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VAT Voice by Andrew Needham

Andrew Needham, Director of VAT Solutions (UK) Ltd, explains how a recent Court ruling may be of potential benefit to businesses

Telewest Communications Case

Telewest Communications supplied cable television services to subscribers, plus a listings magazine. Following the BSkyB case, Telewest accepted that it did not make a separate zero-rated supply of the magazine, and sought to find a way to do just that.

Its solution was to show that the magazine should be supplied by a different party from the one that supplied the television services. HM Customs & Excise challenged this and so Telewest appealed to the VAT Tribunal and High Court and lost. A further appeal was then made to the Court of Appeal.

Contractual arrangements

The attitude of the Court of Appeal seemed to start from the point that Telewest had every right to change the contractual arrangements as it did to secure the VAT position it sought. As a result, the Court of Appeal has allowed Telewest's appeal. The contract with existing suppliers was effectively partially novated by Telewest – the subscriber completed his part of the bargain by continuing to pay charges under the contract. And whilst if made by a single supplier, the television services would have been dominant, that principle could not extend to affect supplies made by a separate supplier. Moreover, the authorities did not support the proposition that the principle of economic neutrality required two separate supplies to be treated as a single supply simply because the suppliers were related parties and their supplies were linked.

Comment

Oh joy, judicial recognition that a business can legally and properly vary its contractual arrangements to secure a different VAT position without that being some unacceptable exploitation of VAT law.

As a result of this decision, it would appear as if businesses are now in a much stronger position to resist an attack by HM Customs & Excise if they vary their contracts in such a way that they split up what was considered to be a single standard rated mixed supply into a number of different supplies made by different legal entities, so that zero-rating can be obtained for some of the supplies. This is of use to businesses and organisations dealing with the public.

For example, a membership organisation (such as the AA, RAC or CSMA) often supplies members with a magazine as part of its membership benefits. HM Customs & Excise would view the supply of the magazine as ancillary to the membership income, and treat it all as standard rated rather than a zero-rated element for the supply of the magazine. Using this judgment, it will be possible to use a subsidiary to supply the magazine to members as a separate zero-rated supply. The membership fee would remain the same, and the organisation as a whole would benefit as it would retain more of its income.

Andrew Needham
Director, VAT Solutions (UK) Ltd
Email: andrewneedham@vatsolutions-uk.com

VAT Solutions (UK) Ltd
11 Winmarleigh Street,
Warrington,
WA1 1NB

(T) 01925 242497
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(W) www.vatsolutions-uk.com

VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via the following address: www.vatsolutions-uk.com/newsletter.doc