News & publications

Diana Bryce (trading as The Barn) provided facilities in a building (the Barn) together with play equipment and catering for children's parties.  The Barn was operated alongside a separate daycare nursery business, and a café which sold refreshments.  Mrs Bryce did not account for output tax on the fees received from the party business on the basis that she was making a single composite supply -  the main supply was an exempt supply of land and everything else that went with it was merely ancillary.  On that basis, the whole of the consideration received should be exempt.

HMRC also argued that the supply made was a single composite supply, but the main supply was the supply of a children's party - everything else (including the use of the premises) was merely ancillary.  On that basis, the whole of the consideration received should be standard rated.

In November 2009, the First Tier Tribunal decided that the real nature of the transactions here were two separate supplies; one of land (exempt) and one of catering services (standard rated).

HMRC appealed and maintained that the transaction should properly be analysed as a single composite supply which is standard rated.  The taxpayer sought to have the first tier tribunal's ruling upheld (that there were two supplies, one exempt and one standard rated).

The upper tribunal judge (Roth J) allowed HMRC's appeal following the clear guidance on the difference between single and multiple supplies set out by the Court of Appeal in the Baxendale case.  While he had sympathy with the arguments put forward by the taxpayer, in particular that the arrangements were not designed to avoid tax, he noted that this was not the proper test to decide whether the transaction constituted a single or composite supply.

Of particular interest are the judge's comments on the line of authorities beginning with Card Protection Plan (CPP), which were summarised in Baxendale. The only case in that line that gave authority for the taxpayers analysis of the transactions was Sea Containers Services Ltd v Customs & Excise Comrs (2000) and the judge was quite clear that the decision in that case "as a statement of approach to be adopted" cannot stand with all of  the cases that followed CPP.

In any event, Roth J would have ruled that the supply was not one of a right to occupy "land", mainly because the fee was based on the number of people attending.

While these cases turn on the particular facts, This case is an excellent summary of the factors to be taken into account in deciding whether a transaction constitutes a single or composite supply and pinpoints particular and important issues that can cloud the analysis.

Follow all our latest tax updates on Twitter