18940	 
	VAT — tour operator — use of TOMS to calculate output tax — appellant’s ability to choose method of calculating liability either by reference to all supplies or to those made wholly or partly within EU —provisions for timing of election — Notice 709/5 — whether ultra vires UK legislation and/or incompatible with arts 26 and 22(8) 6th Directive — alternatively, whether on facts appellant entitled to use single method of calculation in financial years covered by assessments — appeal dismissed

MANCHESTER TRIBUNAL CENTRE
 
 	MYTRAVEL GROUP PLC
	(formerly AIRTOURS PLC)	Appellant
	
	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	 Mr J David Demack (Chairman)					
		
Sitting in public in Manchester on 7 January 2005
Mr Nigel Gibbon solicitor for the Appellant
Mr Nigel Poole of counsel instructed by the solicitor for the Customs and Excise for the Respondents

	© CROWN COPYRIGHT 2005

DECISION
1.	Tour operators, such as the appellant company, MyTravel Group plc (“MyTravel”), are required to use the Tour Operators Margin Scheme (“the TOMS”) to account for VAT on supplies of designated travel services.  The scheme is to be found in Customs Notice 709/5, and the parts thereof relevant to this appeal have force of law.  (At the time of events with which the appeal is concerned, MyTravel was known as Airtours plc.  For convenience, I shall throughout refer to the company as MyTravel). 
2.	The primary method of calculation provided by the TOMS, the “single method” as I shall describe it, is designed to apply to all supplies wherever they are enjoyed.  But a tour operator may elect, on satisfying certain conditions, to make the calculations specified for the single method separately for (a) supplies to be enjoyed wholly outside the European Union, and (b) other supplies.  I shall call the alternative method the “separated supplies method”.  Since 1996, election to use the separated supplies method or, where an election has already been made to use that method, to revert to the single method, may be made only at the start of the tour operator’s financial year, i.e. no later than the due date for its first VAT return for that year.  MyTravel challenges the timing provisions for that election.
3.	Before setting out the basis of that challenge, there is one further aspect of the TOMS I must explain. The scheme recognises that a tour operator may find it difficult to establish precise figures at the time it makes each VAT return because, e.g. it may not know what discounts it has given or received.  Consequently, the scheme requires the tour operator to calculate provisional figures for inclusion in each return, and to make an annual calculation and adjustment at the end of its financial year, i.e. on the first VAT return due after that date.
4.	MyTravel contends that the relevant TOMS provisions requiring election at the start of its financial year for the two years ending on 30 September 1998 and 30 September 1999 are unenforceable against it for either or both of the following reasons:
(i)	both paragraphs 13(c) of Notice 709/5/96 (“the 1996 Notice”) and section TL3 of Appendix E of Notice 709/5/98 (“the 1998 Notice”) are ultra vires section 53 of the Value Added Tax Act 1994 (“the 1994 Act”) and article 7 of the Value Added Tax (Tour Operators) Order 1987 (SI 1987/1804) (“the 1987 Order”); and / or
(ii)	if the provisions of paragraph 13(c) of the 1996 Notice and section TL3 of Appendix E of the 1998 Notice are not ultra vires section 53 of the 1994 Act and article 7 of the 1987 Order, they are in any event incompatible with articles 26 and 22(8) of the EC Sixth VAT Directive (EEC/1977/388) (“the Sixth Directive”) as they require an election to be notified in advance, or shortly after the commencement, of a tour operator’s year. 
(Section 53 of the 1994 Act and article 7 of the 1987 Order (the latter made under the earlier consolidating legislation of 1983) are the primary and secondary legislation respectively under which the TOMS, as tertiary legislation, was made. Section 53 provides that the Treasury may by order modify the Act in relation to goods and services by tour operators. The 1987 Order is an order made under section 53. Article 7 of the 1987 Order lays down the principle of the margin in the following terms:
“the value of a designated travel service [as detailed in article 3 of the Order] shall be determined by reference to the difference between sums paid or payable to and sums paid or payable by the tour operator in respect of that service, calculated in such a manner as the Commissioners of Customs and Excise shall specify”).
5.	Further in the alternative, MyTravel contends that, by operation of UK law, it is entitled to use the single method of calculation for 1997/98 and 1998/99, whereas the Commissioners of Customs and Excise maintain that it must use the separated supplies method for those years.
6.	The facts are essentially agreed and, put into context of the relevant versions of Notice 709/5 and case law, may be stated in the following way.
7.	As already mentioned, MyTravel is a tour operator and is required to calculate its VAT liability under the TOMS. It is a repayment trader, and makes VAT returns monthly. Its financial year ends on 30 September.
8.	The version of the TOMS in force from 1988 until 31 December 1995 was Notice 709/5/88.  Paragraph 23 thereof, in a box on page 16, contained the following provision:
“The method [for calculating the value of designated travel services made by the tour operator] is designed to apply to all supplies wherever they are enjoyed.  However, you can elect to work out the value of your supplies which are to be enjoyed wholly outside the EC separately, if you notify your local VAT office in writing of your intention to do so and you can satisfy your local VAT office that you can separate your records of costs, including any that relate to in-house supplies if appropriate, to work out accurate but separate sets of margins.”
9.	Late in 1995, in an appeal by Aspro Travel Ltd (see Aspro Travel Ltd v CCE (1996) Decision No 14027), the Manchester Tribunal was required to interpret certain parts of the 1988 Notice.   The learned chairman, Mr A W Simpson, in its decision released in March 1996, dealt with the proper interpretation of paragraph 23 of the 1988 Notice in this way:
“In my judgment on the true construction of the leaflet the time by which a valid election to use the separated method must have been made is the time when the tour operator adjusts his VAT account under paragraph 23 after the end of the financial year in question and makes his next return of VAT accordingly.  If he uses the primary [i.e. the single] method, as the Appellant did after the end of each of the four relevant financial years, in my judgment he thereby demonstrates that he has not elected to use the separated supplies method for that year, and it is not open to him thereafter to elect to use it.
In my judgment this construction follows from the description of Part I at the beginning of paragraph 23 as setting out the steps which are to be followed `to make your final calculations at the end of each financial year and to make your annual adjustment', and from the description of Part II in the same place as setting out the steps which are to be followed `to work out your provisional output tax for the next financial year'.  In my judgment it is then, at the end of each financial year, that the tour operator is required to decide which method to use, and I see nothing in the scheme to suggest that, having made his choice, he can alter it.
To my mind this construction produces a result which is fair to both sides.  The tour operator is not obliged to gamble on the unpredictable, by being forced to make his decision before the end of the financial year, although he can do so if he wishes.  He is obliged, however, to make his decision after the end of the year, by which time he has all the figures before him and can decide which method will be more beneficial to him.  Once he has made his decision, which he will demonstrate either by accounting for his VAT for that year in accordance or purported accordance with the primary method, as the Appellant did, or by electing to use the separated supplies method and, I would say, by accounting for his VAT for that year in accordance or purported accordance with that method, he cannot thereafter change his mind and require the Commissioners to reopen the matter.
I therefore hold that the Appellant was not entitled to elect to use the separated supplies method as it purported to do.”

10.	  Aspro appealed against the tribunal decision and, in the High Court (see [1997] STC 151), Keene J adopted the tribunal’s construction of the language of paragraph 23 of the 1988 Notice.
11.	For 1994/95 MyTravel used the single method to calculate  its provisional VAT liability.  Following a telephone conversation on 28 March 1996 between Mrs H Quinn, representing the Commissioners, and Mr P J Richardson, a VAT consultant to MyTravel, Mr Richardson wrote to Mrs Quinn in the following terms:
“I am writing to confirm the content of our telephone conversation of today, concerning the confusion arising out of the decision of the Tribunal in the case of Aspro Travel Ltd. and its apparent conflict with the new legislation regarding the ‘Tour Operators Margin Scheme’. 
My specific query related to the time at which the election to account separately for non-EC supplies should be made, as the Tribunal stated that it should be made  at the time of the annual adjustment, whilst the new legislation states that the election must be made at the start of the financial year.
You confirmed that, in consultation with your Surveyor, your opinion was that Airtours plc could retrospectively opt to use either accounting method for its financial years ending 30 September 1995 and 1996, (sic) however, at the beginning of its financial year commencing 01 October 1996 it should notify HM Customs as to which accounting option it intended to utilise for that year.
I trust that you will agree that this is an accurate representation of our discussion.”
12.	Mr O’Connell, an officer of the Commissioners, replied to Mr Richardson’s letter on 10 April 1996 simply saying, “The details of your conversation with Mrs Quinn outlined in your letter of 28 March 1996 are confirmed”.
13.	Meanwhile, on 4 April 1996, Mr Gareth Davies, the chief accountant of MyTravel wrote to Mr Fisher, the surveyor at the Blackburn local VAT office, making an election to use the separated supplies method for the 1994/95 annual adjustment in the following terms:
“We would be grateful if you would accept this letter as formal notification that, for the purposes of this Company’s operation of ‘The Tour Operators Margin Scheme’ we have elected to account separately for non EC supplies when calculating the annual adjustment for the year ended 30 September 1995.
Please note that this election is based on the opinion of your office expressed to our representatives, Taxation Projects Ltd, on 28 March – their letter of the same date refers.”
14.	On 18 April 1996 Mr Fisher replied to Mr Davies’s letter, saying: 
“With reference to your letter of 4 April 1996 concerning the TOMS Annual Adjustment.  The method of calculation which accounts separately for EC and non EC supplies (when calculating the annual adjustment) is acceptable for the financial year ending 30/9/95.
This confirms the information given to Patrick Richardson of Taxation Projects. If you have any further queries  on this matter please do not hesitate to contact any of the members of the Airtours control team.”
15.	Although the tribunal in the Aspro case concluded that a tour operator had to make its election by the time it finally adjusted its actual output tax for the year, and its conclusion was confirmed as correct by the High Court, that conclusion was not reflected in a new version of Notice 709/5/96 which took effect on 1 January 1996.  Paragraph 13(c) of the 1996 Notice required the annual adjustment to be made on the taxpayer’s first return after the end of its financial year.  It read:
“If you provide some supplies, or packages of supplies, which are enjoyed wholly outside the EC, you can elect to do a separate annual calculation in respect of such supplies.  You must first ask permission from the VAT Business Advice Centre for your area.  Permission will be granted provided that they are satisfied that your records of costs and sales are adequate to work out accurate sets of margins.  You can only ask to do a separate calculation or revert to a single calculation at the start of your financial year.  Permission will not be granted retrospectively.”
16.	For 1995/96, MyTravel submitted the annual adjustment with its return for period 08/97, having used the separated supplies method.  It made no election to use that method, simply submitting the adjustment.  The Commissioners accepted the adjustment submitted.
17.	For 1996/97, MyTravel submitted the annual adjustment with its return for period 09/99, again using the separated supplies method.  It sought no permission from the Commissioners either to use that method, or to revert to the single method.
18.	Notice 709/5/98 superseded Notice 709/5/96 on 1 January 1998. The parts of the former relevant to the present appeal are the following:
Paragraph 5.8:
“If you provide some supplies, or packages of supplies which are enjoyed wholly outside the EC, you may elect to do a separate annual calculation for those supplies.  You must first ask permission from the VAT Business Advice Centre for your area.  Permission will be granted provided that they are satisfied that your records of costs and sales are adequate to work out accurate but separate sets of margins.  You may only switch to a separate calculation (or revert to a single calculation) at the start of your financial year, that is no later than the due date of your first VAT return for that financial year.  Permission will not be granted retrospectively …
The relevant tertiary law for this method is at Section TL3 of Appendix E.”
	Section TL3 of Appendix E is in these terms:
“2.	Where a tour operator, in the same financial year, supplies:
(a)	designated travel services or margin scheme packages which are to be enjoyed wholly outside the European Community; and
(b)	designated travel services or margin scheme packages which are to be enjoyed wholly or partly within the European Community;
the Commissioners of Customs and Excise may, on being given written notification by the tour operator no later than the due date for rendering his first VAT return for the financial year in which the supplies are to be made, allow the supplies under sub-paragraph (a) to be valued separately from those under sub-paragraph (b).
3.	Where a tour operator, under paragraph 2 above, has separately valued supplies of designated travel services or margin scheme packages enjoyed wholly outside the European Community from supplies of designated travel services or margin scheme packages enjoyed wholly or partly within the European Community, the Commissioners of Customs and Excise may, on being given written notification by the tour operator no later than the due date for rendering his first VAT return for any subsequent financial year, allow supplies to be made in such subsequent financial year to be valued using the method specified at Appendix A of this Notice [i.e., the single method].”
19.	On 20 December 2000, MyTravel submitted the annual TOMS adjustments for its financial years 1997/98 and 1998/99, saying that it was “exercising the option to account for VAT on all TOMS supplies”, i.e. using the single method for the purpose.  It sought no permission from the Commissioners to do so.
20.	From 1 October 1996 to December 2000, MyTravel submitted VAT returns using provisional calculations based on the separated supplies method of calculation.
21.	MyTravel used the separated supplies method when calculating figures included in voluntary disclosures for the 1995/96 TOMS made on 29 October 1999 and for the 1996/97 TOMS made on 28 October 2000.
22.	On 22 August 2001, MyTravel was notified of an assessment to tax of £1,042,425 (plus interest), that being the difference in its liability to VAT between the single method and the separated supplies method for 1997/98.  That was followed on 24 September 2001 by an assessment for £1,081,389 (plus interest) for 1998/99.  It is against the two assessments that MyTravel now appeals.
23.	In relation to his submission that the relevant parts of Notice 709/5/96 and 709/5/98 were ultra vires the domestic legislation Mr Gibbon, for MyTravel, observed that under section 53(2)(b) of the 1994 Act the Commissioners were authorised to “specify” a manner, or more than one manner, in which the value of the designated travel service might be determined.   He added that there was nothing in either section 53 or article 7 of the 1987 Order which permitted the Commissioners to impose a condition that a tour operator must elect at any specific time which calculation to adopt to value its supplies.  More particularly, he further noted, nothing in section 53 or article 7 permitted them to impose a condition that such election must be made in advance or shortly after the commencement of its financial year.  Mr Gibbon particularly emphasised that the imposition of such a condition placed a tour operator at a manifest disadvantage for it required it to make an election when it had insufficient information to enable it to make an informed choice.  He submitted that, in the absence of a timing vires, the only requirement the Commissioners could impose was one which was reasonable, and the Commissioners’ requirement of advance notification imposed an obligation on the operator which Keene J expressly viewed as unreasonable in his judgment in the Aspro case.  
24.	Mr Poole, counsel for the Commissioners, submitted that in the Aspro case the High Court agreed that neither method inherently disadvantaged a tour operator; they were simply different ways of valuing the supplies.  It was obviously possible for MyTravel to make a decision as to which method to use within the time limits imposed.  It was also possible for it to make an informed decision as to which method was likely to be the more beneficial to it.  If, which the Commissioners did not accept, MyTravel could not have determined which method was more beneficial to it until a later date, they did not accept that compliance with the requirements was thereby rendered practically impossible or excessively difficult.
25.	But in case I were to be against him on the ultra vires point, Mr Gibbon next submitted that the relevant paragraphs of Notice 709/5/96 and 709/5/98 were incompatible with articles 26 and 22(8) of the Sixth Directive in so far as they required an election to be notified in advance, or shortly after the commencement, of a tour operator’s financial year.
26.	Article 26, so far as relevant, provides as follows: 
“1. Member States shall apply value added tax to the operations of travel agents in accordance  with the provisions of this Article, where the travel agents deal with customers in their own name and use the supplies and services of other taxable persons in the provision of travel facilities.  This Article  shall not apply to travel agents who are acting only as intermediaries and accounting for  tax  in accordance with Article 11A(3)(c).  In this Article travel agents include tour operators.
2. All transactions performed by the travel agent in respect of a journey shall be treated as a single service supplied by the travel agent to the traveller.  It shall be taxable in the Member State in which the travel agent has established his business or has a fixed establishment from which the travel agent has provided the services.  The taxable amount and the price exclusive of tax, within the meaning of Article 22(3)(b), in respect of this service shall be the travel agent’s margin, that is to say, the difference between the total amount to be paid by the traveller, exclusive of value added tax and the actual cost to the travel agent of supplies and services provided by other taxable person where these transactions are for the direct benefit of the traveller.”	
27.	And article 22(8) provides:
“Member States may impose other obligations which they deem necessary for the correct collection of the tax and for the prevention of evasion, subject to the requirement of equal treatment for domestic transactions and transactions carried out between Member States by taxable persons and  provided that such obligations do not, in trade between Member States, give rise to formalities  connected with the crossing of frontiers.”
28.	Mr Gibbon observed that article 26 provided no vires for national legislation to impose an obligation that a taxpayer must elect in advance, or shortly after the commencement, of its financial year whether to use the single method or the separated supplies method of calculation its liability to tax under the TOMS.  He therefore submitted that the Commissioners’ vires must derive from article 22(8) of the Sixth Directive.
29.	He contended that it was clear from the judgment of the Court of Justice of the European Communities (“the ECJ”) in EC Commission v Kingdom of Spain [1996] STC 672 that such obligations must themselves be proportionate and must not make it “practically impossible or excessively difficult” for a taxpayer to comply with such an obligation.  
30.	(The Kingdom of Spain case was concerned with a requirement of the Spanish government that a traveller seeking remission of tax on goods carried in his or her personal luggage had not only to produce a VAT invoice but also to supply a special supporting document.  In holding that the requirement was unreasonable, the ECJ in the course of its judgment said this:  
“11. The [EC Council Directive 69/169 of 28 May 1969 on the harmonisation of provisions laid down by law, regulation or administrative action relating to exemption from turnover tax and excise duty on imports in international travel JO L133 4.6.69 p 6 (S Edn 1969 (I) p 232)] does not contain any provision entitling member states to require, for the remission of tax on goods carried in travellers’ personal luggage, a special supporting document whilst art 6(4) [of the Sixth Directive] . . ., requires only production of an invoice or other document in lieu thereof.  That provision, which sets out the technical details for the exercise of the right to remission of tax, clearly provides that travellers have two ways of claiming reimbursement of the tax.  It cannot therefore be interpreted as allowing member states an option to limit exercise of that right only to those in possession of a special invoice. 
12. It is true that art 22 of the Sixth Directive, concerning obligations of taxable persons for the purposes of VAT under the internal system and relating, inter alia, to the details of invoicing, contains a provision authorising member states to impose obligations not provided for by the 1969 directive.  Paragraph 8 of that article states that “Member States may impose other obligations which they deem necessary for the correct levying and collection of the tax and for the prevention of fraud”.  However, as specified by the court in a judgment cited by both parties, the exercise of that power must be limited to what is necessary to ensure the correct levying of VAT and permit supervision by the tax authorities and the detailed requirements on the invoice must not render the exercise of the right to deduction practically impossible or excessively difficult (see Jorion, née Jeuenehomme, and Société anonyme d’êtude et de gestion immobilière ‘EGI’ v Belgium (Joined Cases 123 and 330/87) [1988] ECR 4517 at 4543-4544, paras 15-17).
13.	In this case, the requirement to produce a special invoice in order to obtain the tax remission provided for under art 6 of the 1969 directive is not only contrary to the provisions of that article, for the reasons set out at para 11 of this judgment.  It also exceeds what is necessary to ensure that the tax is correctly levied, and is of such a nature as to make the exercise of the right to remission very difficult and to give rise to double taxation although the objective of the relevant provisions is precisely to avoid that”).
31.	Mr Gibbon noted that the question of whether an election to change from the single method to the separated supplies method was proportionate under the 1998 Notice had been considered by Keene J in the Aspro Travel case, and that Notice made no provision for the timing of an election.  Mr Gibbon contended that although Keene J did not specifically refer to EU concepts such as proportionality, he did consider whether a prospective time limit (as argued for by the Commissioners) was proportionate, and whether compliance was possible in practice, saying that the tribunal’s conclusion on the evidence (as set out in paragraph 9 above) “produced a result fair to both sides” and its reasoning “appears to me to have force” (see p 160 of the report).  Mr Gibbon further observed that Keene J said, “It is not self evident … that there is some problem in the taxpayer using … the timescale envisaged by the tribunal.” (see p 160 of the report).  Conversely, Mr Gibbon maintained that a requirement to elect for one calculation or the other at the start, or shortly after the start, of a financial year rendered it “practically impossible or excessively difficult” for a tour operator to make an informed and meaningful election at a time when it did not know where the value of holidays to be sold in the future would lie.  One had only to consider the impact on a holiday destination of an act of terrorism or of a serious natural disaster to understand that there were many factors outside the control of a tour operator which might have an effect on its EC or non-EC margins, and that could be evaluated only at the end of a financial year.  Accordingly, Mr Gibbon submitted that the requirements of paragraph 13(c) of Notice 709/5/96 for 1997/98 and section TL3 of Notice 709/5/98 for 1998/99 made it “practically impossible or excessively difficult” for MyTravel to comply with them: thus they were incompatible with articles 26 and 22(8) of the Sixth Directive, and were unenforceable against it.
32.	Mr Poole observed that article 26 of the Sixth Directive did not concern itself with the question of permission for alternative methods of calculation; nor did it concern itself with alternative methods of calculation.  The provision of alternative methods of calculation was not argued to be ultra vires by MyTravel.  In the Aspro Travel case, the High Court held that the two calculation methods themselves and the requirement for notice contained in the 1988 Notice were not ultra vires the Sixth Directive.  Further, the High Court agreed that neither method of calculation inherently put a tour operator at a disadvantage.
33.	He observed that article 22(8) of the Sixth Directive provided that member states might impose other obligations which they deemed necessary for the correct collection of the tax and for the prevention of evasion.  In the Kingdom of Spain case, the ECJ held that extra requirements must not by reason of their number or technical nature render the exercise of the right to deduction of input tax practically impossible or excessively difficult.  Of MyTravel’s claim that the requirement for notice of election to be given at the start of a financial year, or shortly thereafter, rendered the right to election “practically impossible or excessively difficult”, Mr Poole maintained that it did not do so. There was, in fact, no difficulty or practical impossibility in making the election at the time required by the respective notices.  He noted that MyTravel did not make its annual adjustments for 1997/98 and 1998/99 until 20 December 2000 – long after the dates by which it was required to make them.
34.	Tour operators were required to elect at the start of the year so that the Commissioners could verify, if they wished, whether the records were capable of supporting the chosen method, thus enabling accurate calculations to be made: that was, in Mr Poole’s further submission, in accordance with article 22(8) of the Sixth Directive.
35.	Further in the alternative, Mr Gibbon maintained that, by operation of UK law, MyTravel was entitled to use the single method of calculation.  Having observed that Notice 709/5 had undergone numerous revisions over the years, he proceeded to identify the changes which he considered relevant to the instant appeal.  Of the 1988 Notice, Mr Gibbon observed that a tour operator could elect to use the separated supplies method only if it notified its local VAT office of an intention to do so, and it could satisfy the Commissioners that its records were adequate for the purpose; no time limit was imposed by which a tour operator was required to notify its local VAT office should it wish to use the separated supplies method.  He observed that the Commissioners had permitted MyTravel retrospectively to depart from the single method in 1994/95; and that for the following two financial years, MyTravel had not notified election to depart from the single method, as required by paragraph 23 of the 1988 Notice.  Mr Gibbon submitted that, without such election, automatic default to the single method was required under the Notice.  He added that the Commissioners suggested that in correspondence between the parties in relation to the years 1995/96 and in 1996/97 they waived the requirement for MyTravel to notify an election for the latter year.  However, Mr Gibbon maintained, the only reasonable interpretation that could be put on that correspondence was that they gave MyTravel permission to make and notify any such election retrospectively, i.e. in accordance with the judgment in Aspro Travel.  He further submitted that that correspondence did not allow MyTravel to use its method of choice on VAT returns without notification to the Commissioners (which would have had the result that the Commissioners would have had no idea which method had been used unless they had carried out an assurance visit to check).  Moreover, he also contended, the Commissioners’ letter did not say (and under the 1988 Notice could not have said) that a notification for 1994/95 would also have applied to 1995/96, when a contrary notification had been received.  Consistent with that, by letter of 4 April 1996, MyTravel notified its election to use the separated supplies method for 1994/95, and by letter of 18 April 1995 the Commissioners gave permission for use of that method for 1994/95 but not for 1995/96.  MyTravel made no election to depart from the single method for 1995/96, and failed to notify the Commissioners that it wished to do so.  Consequently, Mr Gibbon observed, the Commissioners gave MyTravel no permission to use the separated supplies method for that year. He therefore submitted it followed that for 1995/96, by operation of paragraph 23 of the 1988 Notice, the only legal method available to MyTravel was the single method, that being the “default” method.  
36.	Mr Poole accepted that MyTravel made its election to use the separated supplies method for 1994/95 in writing.  But, in relation to 1995/96, he contended that it elected to use the separated supplies method, but did not make the election in separate written terms. Notwithstanding that it had not made a written election, he submitted that it was bound by its actual use of the separated supplies method.  Mr Poole acknowledged that MyTravel was not obliged to notify the Commissioners that it was not changing its method of calculation.
37.	Mr Gibbon made a number of points on the position following revision of Notice 709/5 in 1996.  He observed that the primary method was the single method; that permission of the Commissioners was required from the Commissioners to use the separated supplies method; that, permission having been granted for use of the separated supplies method, further permission was required to revert to the single method, i.e. for the first time paragraph 13(c) of the Notice introduced the concept of permission rolling over year on year until further permission was sought and granted to revert to the single method; and permission was required prospectively at the start of a tour operator’s financial year.
38.	For 1996/97, MyTravel notified no election to the Commissioners to depart from the single method, and maintained that that method was the legally correct baseline from which any subsequent permission to change had to be sought.  Mr Gibbon therefore submitted that for that year, by operation of paragraph 13(c), the only legal method of calculation was the single one.  Similarly, for 1997/98 MyTravel notified no election to the Commissioners so that, again, the only legal method of calculation was the single one.
39.	Mr Poole noted that in CCE v Simply Travel Ltd  [2002] STC 194 at p.196  Lightman J held that the relevant parts of the 1996 Notice were valid delegated legislation and had the force of law, and that the tribunal had been entirely correct to find: 
“that the plain and ordinary construction of the relevant parts of the 1996 notice was that notification must be given at the start of the relevant financial year whether the taxable person wishes to change from the single calculation method to the separate[d supplies] calculation method or vice versa … [T]he relevant parts of the 1996 notice ‘are capable of no other construction’”.
40.	Mr Poole claimed that at 1 October 1996, MyTravel was using the separated supplies method, having already elected to do so for 1994/95: it was also to elect to do so for 1995/96, but had not then done so.  It had continued to submit VAT returns using provisional calculations based on the separated supplies method.  He submitted that if it had intended to switch to the single method it would have had to have elected to do so at the beginning of the financial year; and since it did not do so, it had to continue to use the separated supplies method.  Mr Poole contended that, as a matter of fact, MyTravel did use the separated supplies method for 1996/97.  It had, by then, submitted its return for 08/97 which included the TOMS annual adjustment using the separated supplies method for the year 1995/96.  He maintained that it used the same method for 1996/97, albeit submitting the annual adjustment with its 09/99 return.
41.	Of the text of section TL3 and Appendix E of the 1998 Notice, effective as at 1 January 1998, Mr Gibbon made the following points:  the primary method was the single method; permission was required from the Commissioners for a tour operator to use the separated supplies method; permission having been granted for use of the separated supplies method, further permission was required to revert to the single method; and such permission as might be required to change to the separated supplies method of calculation or to revert to the single method had to be obtained prospectively by the end of the first accounting period of the financial year in which the change was to take place. For 1998/99 My Travel notified no election to depart from the single method, and the Commissioners gave no permission for the separated supplies method to be used.  Accordingly, Mr Gibbon submitted, for that year, by operation of section TL3 and Appendix E of the 1998 Notice, the only legal method available to MyTravel was the single method.
42.	As at 1 October 1997, MyTravel had submitted its two most recent annual adjustments using the separated supplies method.  It had continued to submit VAT returns using provisional calculations based on that method.  Against that factual background, Mr Poole maintained that to the question, “Which method of calculation was MyTravel using at the beginning of its financial year 1997/98?” the only reasonable answer was  “The separated supplies method.”  As Lightman J had made clear in the Simply Travel case, a tour operator had to give notice at the start of the financial year, in this case 1 October 1997, if it wished to change from the separated supplies method of calculation.  MyTravel gave no such notice, nor did it give such notice at the start of its financial year, 1998/99.  Since notice of change of method could not be given retrospectively, MyTravel had to use the separated supplies method of calculation for the years 1997/98 and 1998/99.
Conclusion
43.	I am able to deal with Mr Gibbon’s submission  that both paragraphs 13(c) of the 1996 Notice and section TL3 and Appendix E of the 1998 Notice are ultra vires domestic law relatively quickly.  Notwithstanding that the 1996 Notice was in force at the time with which the tribunal in the Simply Travel case was concerned, it interpreted the Notice as if it had been identical to the 1988 Notice, and found for the appellant. Hardly surprisingly, the Commissioners appealed the decision.  In a quite robust judgment, Lightman J said (paragraph 10, p127):
“The tribunal accepted that paragraph 13(c) of the 1996 notice had the force of  law and found that the only permissible construction was that set out in [8] (iii) above (as contended  for by the commissioners).  That should have been the end of the matter.  The wording of paragraph 23 of the 1988 notice and of paragraph 13(c) of the 1996 notice are clearly  and materially different.  The decision in Aspro was not, therefore, of direct relevance to the tribunal when construing the 1996 notice and most certainly cannot justify a departure from the only tenable construction of the 1996 notice.  There could be no continuing legitimate expectation regarding the date on which an election could be made once the provisions of the 1988 notice (though authoritatively construed in Aspro) had been plainly and unambiguously superseded by the quite different provisions of the 1996 notice which laid down a quite different rule.  It is not for the tribunal to override, or decline to give effect to, the language used in a statutory instrument because it disapproves of the policy given effect to by that statutory instrument.”
44.	If I were to decide Mr Gibbon’s first issue in favour of MyTravel, I should have to distinguish the High Court judgment in the Simply Travel case from the present appeal. That I am unable to do.  Lightman J could not have made matters plainer in saying that “There could be no continuing legitimate expectation regarding the date on which an election could be made once the provisions of the 1988 Notice … had been plainly and unambiguously superseded by the quite different provisions of the 1996 notice which laid down a quite different rule.”  And, as I read his judgment, his observations apply equally mutatis mutandis to the 1998 Notice.  I therefore hold that paragraph 13(c) of the 1996 Notice and section TL3 and Appendix E of the 1998 are not ultra vires the 1994 Act and the 1987 Order.
45.	I then turn to Mr Gibbon’s second issue: whether that paragraph and section are incompatible with the Sixth Directive.  I accept his observation that article 26 of the Directive provides no specific vires for national legislation to impose an obligation that a taxpayer must elect in advance which method of calculation to use; but I  note that  there is nothing specifically to prevent the UK Government making such a requirement.  Article 22(8) of the Sixth Directive provides that Member States may impose other obligations they deem necessary for collection of the tax and to prevent evasion of it.  The Kingdom of Spain case merely established that extra requirements must not by reason of their number or technical nature render the exercise of the right to deduction of input tax practically impossible or excessively difficult.  I accept that obligations imposed on taxpayers must also be proportionate.  In the instant case it was not practically impossible, or even excessively difficult, for MyTravel to comply with the legislative requirements: it might have been greatly to its disadvantage to have to do so, but that is a completely different matter.  Since it was not practically impossible or excessively difficult to comply with the requirements of the 1996 and 1998 Notices, I cannot accept that the requirements of Notices 709/5/96 and 709/5/98 were or are incompatible with the Sixth Directive.
46.	Finally, I turn to deal with Mr Gibbon’s claim that, by operation of UK law, MyTravel is entitled to use the single method of calculation for 1997/98 and 1998/99.  To deal with that claim it is necessary for me to consider matters chronologically from 1994/95 onwards.  It is common ground that for that year, and that year alone, the Commissioners allowed MyTravel retrospectively to depart from the single method of calculation and use the separated supplies method.  Under the 1988 Notice there was no question of the election for one year being carried over to the following year: and election to work out the value of supplies enjoyed outside the EU separately required both election in writing and the satisfaction of the local LVO with the state of a tour operator’s records. 
47.	Notwithstanding that MyTravel did not  ask its local VAT Business Centre for permission to use the separated supplies method for 1995/96, it submitted its annual adjustment for the year having used that method of calculation, and the Commissioners accepted it.  In those circumstances, in my judgment, the Commissioners must be taken to have granted MyTravel permission to use that method as required by the 1996 Notice.  And since permission was conditional on their being satisfied with the adequacy of its records to work out accurate sets of margins, that condition must also be taken to have been satisfied.  
48.	The 1996 Notice did not take effect until 1 January 1996, by which time MyTravel’s financial year 1995/96 was three months advanced.  Clearly it could not have made the prospective election as to which method of calculation to use as required by paragraph 13(c) of the Notice, for it should already have made three VAT returns.  However, as the Commissioners accepted that it might make its annual adjustment based on the separated supplies method, that being its chosen method, it was not prejudiced by the Notice.  Again, in my judgment, the Commissioners must be taken to have granted it permission to use that method.
49.	For 1996/97, MyTravel was bound by the full terms of the 1996 Notice.  It was therefore required to make a prospective election as to the calculation method it wished to use.  And since it had used, and been granted permission to use, the separated supplies method in 1995/96, in my judgment it either had to continue to use that method or ask for permission to revert to the single method. As it sought no such permission, I hold that it had to continue to use the separated supplies method. 
50.	The introduction of the 1998 Notice on 1 January 1998 took place three months into MyTravel’s financial year 1997/98, so that its prospective election of the method of calculation had to be made under the 1996 Notice.  MyTravel failed to take advantage of its right of election, so that, again in my judgment, it remained bound to make its calculation using the separated supplies method.
51.	Since the 1998 Notice made no change to the election requirements of a tour operator, for 1998/99 MyTravel was again bound to make an election at the start of its financial year if it wished to change from the separated supplies method.  As it failed to do so, I hold that it was bound to make its calculation using the separated supplies method.  In so holding, I have also taken account of the fact that between 1 October 1996 and December 2000 MyTravel submitted provisional calculations based on the separated supplies method, and in two voluntary disclosures made in 1999 and 2000 (see paragraph 21 above) used the same method in calculating figures for 1995/96 and 1996/97.
52.	To summarise, MyTravel used, and was required to use, the separated supplies method of calculation in both 1997/98 and 1998/99. It follows that I hold that it was correctly assessed to the tax in dispute.
53.	I dismiss the appeal.

DAVID DEMACK
CHAIRMAN
Release Date: 17 February 2005

MAN/02/0426