Nimbus: The Disability Consultancy Service Limited v The Commissioners for HMRC

Subsection 30(2) of VATA1994 states that supplies of the goods and services described in Schedule 8 VATA 1994 are zero rated. So far as is relevant, Group 12 states:

“Group 12

Drugs, medicines, aids for the disabled, etc.

Item No

…

2.

The supply to a disabled person for domestic or his personal use, or to a charity for making available to disabled persons by sale or otherwise, for domestic or their personal use, of—

(a)

medical or surgical appliances designed solely for the relief of a severe abnormality or severe injury;

(b)

electrically or mechanically adjustable beds designed for invalids;

(c)

commode chairs, commode stools, devices incorporating a bidet jet and warm air drier and frames or other devices for sitting over or rising from a sanitary appliance;

(d)

chair lifts or stair lifts designed for use in connection with invalid wheelchairs;

(e)

hoists and lifters designed for use by invalids;

(f)

motor vehicles designed or substantially and permanently adapted for the carriage of a person in a wheelchair or on a stretcher and of no more than other persons;

(g)

equipment and appliances not included in paragraphs (a) to (f) above designed solely for use by a disabled person;

(h)

parts and accessories designed solely for use in or with goods described in paragraphs (a) to (g) above;

(i)

boats designed or substantially and permanently adapted for use by disabled persons.

…

Notes

…

5.

The supplies described in items 1 and 2 and 2A include supplies of services of letting on hire of the goods respectively comprised in those items.

…” [my emphasis]

Schedule 8 must be interpreted in accordance with the notes contained in that schedule: s 96(9) VATA 1994.

Article 14(1) of Council Directive 2006/112/EC provides:

“‘Supply of goods’ shall mean the transfer of the right to dispose of tangible property as owner.”

This is implemented by section 5 VATA 1994, which, so far as is relevant, states:

“5 Meaning of supply: alteration by Treasury order

(1)

Schedule 4 shall apply for determining what is, or is to be treated as, a supply of goods or a supply of services.

(2)

Subject to any provision made by that Schedule and to Treasury orders under subsections (3) to (6) below—

(a)

“supply” in this Act includes all forms of supply, but not anything done otherwise than for a consideration;

(b)

anything which is not a supply of goods but is done for a consideration (including, if so done, the granting, assignment or surrender of any right) is a supply of services.”

Paragraph 1(1) of Schedule 4 (Matters to be treated as supply of goods or services) VATA 1994 states:

“1(1) Any transfer of the whole property in goods is a supply of goods; but, subject to sub-paragraph (2) below, the transfer—

(a)

of any undivided share of the property, or

(b)

of the possession of goods,

is a supply of services.”

I heard live witness testimony from Martin Austin MBE who is the founder of Nimbus. He gave direct and detailed answers to the questions put to him. His answers were consistent with the documentary evidence. I found him to be an honest and straightforward witness and accept his testimony in full. Indeed, whilst HMRC asked questions that were essentially clarificatory, they did not challenge his evidence.

The Tribunal also had witness statements from eight other witnesses. The parties did not challenge the evidence of these witnesses and so they were not required to attend. I therefore accept these witness statements as their unchallenged evidence. Those witnesses were:

In 2006 Mr Austin founded Nimbus, to provide consultancy services to businesses in respect of legislation relating to disabled people. The services provided by Nimbus in the early years were mainly limited to disability equality training and access auditing.

The idea for the Access Card arose from Mr Austin’s poor experience of attending live music events in the 1990s and 2000s. At the time he wore an incredibly cumbersome prosthetic limb, having had his leg and pelvis amputated due to aggressive bone cancer.

In 2013 Nimbus was engaged by Live Nation to provide advice on how to turn a greenfield site into an 80,000 capacity live music venue ensuring appropriate accessible facilities for disabled customers for the Download Festival. Nimbus was also asked to provide some advice on the process for allocating accessible facilities for disabled people. This was the origin of the Access Card.

Reasonable adjustments that are necessary to facilitate access for disabled people can include better parking facilities, better toilet facilities, better view points and the inclusion of a free ticket for an essential companion. Problems with the then existing solutions included that they were only a binary assessment of whether someone might be classed as disabled or not. They therefore did not recognise specific access requirements and therefore sometimes allocated scarce resources necessary and in other cases failed to allocate necessary resources. There was no consistency as to the evidence required by venues. Sensitive information had to be sent to venues on each occasion a disabled person wished to access a venue and decisions took weeks to be made.

Mr Austin proposed Live Nation out-source their access registration scheme to Nimbus and instead of disabled people providing evidence each year they would receive a Download Festival Registration Card. The card was explicitly designed to communicate evidenced access requirements and to act as a means of ensuring that without an evidenced access requirement a person would not be able to avail themselves of using limited resources – ensuring such resources were protected for the use of those that have a legitimate requirement. The card had specific symbols on it, for example indicating the cardholder was a wheelchair user or could walk no more than 50 metres.

After producing a costed proposal for processing access registrations on behalf of Live Nation, they said no. There was no budget for it. However, they subsequently agreed in future to accept such a card as proof of entitlement.

Nimbus then changed its business model to producing the Access Card. It was priced at £15 and valid for three years.

As set out in Nimbus’ skeleton argument, businesses have legal responsibilities to facilitate the availability of services and the accessibility of venues to disabled persons. These are derived from the Equality Act 2010 (“EA 2010”). Very broadly, this provides:

In 2016 the NEC in Birmingham were the first venue to use digital ticketing in connection with the Access Card, whereby customers could self-serve, with access to seats reserved for disabled customers became possible by inputting the Access Card number. This system also ensured that access to specific seating was only possible if the customer had the relevant symbol on the card. Previously only general admission tickets were available online. Accessible tickets were part of a separate customer journey that would involve special phone booking lines, followed by sending in the evidence required.

This digital ticketing process has advantages for the disabled customer:

It also has advantages for the business, including reducing staff resources required to man special booking lines and manually process each and every access customer

Disabled customers who wished to book at the NEC but did not have an Access Card were required to call the special booking line. The NEC asked Nimbus if they could make booking with an Access Card compulsory for accessible seating. Nimbus advised that a disabled person must not incur a cost to be liable to access services, so a free to join access scheme was necessary. A revised scheme was implemented whereby:

This model of operation is now operative amongst all of the biggest partnerships with Nimbus including Merlin Entertainment, the Glastonbury Festival and the Delfont Macintosh Theatre Group.

There are currently three methods by which a business may use the Access Card to verify a customer’s access requirements:

To apply for an Access Card (or a Digital Access Pass) a customer uploads a proportionate amount of evidence, which may include proof of disability living allowance, personal independence payments or specific medical information. They also upload photographic identification, such as a driver’s license or passport.

Nimbus then makes a decision on access requirements. If the application is successful an Access card (or Digital Access Pass) is issued. The card has symbols printed on it, representing the specific access requirements of the disabled person. Symbols include being unable to stand/queue, requiring wheelchair access, being unable to walk more than 50m, requiring essential companion tickets/free carer entry, and requiring support from assistance dogs.

By way of example, an Access Card with the following symbols showing would indicate that the cardholder is (i) unable to stand/queue; (ii) requires wheelchair access; and (iii) requires an essential companion.

Nimbus has a team of 40 people to assess applications. They consider whether the applicant has a disability which needs to be accommodated by a reasonable adjustment and whether the supporting documentation confirms the legitimacy of the needs being stated in the application.

There are now about 750,000 card holders and 2,000 actively participating venues. In addition to actively participating venues, Nimbus operates a “Named and Famed” scheme to recognise other businesses (such as Primark and M&M World) that accept the card without having any direct contact with Nimbus. It is also accepted by businesses overseas that have no links with Nimbus. The evidence shows the Access Card being accepted in Tenerife, the Vatican and Albania despite Nimbus having no formal links with overseas businesses.

The benefits of the card include:

For a disabled person the Access Card can be as crucial an aid in their daily life as a walking stick or a mobility vehicle, allowing access to places they would not otherwise go.

At all relevant times, paragraph 8 of the terms and conditions of the Access Card, published on Nimbus’ website, stated that the card remained the property of Nimbus. This has since changed.

There was no expectation that a cardholder would return the card when it expired. There was no practice of cardholders returning expired cards.

Nimbus’ case is as follows:

Nimbus accept that to fall within Item 2(g), otherwise than by virtue of Note 5, the supply must be one of goods. At the hearing they explained this is because of the reference in Note 5 to “goods respectively comprised in those items” [my emphasis].

The card is a physical item.

Nimbus acknowledge that the terms and conditions of the Access Card stated that the card remained the property of Nimbus. However, the economic and commercial reality of Nimbus’s supply is that the Access Card, de facto, becomes the property of the consumer to use as they see fit. Nimbus does not seek to recover the Access Card post-expiry. It is therefore a supply of goods since:

Alternatively, if the Tribunal finds Nimbus’s supply is one of services as per HMRC’s submissions, the Access Card was hired to the user and therefore falls to be a supply of goods within Item 2 in any event, pursuant to Note 5.

It cannot be the case that Parliament intended disabled persons to need to pay VAT on a supply to access their protected rights under UK law.

At the hearing, HMRC said little in closing other than they relied on their decision letter (the relevant section of which is reproduced above) and skeleton argument (that essentially reproduces the decision letter) and it was for me to decide the matter, applying the relevant law. When I asked how they addressed the issue of Note 5 they suggested that, since Note 5 stated “supplies described in items 1 and 2 and 2A”, it did not include Item 2(g), as it was item 2, not 2(g), of Group 12 that was mentioned.

There are clearly three elements to the supply by Nimbus:

The principles to be applied are those in Case C-349/96 Card Protection Plan v CEC [1999] STC 270 at [29] and Case C-41/04, Levob Verzekering BV v Staatssecretaris van Financien [2006] STC 766 at [22] to [29].

Despite there being these three elements, there is clearly one overall aim from the customer’s point of view, being to help disabled persons convey their access requirements to venues and service providers, and to serve as recognised proof of their requirements, so there is a single supply. From the typical consumer’s perspective these elements are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split. Indeed the process in (1) allows the customisation of the disabled person’s access card and electronic profile in (2) and (3).

Here the verification detailed at (1) is clearly ancillary. It is not an aim in itself for the disabled person: the aim is to have the means to convey their access requirements and serve as recognised proof of their requirements. This all the more evident because the service encapsulated by (1) is not diagnostic, but rather confirming that the existing medical and other evidence is consistent with the entitlement to a reasonable adjustment that the disabled person is claiming.

In determining whether (2) or (3) is the predominant supply, I have concluded that supply of a physical Access Card, (3), is the predominant supply because in his evidence Mr Austin stated that the majority of uses of the Access Card were in respect of the physical card, rather than the electronic card, and this was not challenged.

I also consider that (3) being the predominant supply is suggested by Nimbus’ business model of digital integration, whereby a Digital Access Pass for any business may be obtained for free. This might suggest what is being paid for is the physical card and secure access to the digital copy of the customer’s Access Card through the online portal.

I note that the analysis in this section is consistent with the post-hearing submissions sent to me by both parties.

Nimbus retained legal ownership of the physical cards. That is evident from the terms of the contract. The cardholders did not have the right to dispose of tangible property as owner: what they received was the possession of the property. For example, if they knew someone who looked like them, they would not have the right to sell the card to them. (Such physical resemblance would presumably be necessary for the card to have value to another person, given the photo-ID element.) If a card was so misused Nimbus would be entitled to tell a venue to hold onto it and not return it to the cardholder, as it remained Nimbus’ property.

I place no weight on the fact that expired cards are not returned to Nimbus. Such cards are not on their face valid and so have no value.

The burden of proof is on Nimbus as the appellant. They have not adduced any evidence that would show a commercial reality to find that the contractual terms do not reflect the economic and commercial reality: the cardholders had possession not de facto ownership. Whilst the content is disabled persons having rights under the Equality Act 2010, seeking to vindicate and exercise those rights, that does not alter the reality that they have simply possession of the card.

Cardholders do not have the “right to dispose” the card. The “whole property” is not transferred to them, rather they merely have possession of the card, the legal ownership of which remains with Nimbus. The supply is therefore one of services rather than goods, which therefore cannot fall within Item 2(e), unless through the application of Note 5.

I therefore refuse Nimbus’ appeal on the basis of their primary argument. I therefore turn to Nimbus’ alternative argument, based on Note 5.

Turning to the application of Note 5, I must determine if the supply is one of “letting on hire of the goods” (an expression that appears elsewhere in VATA 1994).

I asked for supplementary written submissions from the parties on this point. Specifically I asked the following questions:

“The burden of proof is on Nimbus, as appellant. If Nimbus is unsuccessful on their primary argument, because of para. 8 of the T&Cs, what if any evidence has been adduced to show that it was let on hire? (Judge Blackwell notes that the then current terms and conditions have not been provided by Nimbus)

What is a supply of services of letting on hire of goods and why is such definition met (or otherwise)?”

HMRC’s answer was as follows:

“The Respondents acknowledge that the burden of proof rests with Nimbus concerning goods that may have been let on hire. It is the Respondents' understanding that no evidence has been provided thus far in relation to this point. Notice 701/7 explains that the sale or hire of qualifying goods is eligible for VAT relief if they are included within paragraphs 4.2 - 4.11 of the notice.”

Nimbus’ answer was as follows:

“12.

‘Letting on hire’ is not defined in VAT legislation and therefore one has to give the words their ordinary meaning.

13.

“Hire” is defined as to “allow something to be used temporarily in return for payment” (Oxford English Dictionary); “letting” is defined as to allow something to happen.

14.

Given the then extant T&C’s allowed for the disabled person to be provided with the Access Card in return for payment, but it did not become their property, the only reasonable interpretation is that the T&C’s allowed for the letting on hire of the Access Card.”

Letting of chattels is a form of bailment. Holt CJ famously categorised bailment into six categories in the “landmark case” (Footnote: ³) of Coggs v Bernard (1703) 2 Ld Raym 909; 92 E.R. 107, the third category of which equates to lease:

“[1] The first sort of bailment is, a bare naked bailment of goods, delivered by one man to another to keep for the use of the bailor; and this I call a depositum, and it is that sort of bailment which is mentioned in Southcote’s case. [2] The second sort is, when goods or chattels that are useful, are lent to a friend gratis, to be used by him; and this is called commodatum, because the thing is to be restored in specie. [3] The third sort is, when goods are left with the bailee to be used by him for hire; this is called locatio et conductio, and the lender is called locator, and the borrower conductor. [4] The fourth sort is, when goods or chattels are delivered to another as a pawn, to be a security to him for money borrowed of him by the bailor; and this is called in Latin vadium, and in English a pawn or a pledge. [5] The fifth sort is when goods or chattels are delivered to be carried, or something is to be done about them for a reward to be paid by the person who delivers them to the bailee, who is to do the thing about them. [6] The sixth sort is when there is a delivery of goods or chattels to somebody, who is to carry them, or do something about them gratis, without any reward for such his work or carriage, which is this present case.”

The law also recognises other categories bailment. For example, the supply of goods on a sale or return basis is a form of contractual bailment: Atari Corpn (UK) Ltd v Electronics Boutique Stores (UK) Ltd [1998] QB 539 (CA). A supply of goods on a sale or return basis has been held not to be “let on hire”: General Motors Acceptance Corpn (UK) Ltd v IRC [1987] STC 122, 133. However it would also not appear to fall within either of Holt CJ’s two other contractual categories of bailment ([4] and [5]).

I do not find HMRC’s submissions on this point of assistance. They do not explain what “letting on hire” is: its meaning is not explained in Notice 701/7.

Nor do I find Nimbus’ submissions of particular assistance. The submission relies on dictionary definitions of “hire” and “letting,” treating them as separate words. Interpreting “letting” as merely “allowing something to happen” would apply a meaning at odds with its intended sense.

I consider Holt CJ’s definition to be appropriate for these purposes: “when goods are left with the bailee to be used by him for hire.”

In the instant case the card is left with the disabled person for him to use. It does not become the property of the disabled person. The disabled person pays a fee so that he can use it during the three-year period that it is valid for. The fact that it is for the entire anticipated working life of the asset (ie until the expiry date printed on the card) does not prevent it being “letting on hire” (for example, many finance leases are for the anticipated working life of an asset: see Michael Bridge KC (Hon) et al, The Law of Personal Property (3rd Ed 2021), 14-004. I agree with Nimbus that is the only reasonable conclusion that can be made from the contractual evidence. The category of bailment it falls within is a lease.

I therefore find the card to fall within Item 2(e), through the application of Note 5, as it is “equipment and appliances not included in paragraphs (a) to (f) above designed solely for use by a disabled person” let on hire to the disabled person.

I therefore allow the appeal.

Finally, I wish to note two arguments raised by the parties, both of which I reject.

The argument made by HMRC that the supply described in Item 2(g) is not described in item 2 of Group 12 is wholly without merit. The supply described in Item 2(g) is plainly one instance of the supplies described in item 2 of Group 12.

Likewise, the broad purposive argument made by the taxpayer, recorded at [47] above cannot be right. As I observed at the hearing, a barrister would still charge VAT on their fees, in respect of supplies to disabled persons to vindicate their rights under UK law.

I also note that the bundle was poorly prepared. Many of the pages, especially in the witness statements, were blank: presumably arising from a single sided document being scanned double sided. Further there was no optical character recognition on many of the pages. The parties are reminded of the importance of complying with the First-tier Tribunal (Tax Chamber) General Guidance on PDF Bundles and generally presenting bundles in a professional and accessible manner as part of their duty to co-operate with the Tribunal generally pursuant to r.2(4)(b) of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (2009/273).

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.