19461
	SUPPLY — supply of company formation service — supply of memorandum and articles of association — whether the supply of memorandum and articles is a separate principal zero rated supply — no — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	COMPANY REGISTRATIONS ONLINE LIMITED	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	Lady Mitting (Chairman)
						Carole A Roberts 

Sitting in public in Manchester on 20 January 2006

Mr J Grierson of counsel for the Appellant 

James Puzey, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2006

DECISION

1.	The decision under appeal is that of the Respondents, contained in a letter dated 21 March 2005, that in making its supplies of company formation services, the Appellant was making one single standard rated supply as opposed to separate supplies of a standard rated formation service and a zero rated supply of printed materials (the Memorandum and Articles of Association) as contended by the Appellant.  
2.	We heard oral evidence from Mr Phillip Vibrans, the managing director and sole shareholder of the Appellant company, and on behalf of the Respondents from Mr Brian Horton whose decision it was.  The facts were not in dispute and we find them to be as follows.
Facts
3.	The Appellant company provides an extensive range of corporate services, mainly to professional clients – solicitors and accountants but also directly to the general public.  The service which is the subject of this appeal is the online company formation service.  The formation service comes in a variety of forms, sold as packages, with the customer choosing the package to suit his requirements.  The packages fall into two categories referred to in the promotional materials as the “Premier company formation service” (“the Premier”) and the “Base company formation service” (“the Base”).  The essential distinction is that the Premier provides a tailor made company supplied to the Customer’s precise specification.  The Base provides an off-the shelf company to be adapted by the customer.  Within each category is a choice of packages depending on the requirements of the customer and essentially on the format in which the company requires its documentation.  
4.	The Appellant’s price list quotes a single price, inclusive of VAT, per package.  The Premier packages are quoted at £80.00 for a tailor made UK limited company or £70 for digital delivery of the same.  The premier formation package is said on the price list to include as follows:
“Fully written up opening Statutory Registers
Statutory Registration fee
Certificate of Incorporation
Five bound copies of Memorandum & Articles each containing a copy of the Certificate
Full minutes of first meeting of directors 
Full minutes of second meeting of directors
Elective Resolutions and accompanying minutes
Stock Transfer forms fully completed
Share allotments completed and filed 
Printed Share Certificates
All forms 288a, 288b, 287, G88(2), 225 & Elective resolutions completed and filed at Companies House”

5.	Although the price list quotes a single price per package, the invoice to the customer provides a detailed split.  It is the Appellant’s practice to separate out on the invoice the copies of the Memorandum and Articles which it zero rates as printed material.  There is on all packages a £20.00 fee to Companies House, treated as a disbursement, and the balance is treated as the cost of the service apportioned to show a VAT element.  We were referred to three specimen invoices for Premier packages:
(i)
DESCRIPTION	AMOUNT	VAT%	

Fee in connection with the formation and registration of the proposed new tailor-made limited company as named below and preparation of statutory registers and minutes of first directors meetings for the same
Printing & Binding Memorandum & Articles of Association
Disbursement:  Company Registration Fee
Sub Total Re: [name of company]	
17.02

40.00
20.00
77.02	
17.50%	
SUBTOTAL	77.02	
VAT TOTAL	2.98	
TOTAL DUE	80.00	

This was the standard Premier package including five hard copies of the Memorandum & Articles, shown at a zero rated price of £40.00.  The cost of all other documentation provided is included within the service cost of £17.02 to which VAT of £2.98 was added.
(ii)
DESCRIPTION	AMOUNT	VAT%	

Premier Company CD Package
Fee in connection with the formation and registration of the proposed new limited company as named below 
Printing & Binding Memorandum & Articles of Association
Disbursement:  Company Registration Fee
Sub Total Re: [name of company]	
0.00
42.55

10.00
20.00
72.55	

17.50%	
SUBTOTAL	72.55	
VAT TOTAL	7.45	
TOTAL DUE	80.00	

This service, instead of providing hard copies of all documentation, provided only one hard copy of the Memorandum & Articles shown at a zero rated charge of £10, all other documentation being in CD form.  It should be noted that the CD also included additional material such as Companies House guidelines.
(iii)
DESCRIPTION	AMOUNT	VAT%	

Premier Company Digital Delivery
Fee in connection with the formation and registration of the proposed new limited company as named below and preparation of statutory documents, registers and minutes of first directors meeting on CD rom for the same 
Disbursement:  Company Registration Fee
Sub Total Re: [name of company]	
0.00
42.55

20.00
62.55	

17.50%	
SUBTOTAL	62.55	
VAT TOTAL	7.45	
TOTAL DUE	70.00	

This service was the same as (ii) but with no hard copies of the Memorandum & Articles, everything being supplied on CD.
6.	We were shown two examples of invoices for the Base service.  The first, dated April 2003, charged a total of £35.00 made up of the £20.00 disbursement to Companies House and £15 for three hard copies of the Memorandum & Articles.  No VAT was charged and there was no separate formation charge.  Mr Vibrans explained this had been in order to offer a competitive service.  The second invoice dated November 2004 was for the same package but followed a price restructuring.  It charged £50, made up of the £20 fee; £24 for the Memorandum & Articles (zero-rated) and a formation fee of £5.11 plus VAT of £0.89.  In cross examination, Mr Vibrans said that all customers would receive a copy of the Memorandum & Articles in some form and in additional numbers according to need and package selected.  He accepted that customers would only be aware of an apportionment of price on receipt of their invoice.  Mr Puzey also put it to Mr Vibrans that his customer would not see the service offered to him as two separate purchases, one of a company and one of the Memorandum & Articles, and to this Mr Vibrans agreed.
7.	The Appellant company provides a number of other services with which we were not concerned but we were referred by Mr Vibrans to one service in particular which was a stand alone service of the provision of Memorandum & Articles in whatever number were required for a pre-existing company, for which a single zero rated fee was charged, dependent upon the number of copies.  
8.	Mr Vibrans also produced for us a cash analysis in the following form (based on the charges in the invoices referred to above):
	Old Prices Formation Fee	Time (Mins) to process	Packs per hour	Hourly Revenue	Hourly staff cost	Materials £ per co.	Net Profit per hour	
Premier Hard Copy	17.02	19	3.16	53.75	6.15	7.32	24.48	
Premier CD	42.55	18	3.33	141.83	6.15	1.15	131.85	
Base Hard Copy	5.11	6	10.00	51.10	6.15	3.38	11.15	

9.	The purpose of this calculation was to demonstrate that it was not uneconomic for the Appellant to make the above distinctions in charging.  It was not therefore an artificial distinction.  
Case Law
10.	We were referred by the parties to the following cases: 
•	Card Protection Plan Limited v Customs and Excise Commissioners (2001) UK HL/4.
•	College of Estate Management v Customs and Excise Commissioners (2005) UK HL/62
•	Customs and Excise Commissioners v British Telecommunications Plc  (1999) STC 758 
•	Dr Beynon & Partners v Customs and Excise Commissioners (2004) UK HL/53
•	JP Company Registrations Limited (2249)
11.	Both Mr Grierson and Mr Puzey agreed that the law to be applied and the approach to be taken by the tribunal is as set out in Card Protection Plan.  We were referred specifically to paragraph 18, which quoted in the following terms from the judgment of the ECJ:
“[18]	The court further held that in deciding whether a transaction which comprises several elements is to be regarded as a single supply or as two or more distinct supplies to be assessed separately, regard must first be had to all the circumstances in which that transaction takes place, taking into account (see [1999] STC 271 at 293, [1999] 2 AC 601 at 627)—
’29	… first, that it follows from art 2(1) of the Sixth Directive that 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, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical consumer, with several distinct principal services or with a single service.
30.	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.
12.	It was Mr Puzey’s submission that the Appellant supplied to its customers a ready to operate company and the provision of the Memorandum & Articles was no more than ancillary to that supply.  The supply of the Memorandum & Articles was not an aim in itself but a means of better enjoying the principal service.  To distinguish between the formation service and the supply of certain documents was artificial and unsustainable.  
13.	Mr Grierson relied on the tribunal decision of JP Company Registrations Limited, not as a statement of the law which he fully accepted had developed and been overtaken, but as a finding, on the facts, that the provision of copies of Memorandum & Articles constitutes a separate supply to that of the formation service.  It was Mr Grierson’s contention that the Appellant made two quite distinct principal supplies; that of a formation service to be standard rated and a separate supply of the Memorandum & Articles, to be zero rated.  In his submission, the Memorandum & Articles were a commodity in themselves, supplied separately at a separately itemised fixed price.  They were not merely an adjunct to the formation of the company, as witness the fact that the Appellant provides an entirely separate service of the provision of Memorandum & Articles of already established companies.  Mr Grierson pointed out that unlike the Incorporation Certificate which a company has to hold, although the Memorandum & Articles does have to be lodged with Companies House on incorporation, it is not a legal requirement that the company itself holds a set.  It is a matter of choice for the company.
Conclusions
14.	Our approach must begin with identifying the essential features of the transactions carried out by the Appellant (Card Protection Plan).  The Appellant is providing to its customers a company formation service and the customer chooses the formation package which he requires.  His choice of package will be determined in the first instance by whether he wants a tailor made company or an off the shelf company which he will then later adapt.  Having made that choice, he chooses the format in which he requires his information – hard copy or on disc.  His choice is further refined by the number of copies of the Memorandum & Articles he requires.  All packages include one copy – either on paper or on disk but the customer may, for any number of reasons, need more than the one copy.  All these factors will determine the package which the customer selects.  But whatever he chooses, it comes as a package, a package for which the Appellant has quoted, through his price list, one single composite price.  
15.	The core or essential nature of the transaction is to supply the customer with a company which he can operate and all the documents which he requires to operate it, including the requisite number of copies of the Memorandum & Articles.  The provision of the Memorandum & Articles is, in our view, but one ancillary element of a single service and it is artificial to attempt to split it and treat it in its own right as a principal supply.  The customer is not, in our view, purchasing two distinct commodities, as suggested by Mr Grierson, but just the one – a company with whatever he needs to operate it.  To seek to separate out the provision of the copies of the Memorandum & Articles and to accord this the status of a principal supply in its own right with its own VAT treatment, would not only constitute an utterly artificial separation, such that Card Protection Plan warns against, but such treatment would not reflect the true nature of the transaction, which is that the Appellant makes one single supply of a company formation service to which the provision of the Memorandum & Articles is integral and forms just one element – an ancillary element.
16.	The fact that the Appellant does offer a quite separate service of the provision of copies of Memorandum & Articles of already established companies cannot affect or alter the nature of the company formation service.  The fact that the two elements can, in other circumstances, be dissociated, does not render them for all purposes and at all times two separate transactions.  We refer to British Telecommunications Plc, where Lord Slynn stated as follows:  
“In my view here if the transaction is looked at as a matter of commercial reality there was one contract for a delivered car: it is artificial to split the various parts of the transaction into different supplies for VAT purposes.  What BT wanted was a delivered car; the delivery was incidental or ancillary to the supply of the car and it was only on or after delivery that property in the car passed.  The fact that delivery could have been arranged differently under a separate contract between BT and the transporter or by BT collecting the car itself does not mean that when there is a contract for a delivered car the two supplies must be kept separate.  Of course BT had the option to make other arrangements as is argued but the fact is that BT did it this way as part of one contract and in my view as part of one supply.”
17.	As for JP Company Registrations Limited, we were referred only by Mr Grierson to the heading and the conclusion and were not shown a copy of the full decision.  The heading, however, makes it clear that the company in that case, which supplied off the shelf companies, offered its customers a choice of purchasing a company with Memorandum & Articles of Association at £115 or without at £78.  The conclusion refers to the customer not having to be supplied with Memorandum & Articles in which case he is not charged for them.  On that basis, the tribunal held that there were two separate supplies.  However, in the present case, we heard no evidence to suggest that the customer, having chosen his package, could opt out of receiving the Memorandum & Articles and pay an accordingly reduced price.  Having chosen his package, the customer pays the package price.  He could not opt to reject the Memorandum & Articles and pay a price less this element.
18.	The method of charging, we do not consider to be determinative either way.  The Respondents point to the single all inclusive package price; the Appellant to the itemised bill.  Two separate principal supplies cannot be created where they don’t exist merely by itemising them separately on the invoice.  The converse is, of course, also true.  The method of charging is not a test in itself but merely one further factor to be considered in the analysis of the transaction.
19.	Considering all the above factors, we find that the Appellant company made to its customers one single supply of a company formation service.  In so doing, it provided its customers with a ready to operate company, the nature of the company and the format of the material depending on the package chosen by the customer.  The provision of the Memorandum & Articles was but one element in this supply and was in our view an ancillary element for the better enjoyment of the principal service supplied (Card Protection Plan).  The supply of the service is a standard rated supply and the ancillary supply of the Memorandum & Articles should also therefore be standard rated.
20.	The appeal is therefore dismissed.  Mr Puzey made no application for costs and we make no order.
21.	We should make just one point which we mention at the conclusion of our decision because it was not a point which was relevant to our deliberations.  It might at first sight appear illogical that the company should seek to zero-rate only the Memorandum & Articles but to include within the standard rated formation service all the remaining paperwork.  In fact it is not as illogical as it might appear as the Appellant company was at all times following the then guidance of the Respondents which allowed the zero rating of copies of the Memorandum & Articles provided that they were itemised separately on the invoice and the preparation of them had been standard rated.  We understand that it was as late as the end of last year that this guidance was actually changed.  This guidance is not central to the decision which we have to make because we are considering only a point of principle on the law as it currently stands.  The Respondents had not raised any assessment against the Appellant.  Were they to do so, the guidelines would, of course, be of very much greater importance.  We should add that Mr Puzey accepted that Mr Vibrans had acted in good faith.

LADY MITTING
CHAIRMAN
Release Date: 20 February 2006
MAN/05/0232