Laura Poots KC and Thomas Chacko consider classification or characterisation in VAT cases.
2:00 What is meant by classification and characterisation: when you have identified you have a single supply or a set of multiple supplies, what is that supply? And is the position completely clear following Gray & Farrar?
2:50 The first step is identification of supply – to decide if you have a single or multiple supply – and then one looks at classification. Explanation of the two bases on which a single supply might be identified.
4:56 Is classification the final word on how the supply will be taxed?
Case law and what are the tests?
7:26 Card Protection Plan (CPP) Supplies – principal-ancillary supplies and how they are classified.
8:12 Levob Supplies – In classifying these, different courts have looked at “overarching” or “economic reality” test and the “predominant element” test.
10:45 Gray & Farrar. Court of Appeal has now confirmed that there is a hierarchy of three tests (1) predominant element (2) principal-ancillary (3) overarching supply.
12:00 Predominance test: This is the primary test. Look at economic purpose and the typical customer (qualitative as well as quantitative).
13:55 Principal-ancillary test: a sense check on predominance, but also useful in working out the number of elements.
15:41 Overarching test: can assist in deciding predominance.
17:00 In applying these tests, how do you identify the elements of the supply?
How does this all work in practice?
19:56 HMRC don’t seem to view Gray & Farrar as settling the test in every case. What are HMRC’s arguments and what are the problems with them?
21:05 HMRC argument 1: Individual elements cannot be singled out.
22:06 HMRC argument 2: subset of Levob supplies where no conceptual room for predominance test. HMRC’s reliance on Blackrock and Deutsche Bank.
29:19 A practical example – Story Terrace. Court takes a lot of notice of contractual documentation and marketing descriptions. Potential relevance of online reviews. Demonstration of the importance of considering identification before classification.
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Case citations and legislation
Blackrock Investment Management (UK) Ltd v HMRC [2020] STC 1445
Card Protection Plan Ltd v Customs and Excise Commissioners (Case C-349/96) [1999] STC 270
Finanzamt Frankfurt am Main V-Hochst v Deutsche Bank AG (C-44/11) [2012] STC 1951
HMRC v Gray & Farrar International LLP [2023] STC 327
Levob Verzekeringen BV and another v Staatssecretaris van Financien (C-41/04) [2006] STC 766
Město Žamberk v Finanční ředitelství v Hradci Králové (C-18/12) [2014] STC 1703
Spectrum Community Health CIC v HMRC [2024] STC 1124
Story Terrace v HMRC [2025] UKFTT 1554 (TC)
Target Group Ltd v HMRC [2018] UKFTT 226
Talacre Beach Caravan Sales Ltd v Customs and Excise Commissioners (Case C-251/05) [2006] STC 1671
European Commission v France (Case C-94/09) [2012] STC 573
EC v Grand Duchy of Luxembourg (Case C-274/15) [2017] ECR
