18873
VAT —haulage company — spotter club package — whether zero-rated single package or mixed supply — if mixed supply does Fleet List within it qualify for zero-rating as booklet within item 1 Group 3 Schedule 8 VATA 1994  — held mixed supply and Fleet List standard-rated — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

	EDDIE STOBART GROUP LIMITED	Appellant
	
	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	 David Demack (Chairman)
						 Warren Snowdon 	
						
Sitting in public in Newcastle upon Tyne on 26 October 2004

Mark Hetherington of Messrs PriceWaterhouse Coopers, chartered accountants, Newcastle-upon-Tyne, for the Appellant 
Nigel Poole of counsel instructed by the solicitor for the Customs and Excise for the Respondents

	© CROWN COPYRIGHT 2004

DECISION
1.	The appellant company, Eddie Stobart Group Limited (“ESG”), is the representative member of a VAT group of which Eddie Stobart Promotions Limited (“Promotions”) has been a member since 1 April 2002.  Prior to that date, Promotions was registered separately for VAT.  Promotions runs the Eddie Stobart Fan Club (“the Fan Club”), and it is the VAT liability of club membership packages supplied for subscriptions to the Fan Club that are at issue in the appeal.  
2.	ESG claims that the principal benefits of the club membership package consist of a zero-rated supply of printed matter - a Spotter Guide and a Fleet List.  (These items are described below).  The Commissioners of Customs and Excise initially took the view that the package consisted of  a single, standard-rated supply, the principal benefit to members being their ability to gain access to an exclusive section of the Fan Club’s internet website.  But, later, they determined that the membership package was a mixed supply, some parts of which were standard-rated and others zero-rated.  They remain of that opinion.  In particular, they maintain that the Fleet List is a standard-rated supply of stationery.
3.	We are first required to decide whether the package as a whole qualifies for zero-rating.  If we determine that it does not, but is a mixed supply, we must then go on to determine whether, within that supply, the Fleet List is zero-rated as a book or booklet within item 1 of Group 3 of Schedule 8 to the Value Added Tax Act 1994. 
4.	Most of the facts are agreed.  Those which are not, we determine from the bundle of documents supplied by each party, a specimen Fan Club package, and the parol evidence of Mrs L B Shore, the promotional manageress of Promotions, and Mr P Commons, an officer of the Commissioners.
5.	ESG is a road haulage company carrying on business from premises in Carlisle.  It has over 600 vehicles, most of which carry its now famous green, white and red livery with gold lettering.  (Those vehicles not in ESG livery either carry the livery of its customers, or no livery).  They are to be seen on motorways and roads throughout the land.  Following an off-the-cuff remark by the jazz pianist Jools Holland on television some 12 years ago about “Eddie spotters”, people started to write to ESG about the company and its vehicles.  As the volume of letters increased, the Fan Club was born.  It now numbers over 16,000 members.
6.	In return for an annual subscription of £12 for a new member and £10 for an existing member (in the former case accompanied by a completed application form), he (or she) receives a membership package consisting of:
i)	a Spotter Guide (10.5p)
ii)	a Fleet List (15.6p)
iii)	the current edition of the Fan Club’s quarterly ‘Spot On’ magazine (28.16p)
iv)	the Eddie Stobart Collection catalogue of goods (which goods may be purchased at discounted prices) (16p)   (A)
v)	a metallic Fan Club badge (22p)
vi)	a Fan Club membership card (which resembles a credit card in size and appearance) (18.8p)
vii)	a Fan Club calendar.   (B)
viii)	a Fan Club car sticker (16.06p)
The figure in parentheses following each item represents the cost of the item to ESG.
(A)	The catalogue is available to non-members of the Fan Club free of charge
(B)	The cost of the calendar was not disclosed.
7.	Each member is also provided with information to enable him to gain access to the exclusive section of the Fan Club internet website, and details of how he  may apply to visit an ESG depot.   (Although this latter benefit is available, it is not encouraged for health and safety reasons).  
8.	The Commissioners consider the following supplies to be the standard-rated parts of the package:  the supply of exclusive access to the members-only section of the Fan Club website, discounts on Eddie Stobart merchandise, visits to ESG depots, the car sticker, the Fan Club badge, the membership card, the Fleet List and the calendar.  They accept that the Spotter Guide, ‘Spot On’ magazine and the Eddie Stobart catalogue are zero-rated supplies.
9.	Against the background of ESG’s claim in correspondence that the principal benefits of membership of the Fan Club were a zero-rated package of the Spotter Guide and the Fleet List, the Commissioners ruled that, as the Fleet List had parts for completion, on the basis of para 3.4 of their Notice 701/10, it was standard-rated.  (The relevant part of para 3.4 of that Notice reads as follows:
“Items which might otherwise be considered to be leaflets, brochures and pamphlets may not be zero rated if they are primarily intended for completion or detachment.  This distinguishes brochures, pamphlets and leaflets from standard-rated forms.
 “We accept that items are not primarily intended for completion or detachment if 25% or less of their total area consists of:
•	areas which are blank and available for completion; or
•	parts to be detached and returned”.).
10.	The Commissioners also considered that the merchandise catalogue (with a supplement) was not a benefit of membership since it was available to members of the general public.
11.	Of the members’ package we need merely describe the Fleet List.  It is a 24 page, glossy, A5 booklet with a relatively strong laminated paper back.  The front cover is almost entirely occupied with the title.   Inside the cover is a list of ESG’s six or seven hundred ‘Truck Names at a Glance’.  The next 16 pages contain, in landscape form, details of ESG’s entire 600 vehicle fleet.  Each page is divided into seven columns headed ‘Fleet number’, ‘Reg[istration] number’, ‘Vehicle make’, ‘Livery’, ‘Name’, ‘Where spotted’ and ‘Date’.  The first five of those columns have the relevant information printed in them; the last two, which extend to one half (the right hand half) of each page, are empty and available for completion by the Fan Club member.  There are then four pages with the seven marked columns but no entries whatsoever.  They enable a member to add details of new vehicles entering the ESG fleet on the left hand side, and note when and where they were spotted on the right hand side.  Inside the back cover of the booklet is an advertisement for some Fan Club merchandise, and the cover itself contains the postal and e-mail addresses of the Fan Club.  (We might add that the Spotter Guide is of the same size and of very similar in general appearance to the Fleet List, but has no spaces for completion by the member).
12.	In a letter of 2 January 2004, which is effectively the decision under appeal, the Commissioners expressed themselves unable to identify a core or principal supply made by the Fan Club to its members, and concluded that no single supply was being made.  They considered the Fleet List “proper” to standard rating, and hence concluded that the core, or principal, benefit of membership as identified by ESG (the Spotter Guide and the Fleet List)  was a mixed supply of standard-rated and zero-rated benefits.  
13.	The letter continued by saying that, on the leading authority of the judgment of the Court of Justice of the European Communities in Card Protection Plan Limited v Commissioners of Customs and Excise [1999] STC 270 (‘CPP’), a service is ancillary if, first, it contributes to the proper performance  of the principal service and, second, it takes up a marginal proportion of the package price compared to the principal service.
14.	The Commissioners then explained their approach to the tests laid down in the CPP case as two staged:
•	   “To determine the essential feature of the transaction, having regard to all the circumstances, while taking into account the fundamental principle that every supply is distinct and should not be artificially split and
•	To apply the tests of ancillary versus principal to the transaction’s elements.”
15.	The letter continued:
“What the club member is receiving is a bunch of benefits of which there is no core or principal benefit and one or more are not ancillary to enhance the supply being made to the members.  Within the history page of the club website, the objective of “the…Fan Club is unique, and has thousands of members throughout the UK and beyond.  The club brings together old and young alike with one thing in common, a passion for the green, red and gold giants on the road”.
The objective in (sic) the supply of the “public thirst for knowledge about the distinctive trucks and their courteous drivers dressed in smart uniforms with the now famous ‘tie’.”
As the Fan Club is a “for profit” organisation, the advice given by the European Court of Justice (ECJ) in the Card Protection Plan case and set out in Business Briefs 02/2001 and 03/2002 can be applies (sic).
Application of the two questions arising from the Card Protection Plan case.
1.	What is the true and substantial nature of the consideration given for the membership subscription?
The Fan Club’s website lists the benefits of membership, within the page which is entitled – the benefits of joining – and invites you to “become a part of Britain’s most famous transport company”.  On the facts available to Policy Branch (as a non member), they have applied the tests raised by the CPP ruling and conclude that there is no one dominate (sic) element in the supply of these membership services.
2.	Are there any other supplies, which are ancillary to the core?
The membership subscription consists of a basket of other elements which are both zero-rated and standard-rated and would be considered as being separate supplies and are not ancillary to one or more of the supplies being made.
	Conclusion
The Conclusion is that there is a mixed supply of benefits of membership and each supply has its own VAT liability.  There is a need for appointment of these supplies between zero-rated, printed matter and the standard-rated benefits.”
The Law
16.	We earlier referred to the CPP case as being the leading authority on the difference between single and mixed supplies.  At para 29 of its judgment the ECJ explained that, first, “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”.  It continued at paras 30 and 31: 
“There is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service.  A service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied . . . [T]he fact that a single price is charged is not decisive . . .”  
17.	The law relating to the zero-rating of “books, etc” is to be found at Group 3 of Schedule 8 to the Value Added Tax Act 1994.  Item 1 of Group 3 deals with “Books, booklets, brochures, pamphlets and leaflets”, but does not further define any of them.  The only Note to Group 3 is irrelevant in the present context.  If the Fleet List is properly described as a booklet, none of the other words being relevant, it is zero-rated; if not, it is standard-rated.
18.	In relation to a product such as the Fleet List, the statutory provision has been considered but once by the High Court.  That was in the case of  Commissioners of Customs and Excise v Colour Offset Limited [1995] STC 85.  There, May J. was required to consider the status of a diary and an address book.  He held the ordinary meaning of the word ‘book’ or ‘booklet’ to be limited to an object having the minimum characteristics of a book which was to be read, or looked at: a blank diary or address book was not, in the ordinary sense of the word, a book.  
19.	The essence of the judgment was that the individual types of goods included in Item 1 of Group 3 were essentially those intended to contain reading matter.  Items of the same superficial appearance but which were intended to be written in were of a different character, and properly to be regarded as stationery. 
20.	In the case of articles which performed both functions, the learned judge said:
“Where an article contains some reading material and some space for writing, [counsel for the Commissioners] submits that it is necessary to consider whether the main function of the supply is to provide reading material.  He submits that the main function of these articles is that they are supplied to be written in.  I have already indicated that I agree with this last point”.
Submissions of the parties
21.	Mr Hetherington, for ESG, submitted that on the authority of the Colour Offset judgment, since book and booklet are to be given their ordinary meanings, the Fleet List is a “reference book”: it has the minimum characteristics of a book, i.e. it is intended to be read or looked at.  Although there is an area of the booklet set aside for completion by the club member, he contended that that is ancillary to the Fleet List’s main aim of providing information to the member.  Interestingly, he contended that para 3.4 of Notice 701/10 is restricted to “leaflets, brochures and pamphlets”, and does not extend to books and booklets.  (He did make reference to a number of tribunal decisions but, as they merely confirm that at the tax point the items under consideration in those decisions were books, we find it unnecessary to deal with them).  And, if we were to accept that the Fleet List is a booklet, since that publication and the Spotter Guide, in his submission, represent the core or principal benefit of membership of the Fan Club on the authority of the CPP case he contended that the whole package consists of a zero-rated supply.
22.	Mr Poole, counsel for the Commissioners, submitted that, on a correct analysis of the supplies being made by ESG,  it makes supplies of a number of goods and services which must be regarded as distinct and independent, there being no one or more elements that can be regarded as the principal supply to which other elements are ancillary..  In reliance on the judgment of May J in the Colour Offset case, and the Commissioners’ interpretation of that judgment as set out at para 24 of Notice 701/10, he contended that the Fleet List is a standard-rated supply of stationery.  Rather than a zero-rated supply of a booklet. 
Conclusion  
23.	In our judgment, in the package supplied to a Fan Club member there are three elements essential to a truly dedicated “Eddie spotter”.  They are the Spotter Guide, the Fleet List, and the ability to gain access to the exclusive sections of the Fan Club’s internet website.  The Spotter Guide provides the member with information necessary to enable him properly to identify ESG’s vehicles (remembering that some vehicles carry liveries other than that of ESG), and where on the vehicles their fleet numbers and names are to be found.  The Fleet List is the member’s sine qua non (that which is indispensable) for use during travel, enabling him to record contemporaneously, if he so chooses, when and where vehicles were spotted.  And the ability to gain access to the exclusive section of the Fan Club website is essential, for only by its use is the member enabled continually to update his record of the ESG fleet by entering new vehicles in the Fleet List and deleting those disposed of.
24.	None of the three elements can, again in our judgment, be described as the principal one to which the other two are ancillary.  All are essential if the member is to spot confident in the knowledge that his information about the ESG fleet is up to date: and all are distinct and independent.
25.	As we have already mentioned, it is common ground that the Spotter Guide is a zero-rated supply. It is also agreed that the ability to gain access to the Fan Club’s internet website is standard-rated.  That leaves the Fleet List for consideration.  Initially, we were attracted by Mr Hetherington’s submission that it qualifies for zero-rating as a book or booklet, notwithstanding that over 50 per cent of its pages are available for completion.  But, on careful  reflection, we have concluded that it falls to be standard-rated, its main function being to have noted in it spotting details. In our judgment, the Commissioners 50 per cent test based on the Colour Offset case is a perfectly reasonable interpretation of that judgment.  (We observe in passing that were ESG to print future issues of the Fleet List in a slightly different form, it could qualify for zero-rating.  The change required could be easily and quickly accomplished without detracting from the quality of the product, or changing its basic format).
26.	But, irrespective of whether the Fleet List is standard-rated or zero-rated, we hold that the package supplied to a member of the Fan Club is a mixed supply.
27.	There being no challenge by ESG the Commissioners’ attribution of the remaining parts of the package, it is unnecessary for us to deal with them.
28.	The Commissioners have refused to act on voluntary disclosures submitted by ESG claiming repayment of some £62,000 VAT allegedly overpaid.  Those disclosures were the subject of ESG’s original appeal, so that, strictly speaking, we must deal with them.  All we need say is that we are satisfied that the Commissioners acted correctly in refusing so to act.
29.	We dismiss the appeal.

DAVID DEMACK
CHAIRMAN
Release Date: 14 December 2004
MAN/04/32