relevant paragraphs of the decision of the ECJ in Levob are paragraphs 19 to 26. At paragraph 19, the Court stated that regard must be had to all the circumstances in which the transaction in question takes place. At paragraph 20, the Court repeated paragraph 29 of the decision of the ECJ in Card Protection Plan. In paragraph 21, the Court referred to the principal/ancillary test. At paragraph 22, the Court stated:

“The same is true where two or more elements or acts supplied by the taxable person to the customer, being a typical consumer, are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split.”

The Court then held that it should offer guidance to the national court in deciding the question. In paragraph 24 of its decision, the Court referred to the economic purpose of the transaction and said:

“……it is not possible, without entering the realms of the artificial, to take the view that such a consumer has purchased, from the same supplier, first, pre-existing software which, as it stood, was nevertheless of no use for the purposes of its economic activity, and only subsequently the customisation, which alone made that software useful to it.”

At paragraph 25, the ECJ in Levob referred to the fact that separate prices were stipulated for the software on the one hand and for the customisation of the software on the other. This was said not to be decisive as it could not affect the objective close link between the two elements as part of the single economic transaction.

On this appeal, I will attempt to apply these statements of principle from the decision of the ECJ in Card Protection Plan, the decision of the House of Lords in College of Estate Management and the decision of the ECJ in Levob.

It may be helpful for the purpose of applying the test as described above, where it is not possible to spell out an exhaustive schematic analysis, to refer to the actual decisions in some of the cases. In Faaborg, applying the artificial to split test, the provision of a meal in a restaurant (on a ferry) was the provision of a series of services ranging from the cooking of food to its service in a receptacle and involved the placing at the customer’s disposal of a dining room, furniture and crockery, and the performance of tasks such as laying tables, advising customers as to the food and drink on the menu, serving at table and clearing tables after food had been eaten. This series of services was to be characterised as a single composite supply of restaurant services. The provision of food was the provision of only one component which was not to be separated out as the supply of goods (food). In Beynon (as analysed by the House of Lords in College of Estate Management) the personal administration of a drug to a patient was a single supply of medical services and not the supply of a drug and a separate supply of medical services. In College of Estate Management, the Tribunal held that he provision of distance-learning courses, where the college provided education and training through printed materials and personal tuition resulting in an examination and the award of a qualification to the successful student, was a single composite supply of education services and not separate supplies of printed materials and education services. In Levob it is clear that, if the decision had been left to the ECJ, the result would have been to analyse the transaction in that case as a single supply of a composite comprising software and a customisation service rather than separate supplies.

Before turning to the decision of the Tribunal in this case, I need to address the nature of an appeal to the High Court in a case of this kind and the approach which the court should adopt to it.

The appeal to the High Court is on a point of law only. In the present case, there is little or no difference between the parties as to the legal test to be applied for the purpose of determining whether the relevant transaction involves a single supply or separate supplies. HMRC submit that the Tribunal did not apply the correct legal test. The court’s approach to such submissions is clear. The court will consider the legal directions which the Tribunal gave to themselves to see whether they involved any misdirection in law. If so, the court will then direct itself in accordance with the correct legal test and decide the ultimate question.

In the alternative, HMRC submit that even if the Tribunal applied the correct legal test to the primary facts, the Tribunal arrived at the wrong legal answer. The first question which arises in relation to this submission is whether the ultimate question in this case is a question of law or a question of fact. In this respect, the position is clear. There is absolutely no doubt, on authority, that the characterisation of a transaction as a single supply or a separate supply is a question of law. That proposition appears clearly from statements in the House of Lords in Customs and Excise Commissioners v British Telecommunications Plc [1999] STC 758 at 736J (per Lord Slynn), Card Protection Plan Limited v Customs and Excise Commissioners [2001] STC 174 at [21] (per Lord Slynn), Beynon v Customs and Excise Commissioners [2005] STC 55 at [25] to [27] (per Lord Hoffmann) and College of Estate Management v Customs and Excise Commissioners [2005] STC 1597 at [35] – [36] (per Lord Walker).

In view of the fact that the ultimate question is one of law, prima facie, I should not apply the test in Edwards v Bairstow [1956] AC 14 which deals with the circumstances in which an appellate court can interfere with a Tribunal’s decision on a question of fact. It will be remembered that in that case, the question involved applying a legal test to primary facts as found by the General Commissioners. The ultimate question was held to be a question of fact: see at page 33. The court could however intervene, inter alia, where the position was that the true and only reasonable conclusion contradicted the determination of the General Commissioners: see at page 36.

Given that the ultimate question in this case is one of law, should the court simply reach its own conclusion on the ultimate question and if the court’s answer differs from the Tribunal’s answer, should the court allow the appeal?

Although I must proceed on the basis that the question in the present case is a question of law, it has been acknowledged that a question of this kind involves an assessment of fact and degree and involves evaluation or judgment as to how the legal test applies to the primary facts. These propositions appear from Customs and Excise Commissioners v British Telecommunications Plc at 768f (per Lord Hope) and College of Estate Management v Customs and Excise Commissioners at [36] (per Lord Walker). Indeed, the element of evaluation and judgment is very significant in the present case; the test which had to be applied by the Tribunal in the present case required them to consider whether a transaction that could be split into its various elements should not be split on the grounds that such a split would be “artificial”.

The fact that the answer to the question of law involves matters of fact and degree and evaluation and judgment has led the courts to evolve a special approach for an appellate court viewing the decision of a specialist tribunal. In Card Protection Plan v Customs and Excise Commissioners, Lord Slynn at [21] stated that he would pay full regard to the views of the courts below. In Beynon v Customs and Excise Commissioners, Lord Hoffmann went further. Having held that the ultimate question is a question of law, he nonetheless said at [27]:

“…….the question is one of fact and degree, taking account of all the circumstances. In such cases it is customary for an appellate court to show some circumspection before interfering with the decision of the tribunal merely because it would have put the case on the other side of the line”.

In College of Estate Management v Customs and Excise Commissioners, Lord Rodger stated at [13] that “the tribunal were entitled to reach that conclusion on the basis of the findings which they made…..” That statement of approach is suggestive of a case where the appellate court should only interfere where the decision of the tribunal is one which no reasonable tribunal, properly directed in law, could have reached. Lord Walker at [36] made this significant comment, after referring to Lord Hoffmann’s “circumspection” in the BT case:

“This case seems to me to reinforce the importance of that call for circumspection. The tribunal saw and heard the witnesses giving their oral evidence. Not every nuance of a first-instance tribunal’s assessment of the evidence can be conveyed in its written reasons, however carefully prepared (see Biogen Inc v Medeva Plc [1997] RPC1 at 45: characterisation of supplies for VAT purposes, like a question of obviousness in patent law, involves applying an abstract categorisation to a sometimes disparate aggregation of primary facts).”

There are other examples in other areas of the law where an appellate court shows a measure of circumspection or even deference when reviewing the assessment of a specialist tribunal. That approach has been described in a number of cases, for example, Cooke v Secretary of State for Social Security [2002] 3 All ER 279 at [16] Napp Pharmaceutical v Director General of Fair Trading [2002] 4 All ER 376 at [34] and, more recently, in AH (Sudan) v Home Secretary [2007] 3 WLR 832 at [30] per Baroness Hale of Richmond. It may be that that approach is principally justified in a case where the appellate court can only intervene when the tribunal has misdirected itself in law and where the application of a correct direction in law to the primary facts is a matter of fact for the tribunal. This approach is also appropriate in a case where the answer to the problem depends upon an awareness of the practical consequences of the rival answers, where the tribunal is to be expected to have a greater awareness of that matter than an appellate court.

At present, I do not think that the need for circumspection goes quite so far as to produce the result that an appellate court can only interfere on a question of law of the present kind where the appellant satisfies the Edwards v Bairstow test, as referred to above. That test is not based on circumspection by way of deference but based on the point that the ultimate question for the tribunal was a question of fact and not a question of law. It is worth recalling that Lord Radcliffe ended his speech in that case by saying:

“As I see it, the reason why the courts do not interfere with commissioners’ findings or determinations when they really do involve nothing but questions of fact is not any supposed advantage in the commissioners’ greater experience in matters of business or any other matters. The reason is simply that by the system that has been set up the commissioners are the first tribunal to try an appeal, and in the interests of the efficient administration of justice their decisions can only be upset on appeal if they have been positively wrong in law. The court is not a second opinion, where there is reasonable ground for the first. But there is no reason to make a mystery about the subjects that commissioners deal with or to invite the court to impose any exceptional restraints upon themselves because they are dealing with cases that arise out of facts found by commissioners. Their duty is no more than to examine those facts with a decent respect for the tribunal appealed from and if they think that the only reasonable conclusion on the facts found is inconsistent with the determination come to, to say so without more ado.”

For completeness, I should also refer to the statements very recently made in Able (UK) Limited v Revenue and Customs Commissioners [2007] EWCA CIV1207, a tax case concerning the question whether receipts were capital or income. Lawrence Collins LJ pointed out that the ultimate question in that case was a question of law but he added at [22]:

“There is much to be said for the view, expressed in a different context, that where the answer to a question is a matter of degree, taking account of all the circumstances, then an appellate court should show some circumspection before interfering with the decision at first instance: Beynon v Customs and Excise Commissioners [2005] 1 WLR 86 at [27]. In particular, once as a matter of law a receipt or an expenditure is capable of being regarded as capital or income (as the case maybe), then the Commissioners’ decision should be capable of review only on Edwards v Bairstow 1956 AC14 principals.”

In my judgment, I can read these recent statements of the right approach as emphasising the need for circumspection in a case like the present before reversing this specialist tribunal even though the ultimate question is a question of law. However, I conclude that the degree of circumspection needed is not yet (until a higher court says so in terms) so great as to amount to a requirement to apply the Edwards v Bairstow test.

I will now describe the approach which I will adopt in this case. I will consider HMRC’s submissions as to whether the Tribunal misdirected themselves in law. If I find that they did, then I will apply the correct legal test to the primary facts and reach my own conclusion. If I find that the Tribunal applied the correct legal test, then I will consider HMRC’s submission that the Tribunal arrived at the wrong legal answer. When considering that submission I will show the appropriate degree of circumspection before reversing the Tribunal. If the case is a borderline one, I will not reverse the Tribunal just because I might have put the case on the other side of the borderline. I do not regard the present as a case where the Tribunal are likely to have deeper insights into the answer to the question than the court will have. The test to be applied has been identified fairly recently so that it is not the case that the Tribunal have long experience in applying this test to a great range of cases. Nor does it seem that the answer to the question involves an understanding of practical matters, which might be more familiar to the Tribunal than to the court. If the case is not borderline, and if I think that the Tribunal were wrong in law in the answer they arrived at, then I will give effect to my own conclusion and allow the appeal to the relevant extent. I will not apply the Edwards v Bairstow test.

I now return to the decision of the Tribunal in this case. Having set out its finding of primary facts in paragraphs 5 to 28 of its decision, the Tribunal then summarised the submissions for Weight Watchers and the submissions for HMRC. The Tribunal was invited to consider a number of authorities, in particular, the decision of the ECJ in Card Protection Plan, the decision of the House of Lords in College of Estate Management and the decision of the ECJ in Levob. Mr Milne QC and Mr Sinfield who appeared before the Tribunal, and also before me, submitted to the Tribunal that the right characterisation of the transaction at the first meeting and at subsequent meetings involved separate supplies of services and printed materials. It was submitted that the fact that At Home customers obtained the same printed materials as did meetings members was conclusive that the supply of printed materials was separate from the supply of services and it was not artificial to split the transaction in this way.

Mr Mantle who appeared for HMRC before the Tribunal, as he did before me, accepted that each meeting involved a separate transaction but each meeting involved a single standard rated supply rather than separate supplies of services and printed materials. Mr Mantle appeared to have accepted that it was difficult to conceptualise the typical consumer referred to in Card Protection Plan and Levob but he submitted that one should concentrate on meetings members rather than At Home members. Mr Mantle accepted that goods and services were inherently dissociable physically but he pointed out that economic dissociability is not the sole criterion as the question was whether division would be artificial.

The Tribunal’s conclusions are expressed in paragraphs 45 to 60, extending to some four pages of the decision. Most of those four pages is the detailed reasoning of the Tribunal in that there is comparatively little verbatim citation of authority.

The Tribunal first referred to the relevant legal test laid down in Levob developing the principles in Card Protection Plan. The Tribunal correctly directed itself that the artificial to split test was different from the principal/ancillary test. At paragraph 48, the Tribunal noted that the fact that a single price is charged was not conclusive. At paragraph 49, the Tribunal referred to the economic purpose of the transaction as described in Levob. At paragraphs 50 to 52, the Tribunal discussed the concept of a typical consumer. At paragraph 53, the Tribunal suggested it was not helpful to select a label for a transaction before deciding whether the transaction comprised a single supply or separate supplies. At paragraph 54, the Tribunal returned to the question of a typical consumer. At paragraph 55, the Tribunal discussed the decision in College of Estate Management.

The essential reasoning of the Tribunal is contained in paragraphs 56 to 60 which are in these terms:

On the hearing of the appeal to the High Court, Mr Mantle, on behalf of HMRC, made detailed submissions as to the legal test to be applied in a case like the present in order to determine whether a transaction involves a single supply or separate supplies. He then exposed the reasoning of the Tribunal to a detailed examination and he made a number of separate submissions to the effect that the Tribunal had misdirected itself in law. I will refer to these separate submissions in due course. Mr Mantle also submitted that whilst these criticisms could be assessed separately, the cumulative affect should also be appreciated. Finally he submitted that whatever the position in relation to the separate criticisms, the answer provided by the Tribunal to the question arising was wrong in law and the court should reverse the decision of the Tribunal accordingly.

The first separate criticism made by Mr Mantle was that the Tribunal had failed to take an overview which, it was submitted, was required by the authorities. It was suggested that the detailed reasoning of the Tribunal was the antithesis of forming an overview. If the Tribunal had formed an overview they ought to have concluded that the transactions in the present case involved a single supply of services on each occasion.

Mr Mantle’s second detailed criticism was that the Tribunal had not approached the matter from the standpoint of a typical consumer contrary to the principles laid down in the authorities. He submitted that the insistence in the authorities on looking at the matter from the perspective of a typical consumer was different from a further requirement laid down in the authorities that the assessment was an objective one and not a subjective one.

Mr Mantle’s next criticism of the Tribunal’s reasoning was that they had misapplied the criteria of economic indivisibility and artificiality. In particular, he said, the Tribunal had neglected the vital economic perspective which was required. Mr Mantle submitted that the Tribunal had largely focused on the idea of physical indivisibility whereas the Tribunal should have held that physical dissociability was not sufficient to produce the result that the transaction involved separate supplies.

Mr Mantle’s last detailed criticism of the Tribunal was that it had not properly appreciated the significance of the decision in the College of Estate Management and that decision contained many key factual similarities with the present case.

Mr Milne QC drew my attention to the relevant statements of principle in the authorities to which I have referred above. He submitted that the Tribunal had identified the right issue and had adopted the appropriate test, namely, the test formulated by the ECJ in Levob. He submitted that the Tribunal applied the relevant test correctly to the facts and the Tribunal’s conclusion was one which a reasonable Tribunal properly directing themselves were entitled to reach on the facts before them and that finding should not be disturbed in the absence of significant error. He drew attention to the detailed reasoning of the Tribunal and submitted that the Tribunal had had regard to all the circumstances in which the transactions took place, had correctly directed themselves that each transaction must be regarded as distinct and independent that a supply which comprises a single supply from an economic point of view should not be artificially split so as to distort the functioning of the VAT system, that the essential features of the transaction must be ascertained and the fact that a single price is charged is not decisive. He stressed that the printed material was clearly divisible from the services provided and that it would be practical for Weight Watchers to charge for the printed material separately from charging for the services. He said there was nothing artificial in separating the printed material from the services. The fact that the At Home members obtained the same materials was not conclusive but it was a relevant factor. The printed materials could not be said to be “of no use” without the services provided at the meetings. He submitted, in conclusion, that the right answer was that there were separate supplies of services and printed materials.

Mr Milne then addressed the specific criticisms of the Tribunal which had been made by Mr Mantle. Mr Milne also analysed the decision in College of Estate Management and drew attention to the differences between that case and the present case.

I will first address the specific criticisms made by Mr Mantle. I do not accept the criticism that the Tribunal failed to form an overview having regard to all the circumstances. The Tribunal had correctly directed themselves by reference to the legal test identified in Levob. The fact that the Tribunal set out their detailed reasoning over four pages of the decision and the fact that that detailed reasoning examined a number of individual arguments and pointers does not indicate that the Tribunal failed to form an overview. The ultimate conclusion of the Tribunal is the way in which the Tribunal expressed its overview. Mr Mantle draws attention to the Tribunal’s statement in paragraph 53 that it was not helpful to select a label for the transaction before deciding the question whether there was a single supply or separate supplies. I do not regard that comment by the Tribunal as being inapposite nor do I regard it as an indication that the Tribunal failed to form an overview.

Mr Mantle’s second criticism was that the Tribunal did not apply the perspective of the typical consumer as required by the authorities. The Tribunal had correctly identified this criterion in its reference to Levob. The Tribunal had also recorded Mr Mantle’s submission to the effect that it was difficult to conceptualise the typical consumer. The Tribunal discussed the concept of the typical consumer in some detail. The problem which the Tribunal encountered was that the people who joined Weight Watchers did so for a variety of reasons and against a background of different circumstances. I would accept Mr Mantle’s criticism insofar as he states that the Tribunal could, and should, have identified a profile of a typical consumer. In the course of argument on the appeal to the High Court, counsel for both parties had little difficulty in describing the typical consumer for present purposes. Such a person was overweight, wanted to lose weight, wanted to get assistance for the purpose of losing weight, wanted to obtain that assistance over a period of time and (in the case of meetings members) wanted to have the opportunity to attend meetings and obtain the printed material on offer. However, having accepted Mr Mantle’s criticism up to a point, it does not seem to me that the difficulty the Tribunal thought it encountered in identifying a typical consumer really affected any part of its later reasoning and resulting conclusions. At paragraph 52, the Tribunal stated that the reference in the authorities to a typical consumer was really directed at the need to decide objectively whether it would be artificial to split the transaction. In the same paragraph, the Tribunal stated that if one did ascribe attributes to a representative consumer, they would be general and would not have any real meaning for present purposes. At paragraph 54, the Tribunal said:

“……we can consider objectively what is supplied to Members in the light of what are their minimum attributes.”

It seems to me that this comment by the Tribunal was an appropriate recognition of the task in hand. The concept of a typical consumer requires one to look at the matter from the perspective of the consumer not from the perspective of the supplier. The Tribunal adopted that perspective. The concept also requires one to approach the matter objectively rather than subjectively; the Tribunal did that. The concept also requires one to look at the various customers to identify the common themes which unite them rather than the many differences between them. As I read the Tribunal’s decision they adopted that approach.

Next, Mr Mantle submitted that the Tribunal had not adequately understood the references in the authorities to the economic point of view or the economic purpose of the transaction. At paragraph 49 of the decision, the Tribunal stated that the reference to economic purpose in the authorities did not apply in the present case because the customers were not engaged in an economic activity. I think that comment by the Tribunal was not correct. The legal test applies whether the consumer of the service or services is carrying on a business or using the services for a non business purpose. However, as before, I do not regard the criticism of the Tribunal as really affecting the later reasoning or the conclusions of the Tribunal. In paragraph 49 itself, the Tribunal correctly directed themselves that the focus was upon the purpose of the recipient of the services (i.e. rather than the provider of the services). The fact that the Tribunal stumbled over the word “economic” does not appear to me to have mattered.

Mr Mantle also criticised the Tribunal in their handling of the question whether it was artificial to split the services and, as he submitted, for concentrating on physical severability rather than non-physical severability. One of the difficulties in appraising that submission is that it is a feature of this case that the services and the printed material were plainly physically severable. It was only accurate for the Tribunal to state that this was the case. Further, in assessing the closeness of the link between the services and the printed material, it was right to refer to their physical severability. It is also clear on the authorities that it is sometimes useful to ask whether one element will be useful if deprived of the other element. In the present case, the handbook was plainly of considerable use even without attendance at the meetings. For the Tribunal to make these points and to weigh them in an overall assessment does not mean that the Tribunal have wrongly directed themselves or that they have looked only at physical severability rather than asking the wider question whether it is artificial to split the transaction into separate elements.

Mr Mantle’s last detailed criticism related to the way in which the Tribunal distinguished the decision in College of Estate Management. In my judgment, the College of Estate Management case contained a number of similarities with the present case and a number of differences. The submissions of both Mr Mantle and Mr Milne brought out the relevant features of that case. It was entirely open to the Tribunal in the present case to distinguish the College of Estate Management decision. That decision did not mean that there was only one possible answer in the present case.

Having examined the individual criticisms made by Mr Mantle, my conclusion is that he has not succeeded in showing that any one of them amounted to an error of law or a wrong direction as to the legal test to be applied. It follows, in my judgment, that the Tribunal in the present case applied the correct legal test to the primary facts found by them.

The finding in the last paragraph is not however the end of the matter. The question as to the correct characterisation of the transactions in the present case for VAT purposes is a matter of law and not a matter of fact. Accordingly, it is open to the High Court to reverse the Tribunal if the High Court is persuaded that, applying the correct legal test to the primary facts, the answer to the point of law is different from that arrived at by the Tribunal. However, as is made clear in the various authorities to which I have already referred the High Court acting as an appellate court must show circumspection before interfering with the decision of the Tribunal merely because the High Court would put the case on the other side of the line.

I will now myself consider the correct legal characterisation of the transactions in this case. I will consider, first, the transaction which occurs at the first meeting and then, secondly, the transaction involved in a subsequent meeting.

As regards the first meeting, both sides to this dispute and the Tribunal proceeded on the basis that there was a single transaction at the first meeting and the consideration for the transaction was the registration fee and the meeting fee for that week. The Tribunal held that this transaction comprised separate supplies of services and printed materials. The question is, applying the legal tests identified in the authorities and, in particular, in Levob, whether, from an economic stand point, and from the perspective of a typical consumer, it is artificial to split the transaction in this way.

I regard the arguments on this point as fairly evenly balanced. The Tribunal were impressed by the ready dissociability of the services from the printed material. They were impressed by the separate availability of the printed material for At Home customers. They were impressed by the fact that the printed material was of considerable use separate from the meetings. The rival point of view is to give greater weight to the links between the meetings and the printed material. The Weight Watchers package has been designed to operate to best advantage when it draws upon the services and the printed materials operating together. Mr Mantle took me through the printed material to emphasise the closeness of the links between that material and the services.

It is also right to comment that the legal test which is to be applied is not cut and dried. There is no precise measure or yard stick. The courts have deliberately avoided a schematic analysis. That leaves considerable scope for the decision maker to reach an evaluative judgment reflecting the impact of the matters of fact and degree in the individual case. If I had been the initial decision maker, I might have been more impressed by the link between the services and the printed materials than were the Tribunal.

My overall conclusion, hearing an appeal from the Tribunal on this question, is that even if I was minded to put the case on the other side of the line from the Tribunal, it would be wrong to go so far as to reverse the Tribunal’s decision in relation to the first meeting. That would be to ignore the very clear requirement imposed upon me that I show proper circumspection before doing so. Accordingly, I dismiss the appeal insofar as it relates to the transaction involved in the first meeting.

I next consider the transaction involved in a subsequent meeting. At the subsequent meeting, a member is provided with the services described in the Tribunal’s decision. So far as printed materials go, the member is given a Points Tracker form and a weekly leaflet. There is also a monthly magazine which is available although if a member goes to a weekly meeting four times in a month, the member will only, presumably, want to have the monthly magazine on one of those four occasions.

My initial reaction when being shown the printed material in question was to regard this as subordinate to the services provided at the meetings and I would have been open to the argument that the printed material was an ancillary matter at a subsequent meeting. However, it was not argued before the Tribunal nor before me that this was the right approach. Accordingly, I will proceed on the basis that there is some feature of the printed material at a subsequent meeting which takes it outside the definition of “ancillary” provided by Lord Walker in College of Estate Management at [30] as “subservient, subordinate and ministering to something else”. Nonetheless, when I come to apply the artificial to split test to a subsequent meeting, I form the clear view that it would be artificial to differentiate between the printed material and the services provided at the meeting. 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 to 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. Of course, I must act with circumspection before reversing the Tribunal on the subject of a subsequent meeting. I should not reverse the Tribunal just because I would put the case over the line from where it was placed by the Tribunal. However, my clear view is that the position at a subsequent meeting is not a borderline case and if one applies the correct legal test to the primary facts found by the Tribunal, the clear answer is that it would be artificial to differentiate between the services and the printed material at a subsequent meeting.

I have considered whether a legal decision which distinguishes between the first meeting and a subsequent meeting would involve practical difficulties to such an extent that the court should strive to give the same answer for both the first meeting and the subsequent meetings. In Beynon v Customs and Excise Commissioners [2001] STC 74 at [32] Lord Hoffmann stated that it was essential, for practical reasons, to have a rule which applied to all transactions of a certain kind. However, in my judgment, there are real distinctions between the first meeting and the subsequent meetings. Furthermore, the decision of the tribunal in this case itself distinguished between the first meeting and subsequent meeting because, as the Tribunal pointed out in paragraph 60 of their decision, the question of apportionment was different for the two meetings. On the Tribunal’s decision, at the first meeting, a consideration of £13.95 (assuming there was no relevant promotion) had to be apportioned between the services and the printed materials then provided whereas at a subsequent meeting the consideration of £4.95 had to be apportioned between the services and the different printed materials then provided. Therefore, I do not find in this consideration a compelling reason for me to alter the conclusions to which I would otherwise come.

I allow the appeal in relation to the treatment of the transaction at a subsequent meeting but, as indicated above, I otherwise dismiss the appeal.

The result in relation to the first meeting is that it is necessary to apportion the consideration between standard rated services and zero-rated printed material. HMRC submitted to the Tribunal that the Points Tracker, the Points calculator and the Membership card were not zero-rated printed material but were to be standard rated. I understand that some or all of that submission was not agreed by Weight Watchers. The Tribunal did not refer to this point. It may be that this minor point can now be agreed between the parties. If it is not agreed by the time this judgment is handed down, I will hear the parties as to how this matter should be dealt with.