The Upper Tribunal was asked to decide whether the matchmaking services fall within the place of supply rules when supplied to international customers, and thus be outside the scope of VAT.
Gray & Farrar International LLP (G&F) is an“exclusive matchmaking” provider operating in the UK for singles world-wide.
G&F carries out in-depth interviews of new clients to establish what they want in a partner. They then match clients based on these interests and needs. Often, G&F would also provide advice or coaching to their clients. A support team at G&F would then check in with the client several times a week to see how things were progressing and obtain feedback.
G&F considered its services to be within Article 59(c) of the Principal VAT Directive and paragraph 16(2)(d) of Schedule 4A VATA 1994. Any customers outside the EU were therefore treated as outside the scope of UK VAT.
HMRC disagreed and brought the extra-EU sales within UK VAT, assessing G&F for VAT of £1,745,667.
First tier decision
The FTT had concluded that G&F was making a single composite supply and went on to consider whether the principal components were within Article 59(c). It was agreed that the provision of information and expert advice was a principal component of the supply.
However, the panel disagreed as to whether a second principal component existed in the form of the services provided by the support team following introduction.
One of the judges considered the post-introduction services to be purely in support of the expert advice given. They were therefore ancillary.
The presiding member on the other hand felt that the support services were a material element of the supply and so could not be called ancillary. This meant that the composite supply could no longer be said to be “merely” information and expert advice. Article 59(c) could not therefore apply.
The FTT dismissed the appeal on the casting vote of the presiding member.
Upper tribunal decision
An appeal was lodged with the UT on the basis that the FTT had improperly categorised the supply.
HMRC also contested aspects of the FTT decision, specifically that Article 59(c) did not apply as G&F was not engaged in a “liberal profession”. Further, HMRC argued that “data processing and the provision of information” represented a single composite phrase, not two separate items.
The CJEU had previously ruled on a case (Linthorst) involving veterinary services provided between two EU countries. The outcome was that the services did not fall within the predecessor to Article 59(c). The CJEU had referred to the types of business which were covered as ‘liberal professions’.
The FTT (and G&F) were of the opinion that this was merely the CJEU giving an example. HMRC argued that the CJEU had concluded that only liberal professions could fall within the section. As G&F was not a liberal profession, it could not therefore be within Article 59(c).
The UT agreed with the FTT. The nature of the service was relevant, not the characteristics of the person providing it. HMRC’s submission was rejected.
One or two items?
HMRC felt that the phrase in Article 59(c) [and Paragraph 16(2)(d)] “data processing and [the] provision of information” represented a single supply that had to include both items. The FTT (and G&F) had instead treated it as an either/or statement.
Again, the UT agreed with the interpretation made by the FTT and rejected HMRC’s submission.
The UT considered the FTT’s decision and concluded it had erred in law by not applying the “predominant element” test as set out in the Levob and Mesto cases. Rather than passing the matter back to the FTT, the upper tier judges opted to remake the decision themselves.
First the tribunal agreed that no part of the service provided by G&F was incidental to the main supply. All elements must therefore be considered.
Secondly, they put themselves into the shoes of the typical consumer of the service and concluded that the predominant element was the advice and information on potential matches. As this was expert advice, the service fell within Article 59(c), specifically as “services of consultants… or similar services”.
Finally, the tribunal concluded that the support services did not disturb its conclusion above.
The appeal was therefore allowed and the FTT decision was remade in favour of G&F.
Post Brexit world
Since 1 January 2021, any paragraph 16 supplies made to non-UK consumers, EU or otherwise, became outside the scope of UK VAT. For supplies treated as made in the EU a local registration may become needed and it may also be worth joining the non-Union OSS scheme.