Conservatory Roofing UK Limited v The Commissioners for HMRC

The appellant argues the Decision did not meet the requirements, established by case-law authority, that reasons must be given which are adequate and of sufficient detail to explain the decision that has been arrived at in the particular circumstances of the case. The FTT did not engage with the appellant’s submissions, and made no reference to the evidence of the appellant’s sole witness who gave live evidence and was cross-examined.

There was no real dispute around the relevant legal principles regarding the requirement to give reasons and the adequacy of those.

Following on from this last point, Mr Brown, who also represented the appellant before the FTT, accordingly detailed the submissions and evidence which the Decision failed to address despite those being relevant matters.

In particular Mr Brown highlights that the appellant’s marketing material, although not determinative, was clearly relevant. He criticises the FTT for only referring to the excerpts which HMRC relied on to support its submissions. He recounted how he had taken the FTT to other wording in the materials and had in his closing submission made the point that these portrayed a rather more “mixed message” than HMRC advanced. For example he pointed to excerpts in a marketing leaflet and estimate which stated:

Mr Brown also placed reliance on witness evidence which the appellant’s sales manager, Mr Messenger gave. Mr Messenger had provided a short witness statement which the tribunal was invited to accept as his evidence in chief. Mr Brown said he asked further questions, getting Mr Messenger to “walk the tribunal through” what a typical transaction looked like. That evidence included Mr Messenger’s perception of how a typical customer would view the supply and was to the effect that a customer would not have engaged the appellant’s services if the customer was not after an insulated roof. It emphasised that in the vast majority of cases the existing roof remained as it was. Mr Messenger was also cross-examined by HMRC (this was by an HMRC litigator – Ms Vicary who appeared before us did not appear below). Mr Brown points out it might have been expected that the tribunal would refer to this evidence and deal with whether it was accepted as being truthful.

In summary, Mr Brown says the FTT did not engage with appellant’s submissions e.g. on the marketing material and what a typical customer believed was being purchased. That was an insulating system (where the internal decorative element and external tiles were ancillary in order to enabled better use and enjoyment of the principal supply).

Ms Vicary’s answer on behalf of HMRC, regarding the marketing material was, in essence, that it was so obvious from the content of the marketing material that there was no mixed message that no further explanation was required: 1) The leaflet had a prominent banner “The original conservatory roof replacement company”. 2) The estimate was headed “Estimate for roof installation” (emphasis added). In her submission, if there was an failure on the part of the FTT, it was not one that was material to the FTT’s decision. As for the witness statement, the contents were, she submitted, addressed in the course of the Decision even if those contents were not explicitly tied back to the statement. There was no obligation according to the case-law principles discussed above regarding adequacy of reasoning to make a particular reference to the witness.

We have, in line with Synectiv, considered the materials and submissions before the FTT which Mr Brown and Ms Vicary took us too. We agree with HMRC that reading the decision as a whole, as one must, the FTT did take account of the points in the appellant’s short witness statement. (So for example, with a generous reading, given the atypical structure the FTT adopted, Mr Messenger’s evidence regarding the objective of the business activity, the way it was marketed was to keep the conservatory cool in summer and warm in winter, and the way in which this was achieved – including giving adequate ventilation was covered in various paragraphs in the Decision ([20] [30] [36]). We can also see that certain of the appellant’s submissions were considered. For instance the FTT dealt with the appellant’s submission that the appellant’s facts were different from the supplier in Wetheralds (at [52]). As Mr Brown acknowledges, it also dealt with the submission regarding the conservatory cooling and warming purpose, as it appeared in the appellant’s grounds (and also in Mr Messenger’s statement) at [56]. While the appellant clearly disagrees with the FTT’s conclusion in relation to those points, there was no error in the points not being considered.

However, regarding the marketing material, there is no escaping that the Decision simply did not address the submission Mr Brown made on behalf of the appellant that this presented a “mixed message”. Instead, the FTT adopted, in wholesale fashion, only the excerpts HMRC relied on. It is no answer to say the materials were so clearly in HMRC’s favour that no explanation was required. If the materials as a whole (rather than the excerpts which HMRC relied on) were considered to be overwhelmingly in HMRC’s favour it would have been very easy to say so and in doing so acknowledge that this evaluation had been made taking the excerpts the appellant relied on into consideration. The submissions on the marketing material went to a point of contention on a relevant issue. We cannot tell that the FTT considered the appellant’s case on this still less the basis for why it rejected it.

Similarly, it is clear from Mr Brown’s account of the further evidence that was extracted from his witness (which HMRC were not in a position to gainsay) that there was evidence which was at least prima facie relevant to the issue of how a typical consumer might view the transaction. Mr Brown’s case did not go as far as saying that the FTT erred in law to recount that Mr Messenger had given evidence and was cross-examined on it. While tribunals typically do this, and it is useful to understand what evidence was before the tribunal and what view was taken of the witness’ credibility and reliability, we agree with Ms Vicary this is not required as a matter of course by the legal principles above. However, Mr Messenger’s evidence on how a typical consumer might view the transaction was at least relevant, and moreover it was a contested issue insofar as HMRC advanced the countervailing view. In its Conclusion section the FTT stated (at [59]) that it agreed with HMRC that a typical consumer would consider that they were receiving a new roofing system on the basis of both the appellant’s marketing material and the nature of the finished product. There was no indication however that the FTT had considered the point by reference to the appellant’s evidence on the point and, as we have already mentioned, the only marketing material the FTT referred to were the excerpts set out in HMRC’s submissions.

HMRC refer to South Bucks District Council v Porter (No 2) [2004] UKHL 33 for the proposition, which is not disputed by the appellant, that a court or tribunal can state reasons briefly, and that the degree of particularity required depends entirely on the nature of the issues falling for decision. Ms Vicary submits the reader of the Decision is left in no doubt that based on a “comprehensive multi-factorial analysis” the FTT formed a clear conclusion the supply did not fit the description “insulation for roofs”. While we agree with her that the conclusion, in HMRC’s favour, is certainly made clear by the FTT, it follows from what we have said above, that it is rather over-generous to depict the Decision that way as regards its level of analysis; that is certainly not the impression one gets from looking at the reasoning, which we have extracted in full above.

It is true we can see what facts the FTT relied on; namely it was simply those advanced by HMRC in its submissions. However the above two points on the marketing material and Mr Messenger’s evidence were matters which were relevant and which were disputed. In line with the principles set out in the authorities, all the FTT needed to explain – and it is clear it could do this succinctly – was why it rejected the appellant’s arguments and evidence on issues which were relevant. Regrettably however the points were not dealt with at all. The appellant, having made the points and advanced the evidence was left in doubt, as are we, that the points were considered, and if they were, why HMRC’s arguments in the other direction were accepted, while theirs were refused.

We therefore consider the reasons in the decision were inadequate and there was thus an error of law in the Decision.

A contributory factor to this outcome, in our view, was the way in which the FTT structured its decision, where it comprehensively recited the winning party’s submissions, yet as we have established, incompletely reflected the losing party’s contrary arguments on relevant points. The superficially attractive short-cut of reciting the winning party’s submissions at length and then simply saying that the FTT concurred with these was unlikely to lay a sound foundation for an adequately reasoned decision. It is a route we would discourage FTTs from taking.

As to HMRC’s submission that any error regarding inadequacy of reasons was not material, this does not detract from such inadequacy constituting an error of law. There is also the difficulty that, without knowing the FTT’s reasoning for its conclusion, we cannot say with any confidence what difference the points the appellant raised, but which were not considered, would have made to the outcome of the decision. The error being a material one, we consider we should set aside the Decision.

The next question is whether we should remit the decision to the FTT or re-decide the matter ourselves. As we have already mentioned, the Decision in our view lacked a clear set of findings of fact, and while we were taken to excerpts of the evidence that were before the FTT, we did not hear the live evidence, which clearly went beyond the terms of the Mr Messenger’s one page witness statement. There is no comprehensive account of it that was before us because as, understandably, given the scale of the case, no transcript was taken. With some reluctance, given the inevitable extra cost and delay, we consider we must remit the appeal to be fully re-determined by the FTT. This will be to a new FTT panel (the FTT judge who heard the matter, nearly two years ago now, having since retired).

Given our conclusion on Ground 1, although not necessary to decide the appeal, we will briefly address Ground 2, given we heard argument on it.

The “predominant element” test in Mesto which is the subject of this ground arose in relation to the categorisation of a single complex supply. (Such a supply arises where “two or more elements or acts supplied by the taxable person are so closely linked that they form, objectively, a single indivisible economic supply, which it would be artificial to split (Levob (Footnote: ²)) or where one more elements are to be regarded as the principal supply while other elements are regarded as ancillary, sharing the tax treatment of the principal supply (CPP (Footnote: ³)).

The relevant issue concerned whether access to an aquatic park, which offered not only sporting facilities e.g. lane swimming, but also more recreational facilities such as a paddling pool and waterslides, fell within the VAT exemption in Article 132(1)(m) in Council Directive 2006/112 (“the VAT Directive) for the “supply of services closely linked to sport or physical education”.

The appellant accepts the FTT set the test in Mesto out correctly (at [48]) where the following relevant paragraphs were extracted:

“[29] In order to determine whether a single complex supply must be categorised as a supply closely linked to sport within the meaning of article 132(1)(m) of the VAT Directive, although that supply also includes elements not having such a link, all the circumstances in which the transaction takes place must be taken into account in order to ascertain its characteristic elements and its predominant elements must be identified (see, to that effect, in particular, Faaborg-Gelting Linien AIS v Finanzamt Flensburg (Case C-231/94) (19961 BVC 436, paras. 12 and 14; Levob Verzekeringen and OV Bank, para. 27; and Bog, para. 61).

[30] It follows from the case-law of the Court that the predominant element must be determined from the point of view of the typical consumer (see, to that effect, in particular, Levob Verzekeringen and OV Bank, para. 22, and Everything Everywhere Ltd (formerly T-Mobile (UK) Ltd) v R & C Commrs (Case C-276/09) 120111 BVC 44, para. 26) and having regard, in an overall assessment, to the qualitative and not merely quantitative importance of the elements falling within the exemption provided for under article 132(1)(m) of the VAT Directive in relation to those not falling within that exemption (see, to that effect, Bog, para. 62).

[33] As for the question whether, in the context of such a single complex supply, the predominant element is the opportunity to engage in sporting activities falling within article 132(1)(m) of the VAT Directive or, rather, pure rest and amusement, it is necessary to make that determination, as has been pointed out at paragraph 30 of the present judgment, from the point of view of the typical consumer, who must be determined on the basis of a group of objective factors. In the course of that overall assessment, it is necessary to take account, in particular, of the design of the aquatic park at issue resulting from its objective characteristics, namely the different types of facilities offered, their fitting out, their number and their size compared to the park as a whole.”

Mr Brown submits however that the FTT failed to apply the correct test. For the reasons below none of his points persuade us the FTT erred in the way suggested.

First he says the FTT was wrong to refer at [50] to what a typical consumer might say as that is not an objective factor.

The basis for this submission is the use of the word “might” in Paragraph 50 of the Decision (while that appeared in the section setting out HMRC’s submissions, it will be recalled that the FTT adopted this in its reasoning). It is important however to see that term in context :

“50.

Case law has therefore established that when presented with a single complex supply the decision in Mesto requires the character of the supply to be established by looking at it through the eyes of the ‘typical customer’ to determine what she or he has obtained. A typical customer when inviting friends around might take the opportunity to show off the work that has been done to the conservatory. That customer is more likely to say “look at my new conservatory roof” rather than “come and see my newly-insulated roof”. It is the changed character of the roof and its visual impact, creating an aesthetic appeal that contrasts with what preceded it.” (emphasis added)….

It is plain that nothing of significance turned on the formulation the FTT adopted regarding what a typical consumer might say. It was simply one possible way of expressing the point of view of a typical consumer, in other words how would things look from the customer’s view?

Second, Mr Brown submits, in essence, that the FTT prejudged the question of what the primary or predominant supply was at [54] of the Decision because it had earlier on (at [53]) already decided the supply was an entirely new roofing system. These paragraphs appear at [19] above.

We reject this ground. These paragraphs cannot, in our view, be properly read as building on each other. It is clear the FTT considered the predominant element test independently to reach the conclusion it did.

Third, Mr Brown submits the FTT was wrong (at [57]) to regard the fact that the majority of materials provided by the appellant were not covered by the list in Note 1(a) and therefore could not be classified as reduced-rate supplies. A typical customer would not know the VAT liability of such goods. Also according to [30] of Mesto the qualitative and not merely quantitative importance of the elements had to be considered.

Again there is nothing in this. Paragraph 30 of Mesto refers to the point of the view of the typical consumer “and having regard, in an overall assessment, to the qualitative and not merely quantitative importance of the elements falling within the exemption…” (emphasis added). The FTT was not constrained, in carrying out an overall assessment of what the predominant element was, from what was within the typical consumer’s knowledge. No criticism can be made of the FTT considering quantitative aspects as the CJEU’s decision clearly envisaged that the assessment might, (but should not be restricted to) such considerations. Indeed in [33] of Mesto the CJEU referred to quantitative aspects such as the number and size of the different types of facilities in the context of the aquatic park’s objective characteristics.

If it were necessary to deal with this ground in order to deal with the appeal we would therefore have refused the appellant’s appeal on this ground.

The appeal is allowed and the Decision is set aside.

The case is remitted to the FTT to be reheard by a new panel which is to be chosen by the President of the FTT.