UT/2023/000021 - [2024] UKUT 00334 (TCC)

In Wakefield College v HMRC [2018] EWCA Civ 952,the Court of Appeal explained that satisfaction of the requirement for the relevant supply to be “for consideration” was a necessary, but not sufficient, condition for a finding of economic activity. It was “logically the first question to address” ([52]).

In Tolsma v Inspecteur der Omzetbelasting Leeuwarden (Case C-16/93) (at [14]), the European Court held that a supply is only “for consideration” within the meaning of Article 2, and hence taxable, if:

“there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient”

That “legal relationship” has also been described in terms of a “direct link” between the supply of goods or services and the consideration provided by the recipient (Apple & Pear Development Council v C&E Comrs Case 102/86, at [11]; and Gemeente Borsele Case C-520/14, at [24]-[26],or as a “quid pro quo” (Apple & Pear [1988] STC 221, Advocate General’s opinion at pg 232h)).

As regards the amount of consideration, in summarising the law, the Court of Appeal in Wakefield explained (at [52]) that there was no need for the consideration to be equal in value to that of the goods or services. It was simply the price at which the goods or services were supplied. As the CJEU noted in Borsele (at [26]),it did not matter that the price paid was higher or lower than the cost price.

Regarding the proper legal approach to identifying whether there is consideration for VAT purposes under Article 2, it is clear from the UK Supreme Court’s decisions in Secret Hotels2 Ltd (formerly Med Hotels Ltd) v Revenue and Customs Commissioners [2014] UKSC 16, (at [31]-[32]) and Airtours Holidays Transport Ltd v Revenue and Customs Commissioners [2016] UKSC 21 (at [47]) that “when assessing the VAT consequences of a particular contractual arrangement, the court should, at least normally, characterise the relationships by reference to the contracts and then consider whether that characterisation is vitiated by [any relevant] facts.” At [49], the Supreme Court noted that the CJEU had observed in Newey (Case C-653/11) at [40] that “[e]conomic and commercial realities” are fundamental and that “the contractual position normally reflects the economic and commercial reality of the transactions”.

No dispute arises around the above well-established core legal principles of when a supply is “for consideration” under Article 2 or the relevant legal approach to be taken. The dispute arises when it comes to their application to the particular circumstances of the Trust.