19053
VALUE ADDED TAX — zero-rating — supplies of cold food from outlets within larger building — VATA 1994, Sch 8 Group 1 Item 1 — whether supplies made “in the course of catering” — meaning of “catering” — supplies not made in the course of catering — whether food to be consumed “on the premises” — Note (3) to Item — food not consumed on premises of supply — appeal allowed
MANCHESTER TRIBUNAL CENTRE
COMPASS CONTRACT SERVICES UK LIMITEDAppellant
- and -
HER MAJESTY’S REVENUE AND CUSTOMSRespondents
Tribunal:Colin Bishopp (Chairman)
Sitting in public in London from 7 to 11 February 2005
Jonathan Peacock QC, instructed by Reynolds Porter Chamberlain, for the Appellant
Owain Thomas, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2005
1
DECISION
Introduction
1.The Appellant, Compass Contract Services UK Limited, is the representative member of a VAT group which includes Compass Services UK and Ireland Limited. I shall generally refer to them, and each of them, indiscriminately, as “Compass”. In October 2001 Compass entered into an agreement by which it undertook to provide food from various places within the BBC’s Television Centre at Wood Lane, Shepherds Bush. The Respondents maintain that all of the supplies Compass makes pursuant to that agreement attract VAT at the standard rate, because they are supplies made in the course of catering. Compass accepts that some of its supplies meet that description, and are correctly standard-rated, but contends that the remainder do not, and that they are zero-rated.
2.Formally, this is an appeal against the Respondents’ decision, set out in a letter to Compass’s accountants of 6 August 2003, that Compass must account for VAT at the standard rate on all the supplies it makes. The Respondents rely on two propositions, both of which Compass challenges: that the supplies are of catering within the ordinary meaning of the word (the “catering per se” argument); and that they also come within the extended, or clarified, meaning of catering in that the supplies are of food to be consumed “on the premises” on which it is supplied (the “on the premises” argument). Those propositions arise from the wording of Item 1 to Group 1 of Schedule 8 to the Value Added Tax Act 1994, by which (with section 30 of the Act) certain supplies of food are zero-rated. Those supplies of food which do not fall within the item are, by necessary implication, standard-rated.
3.Those parts of Group 1 which are presently material read:
“The supply of anything comprised in the general items set out below, except—
(a)a supply in the course of catering; and
(b)a supply of anything comprised in any of the excepted items set out below, …
General items
Item No
1Food of a kind used for human consumption …
Excepted items
…
2Confectionery …
NOTES
(1)‘Food’ includes drink …
(3)A supply of anything in the course of catering includes—
(a)any supply of it for consumption on the premises on which it is supplied; and
(b)any supply of hot food for consumption off those premises …”
4.I shall deal first with the facts of the case, before turning to the parties’ arguments about the interpretation of the law and its application to those facts. The Appellant was represented by Jonathan Peacock QC, and the Respondents by Owain Thomas. I was provided with a statement of agreed facts but also heard evidence from three witnesses: Kevin Severn, the Assistant Catering Director of Land Securities Trillium (Media Services) Limited (“LST”), a company interposed in the contractual relationship between the BBC and Compass (and formerly a BBC employee); Andrew Barry, Divisional Finance Director of Compass Group plc, the ultimate holding company in the United Kingdom of the Appellant and of Compass Services UK and Ireland Limited; and Julian Fris, the Strategic Property Manager of the BBC’s Property Division. The parties also produced a considerable volume of documents. Much of the evidence was undisputed, and in the interests of brevity I intend to set out my findings of fact, drawing attention to the evidence only when it is necessary to do so for a proper understanding.
The facts
5.The Compass group, I was told, is the largest food service organisation in the world. Some of its business is carried on in high streets, or in places such as railway stations, using well-known trading names, for example Upper Crust and Harry Ramsden’s, both of which it owns and operates itself, and Burger King and Pizza Hut, which are franchised to independent operators. A significant part of its business consists of food provision, in various ways, for corporate clients within particular market sectors, such as the healthcare industry and in education; those clients include the BBC. Some of the issues which arise in this appeal also arise in the context of other contracts into which Compass has entered (and some, I understand, also affect its competitors).
6.Compass’s contractual relations with the BBC are unusual and complicated, and they require some explanation. In about 2001, the BBC decided to change the arrangements by which it had hitherto undertaken functions ancillary to its principal activity of producing programmes and broadcasting them. Its purpose was in part to enable it to concentrate on its core activities, and in part to enable it, as it believed would be the case, to reduce the cost of its overheads, leaving a greater proportion of its licence fee income available for programme-making. Some of those ancillary functions it had hitherto carried out itself, usually by means of subsidiary companies, while the remainder were performed by other organisations pursuant to contracts between those organisations and the BBC. The functions of particular relevance in this case included the management of the BBC’s substantial estate of properties, and the provision of food for those working in and visiting those properties. Prior to the change, food provision at the Television Centre was undertaken by a company then known as Sutcliffe Catering (UK) Limited which has since, and for unconnected reasons, become a Compass group subsidiary and, by change of name, has become Compass Services UK and Ireland Limited.
7.On 17 September 2001, BBC Property Investment Limited, a BBC company which until then had managed its property estate, entered into a partnership agreement with LST (ultimately a subsidiary of Land Securities plc which, I was told, is Britain’s largest property company). The partnership became known as the “Property Vehicle”, and I shall so refer to it. On the same day the Property Vehicle entered into a further agreement, for “occupation and services”, with the BBC by which the Property Vehicle undertook to provide property and facilities management services at various BBC sites throughout the country, of which the Television Centre is one. The agreement is of considerable length, and deals with a vast range of topics in minute detail. Those parts of it which deal with the availability of food to those working in and visiting the BBC’s sites—that is, the provisions of immediate concern in this appeal—occupy only a very small portion of the whole.
8.Although it is, nominally, the Property Vehicle which is to take over the running of the BBC estate, the task was in fact delegated to LST. It seems that the delegation had always been the BBC’s underlying expectation, but if there is any document formally appointing LST as the Property Vehicle’s delegate, with or without the BBC’s consent, I did not see it. I deduce that the Property Vehicle partnership came into existence partly because the titles to some of the properties in the BBC estate were to be transferred to it and by this means there remained a BBC interest, and partly in order that the BBC retained some control over the Property Vehicle’s (and LST’s delegated) activities. The title to the Television Centre site was not one of those transferred to the Property Vehicle, and the site was instead the subject of a property agency and indemnity (or “PAIN”) agreement, by which the Property Vehicle—in effect LST—became the managing agent of the buildings on it. Its position as managing agent carried with it the right to come into the Television Centre in order to perform its duties but, as I shall need to explain later, the fact that LST had no title to any part of the Television Centre had a number of consequences. One of those consequences, which Mr Thomas explored in some detail, is that the nature of Compass’s tenure of the places within the Television Centre which it occupies is, if not obscure, rather difficult to identify.
9.The agreement for occupation and services covers a vast range of topics, including the entire range of property maintenance and the day-to-day administration of the various sites. It descends to considerable detail, and it also covers such matters as the implementation of a decision by the BBC to move staff from one site to another, or to change the use of one site, or part of one site, and contingencies such as the failure of LST to perform its obligations. The depth of the detail by which the agreement deals with such topics is formidable. The range and nature of the services to be provided by LST, and the precise manner in which they are to be provided, vary in several ways from site to site, but those variations are largely immaterial for present purposes since I am required to consider only the Television Centre, and the arrangements for the provision there of food for employees and visitors.
10.The partnership agreement and the agreement between the BBC and the Property Vehicle allowed for—and in reality contemplated—the procurement of services from third parties, described in the agreements as “Service Partners”, although the Property Vehicle’s, or LST’s, relationship with them is not one of true partnership. The Service Partners do no more than supply goods or services, or both, in return for consideration. Compass Services UK and Ireland Limited became a Service Partner by an agreement dated 3 October 2001 between LST and itself. Compass undertook by the agreement to provide food at the Television Centre, and numerous other BBC properties; again, I do not need to describe the arrangements at those other properties. I should mention at this point that the services to be provided by Compass are frequently described, in all of the relevant agreements, as “catering” although the phrase “food provision” is also used. Mr Thomas was to argue that the terms are, at least for present purposes, synonymous. Mr Peacock said in opening the appeal that it was about “food provision at the workplace”, which he used as a portmanteau term to include both supplies of catering and supplies of food which do not amount to catering.
11.Compass began to make supplies in about November 2001. At approximately the same time LST entered into agreements with a great many other companies which were to provide services such as security, the BBC’s information technology infrastructure and cleaning.
12.The agreement between LST and Compass, too, is lengthy and detailed. It follows the format of the agreement between the Property Vehicle and the BBC, with which it is intended to be compatible, to the extent that its schedules bear the same numbers as the corresponding schedules of that agreement, those schedules containing provisions which are of no relevance to this agreement being simply omitted. Its purpose is to impose on Compass those obligations which were originally imposed on the Property Vehicle which are relevant to Compass, with no more modification than is inescapable. By this means the BBC is able to ensure that its wishes are fully respected, in substance and in detail.
13.Accordingly, the agreement between LST and Compass requires Compass to make food available at BBC properties, including the Television Centre, and to do so to standards prescribed by the BBC. Those standards cover matters such as the times of day at which food is to be available and the quality of the food (which is to be “nourishing” and “healthy” and of sufficient variety). The BBC reserved to itself the right to monitor Compass’s performance by measuring it against a previously agreed list of standards; the monitoring was not delegated to the Property Vehicle. The BBC undertook monitoring for, I was told, the first two years after Compass began to make supplies, but it was then discontinued. The BBC also reserved some rights—which I understand it has not exercised—to dictate the prices charged by Compass. Although there has been no formal direction by the BBC, and Compass is able to set its own prices by reference to normal high street prices, it nevertheless consults the BBC about them, and they have a bearing on the financial relationship between Compass and, ultimately, the BBC.
14.Compass was obliged by its agreement with LST to enter into a direct covenant with the BBC, as it has done. The covenant restricts Compass’s ability to terminate its engagement to provide food (among other things, it cannot terminate some only of its contractual obligations), and it caters for disputes between LST and Compass; in appropriate circumstances the BBC can require Compass to enter into an agreement with itself, by-passing LST and the Property Vehicle, in order to ensure the continuity of supply. It is clear from the agreements that continuity (and not merely in relation to Compass) is a major concern of the BBC.
15.It was apparent from the evidence that the availability of food to those working in or visiting the Television Centre, too, is something which the BBC considers to be important. In addition to those supplies with which I am concerned, Compass provides hospitality catering for people whom the BBC has invited to appear on its programmes and, for those who wish to eat a full, or light, meal it operates several restaurants and cafeterias within the Television Centre in which customers may sit down to eat. Many within the centre require no more than a sandwich or other snack, however, and it was in order to satisfy their needs that the outlets whose supplies give rise to this appeal came into existence. They were established some years before the times with which I am concerned, and remain in operation, though with some changes. As Mr Fris explained, recognising that employees would work more efficiently if they were able to buy what they themselves perceived to be good quality food, the BBC had decided to “bring the high street” into the Television Centre. Thus, although Compass’s outlets within the Centre have their individual names specific to the Television Centre, it sells goods under its own brand names, such as Upper Crust, which are available in many places throughout the country, as well as branded products bought in from third party suppliers. The Centre also contains other shops with familiar names, not run by Compass and making different kinds of supply. The intention, as I understood Mr Fris’s evidence, was to make the BBC’s working environment as congenial as possible.
16.The Television Centre consists of twenty-one buildings on one site, including a multi-storey car park on adjacent land, separated from the main site by a railway line under which there is a pedestrian tunnel. Some of the buildings are used for utility reasons only, but the main complex, containing several studios in which programmes are produced and from which they are broadcast, consists of four principal buildings, known as the “Doughnut” (because of its circular shape, with a central void), extending into the “Spur”, which is structurally integrated with it; the Restaurant Building; the Design Building; and the East Tower. To gain access to the complex, it is necessary to pass through a security control point at the main entrance (or, if one has an appropriate pass, through another of the available entrances) but thereafter employees and visitors can pass freely from one building to another, either by walking between them at ground level, or by using walkways at certain other levels. Access to some areas within the buildings is restricted—visitors cannot, for example, walk at will into studios which are in use—but there are no restrictions on access to Compass’s outlets.
17.I was told that about 22,000 BBC employees and 38,000 non-BBC staff have rights of access to the Television Centre and are issued with cards enabling them to gain access through the security points. The non-BBC staff includes freelance workers, contractors and their employees (including Compass’s employees) and those renting facilities within the Centre; the facilities are available to independent producers including even competing broadcasting companies and, I was told, use of the facilities by “outsiders” is increasing. On any one day, there might be some 8,000 people within the Centre, about half of them BBC employees, the remainder being made up of non-BBC employees and casual visitors, including “live” audiences for certain broadcasts, and those enjoying a guided tour. Members of the public, with no specific business at the Television Centre (such as forming part of an audience), are not admitted unless they are participating in a guided tour, for which the BBC charges a modest fee.