Neil Warren revs up another mixed supply case. This one involves a club subscription for which the members received a package of benefits subject to different VAT rates.
Another taxpayer win
To misquote Oscar Wilde: “To lose one tribunal case on VAT and mixed supplies could be considered unfortunate, to lose two in quick succession shows a sign of carelessness.” In November I reported the taxpayer’s victory in the case of supplies involving an ice rink .
This latest mixed supply case relates to the VAT liability of membership fees paid by members of the Harley Owners Group (HOG) to Harley-Davidson Europe Ltd (TC06268).
Benefits of membership
The HOG was run as a business unit of Harley-Davidson Europe Ltd and was not a distinct legal entity, club or society in the conventional sense. When the members pay their annual subscription of £55 for full membership, they receive the following key benefits:
- A quarterly magazine in hard copy format – described by the tribunal as “attractively produced” and with a “general focus on the experience of owning and riding a Harley Davidson bike”
- A leather wallet
- Membership card
- Events guide and touring map
- Access to various websites and the chance to put photos on the site
- Discount opportunities eg at hotels
HMRC’s view was that the payment of £55 was wholly standard rated as a supply of membership. The taxpayer felt that the VAT liability of each specific benefit should be considered, eg the magazines are zero-rated as printed matter.
Approach to adopt
This topic is definitely a grey area in the VAT world – as HMRC’s tribunal defeats clearly show. But there are common themes and questions that need to be considered for each mixed supply scenario.
There are four key questions to be addressed in each mixed supply case:
- Is each benefit/supply distinct and independent from the others?
- What does a typical customer consider he is buying?
- Is there clearly one main supply (the principal element) with other benefits being ancillary to this main supply?
- Is each supply an aim in itself, or are some supplies a way of enhancing the enjoyment of the main supply?
My favourite example of the above bullet points is the scenario of a cheap flight where the passengers get free tea and coffee during the journey. The tea and coffee is not a supply of standard rated catering but a way to help the passengers enjoy the zero-rated flight. It is a single supply.
In contrast, a four-course meal with wine served on a train journey on the Orient Express train is clearly a mixed supply because the customer expects to receive both the journey and the high quality catering. The customer would almost certainly complain with great passion if he missed out on the food and drink.
The key comment in the tribunal’s conclusion was: “the typical member… places real value on the tangible items”, ie they were interested in the specific items rather than the overall prestige and status of being linked to the Harley Davidson brand. This conclusion was supported by the results of a member survey carried out by the company, which showed that 89% of respondents regarded the magazine as “somewhat or very important.” The tribunal said that the key challenge was to focus on “what is (really) being acquired, rather than what motivates individual consumers to make the purchases…..the typical member wants the individual benefits.”
Not for profit organisations
There is a concession which operates for splitting different VAT rates for a package of benefits where the membership scheme is relevant to a ‘not for profit’ organisation such as a charity or members’ golf club. If Harley-Davidson Europe Ltd had been a charity rather than a commercial organisation, then this case would not have reached the tribunal and the magazine element of the club subscription could have been zero-rated without any problem (VAT Notice 701/1, para 5.13).