[2009] UKFTT 298 (TC)

TC00242

Appeal number LON/2008/1282

VAT – single or multiple supplies – Appellant providing ‘children’s parties’ for a single price – several elements of the supplies identified – held there were two principal elements, the use of a Hall and the provision of refreshments – analysis in Card Protection Plan inappropriate on the facts – whether there was a single supply on College of Estate Management principles or two supplies – Levob Verzekeringen considered – held there were two supplies of the use of the Hall and the provision of refreshments respectively – held that the single price could easily be apportioned between the two identified supplies – held further that the supply of the use of the Hall was an exempt supply of land – Belgian State v Temco Europe SA considered – appeal allowed in part

FIRST-TIER TRIBUNAL
TAX CHAMBER

	DIANA BRYCE
	Trading as THE BARN	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (Value Added Tax)	Respondents

				TRIBUNAL: 	JOHN WALTERS QC
						HARVEY ADAMS FCA						

Sitting in public in Norwich on 29 September 2009

R. Pipe, Roly Pipe & Partners for the Appellant 

R. Smith, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.	This is an appeal by Diana Bryce (“the Appellant”) against HMRC’s decision to refuse to make repayments of output tax of £8,951.20 and £3,616.65 respectively claimed by the Appellant in December 2007 by way of voluntary disclosures of errors on VAT returns. The claims relate to the VAT periods 12/04 to 09/07 inclusive.
2.	The output tax is reclaimed on the basis that it is a proportion of VAT charged by the Appellant for supplies related to children’s parties held at premises (“the Barn”) at Birch Farm, Hintlesham, Ipswich.  The Appellant claims that the proportion relates to exempt supplies of land made by the Appellant.
3.	We were provided with a bundle of documents and heard oral evidence from the Appellant.  She also provided a Witness Statement. From the evidence we find the following facts.
The facts
4.	The Appellant carries on a business at the Barn which is in the main a daycare nursery for very young children (in the 1-4 age group). Children’s parties, craft parties and cookery parties also take place at the Barn.  Most of the Appellant’s supplies – those relating to the daycare nursery, the craft parties and the cookery parties are accepted as being liable to VAT at the standard rate.  The dispute concerns the children’s parties.
5.	The Barn is a very large venue, constructed in 2002 to 2003 at a cost of £235,000 exclusive of VAT.  The main area of the Barn – which we will call “the Hall” – is 327 square meters in extent.  It has a high ceiling. We were shown photographs of the interior of the Hall and in our view it resembled a sports hall, with sports pitches marked out on a wooden floor.  However the Hall takes up only part (although the major part) of the building.  There is also a small reception area (27.5 square meters), a very small kitchen (we were not told the area of it), a room used for café seating next to the kitchen (this is 84 square meters in area) and toilets and changing facilities (principally for use in connection with an adjacent swimming pool).  There is also a room upstairs, above the changing room, where the craft parties and the cookery parties take place.
6.	 The layout of the Hall is different during weekdays, when it is used primarily as a daycare nursery for very young children and at those weekends when it is used for children’s parties.  The weekday layout is one where children’s play equipment is spread out widely over the floor area.  The play equipment is appropriate for the use of very young children and most of it would not normally be used by older children.  There is also fencing to provide areas where tables and chairs are set out, we assume for the use of adults accompanying the children.
7.	When the Hall is used for children’s parties at the weekend, the play equipment is gathered together and placed against the wall, and the tables and chairs are also set out in the main at the side of the Hall, leaving the main floor space free of encumbrances.
8.	The children who attend the children’s parties at the weekend are not by any means all of the 1-4 age group.  There are often older children present. Although the play equipment is available for use at the children’s parties if the hirers wish to use it, we are satisfied that the main attraction for customers is the large space in the Hall in which the children actually run up and down and use up their energy.  The play equipment is in any case not suitable for the use of older children.  We were told that the replacement value of the play equipment is in the order of £3,000.
9.	 Children’s parties are marketed to potential customers as “Weekend Play” parties.  At the relevant time, the price charged was £7.95 including VAT for each child attending. A minimum charge applies equal to the price for 10 children, or £100.  The figure of £100 may relate to the current, higher, prices now charged for children’s parties. 
10.	Customers purchasing children’s parties have a time slot of 75 minutes use of the Hall, and a further time slot of 45 minutes for refreshments in the café room.  Refreshments are provided.  They are described by Mr. Pipe, for the Appellant, as a ‘rudimentary buffet meal’.  This is a standard refreshments package provided by the Appellant.  In other circumstances (that is, outside a children’s party) it is supplied by the Appellant for a set price - £2.00 including VAT at the relevant time. 
11.	Whereas during the week when the Hall is used as a daycare nursery, children are brought for variable periods and supervisory staff are provided by the Appellant, when the Hall is used for children’s parties at the weekend there is no such supervision provided.  When in use as a daycare nursery there is plainly no exclusive occupation of the Hall by any customer.  However, when the Hall is used for children’s parties at the weekend, it is made available for the exclusive use of the customer (and those she/he invites to the children’s party concerned) for the 75 minute time slot contracted for.  
12.	The parties are advertised on the Appellant’s website as offering: “Exclusive use of the play barn for 1 hour 15 minutes followed by our hot or cold buffet”.
13.	When children’s parties are held the Appellant usually provides only one member of staff (extra assistance is occasionally provided for large parties).  That person is responsible for greeting the customer and her/his guests.  Once the customer is ready to start the party in the Hall, the member of staff leaves the Hall and goes away to prepare the refreshments in the kitchen and arrange the café room for the later use of the customer and her/his guests.  Food and cutlery are presented to the customer by the member of staff, but no service of the food is provided.  The customer organises this aspect of the refreshment time.  The member of staff does, however, clear up the café room and, while the customer and her/his guests are taking refreshments, the member of staff clears up and rearranges the Hall to make it ready for the next customer. There may be other users of the café room at the same time as the children’s party customer and her/his guests are taking refreshments.  The customer has no entitlement to the exclusive use of the café room during the 45 minute time slot.
14.	If any other features are required for the party, for example a Punch and Judy show, or a magician, the customer must make arrangements for them privately.  The Appellant is not involved.  The customer chooses what items from the play equipment will be used at the party (if any).
15.	Children’s party customers and their guests are free to use the toilet facilities and also the nappy changing facilities which are in the changing area.  They have, however, no exclusive use of these facilities, which might well be being used by other persons (e.g. customers using the swimming pool) at the time of the children’s party. 
16.	We find that the main attraction to customers of the children’s party arrangements is that they obtain the exclusive use of a very large and uncluttered covered and heated space for a children’s party.  Customers find it easier to control children if they have the exclusive use of the space.  Most of the business in children’s parties is done in the winter months, because in the summer months customers can arrange outside parties in gardens, etc.  In the winter months the children’s party arrangements offer to customers the advantage of a much larger space than most domestic premises could provide, and also relief from the disruption that having such a party at home might cause.  In addition, children can make as much noise as they like in the Hall.  This is an advantage to customers because the making of noise in other venues might cause inconvenience.  
The submissions
17.	Mr. Pipe, for the Appellant, submitted that the correct VAT treatment of the consideration received by the Appellant for the children’s parties was that it should be exempt as a grant of a licence to occupy land (viz: the Hall) pursuant to item 1, group 1, Schedule 9 VAT Act 1994.
18.	He argued that although there were three components of the supply, which he said were (a) the licence to occupy the Hall, (b) the use of the play equipment in the Hall and (c) the refreshments supplied, admittedly in the course of catering, there was for VAT purposes a single supply.
19.	He submitted that it was for the Tribunal, following the decision of the European Court of Justice (“ECJ”) in Card Protection Plan v Customs and Excise Commissioners [1999] STC 270, to identify the principal supply, which contended was the licence to occupy the Hall. This, if supplied on its own would have been an exempt supply.  The correct VAT treatment was thus, in his submission, to treat the supply – of all three components – as an exempt supply.
20.	His argument that the licence to occupy the Hall was the principal supply was based on the relative areas of the Hall and the café room, the relatively much larger costs of construction and maintenance of the Hall as compared to the café room, the insignificant cost of the play equipment as compared with the costs inherent in the construction of the Hall, the economic reality, reflected in the pricing structure operated by the Appellant, that the provision of the Hall is a much more significant element (in a proportion of 3:1) than the provision of refreshments.
21.	He submitted that the obvious alternative open to customers is to hold the party at home.  The reason why customers would choose to buy a children’s party from the Appellant, was not, he submitted because of the catering element – this is inherently of modest value, as witness the fact that it is available at a charge of £2 a head on weekdays.  The conclusion must be, he contended, that the main reason a customer would buy a children’s party is to obtain the exclusive use of the Hall, with the benefit of the play equipment which he described as “ancillary to that space”.
22.	He emphasised the fact that 75 minutes were spent in the Hall, as compared with only 45 minutes in the café room when refreshments were taken.
23.	Mr. Smith, for HMRC, submits that the relevant supplies made by the Appellant are single and not multiple supplies, but contends that they are properly characterised as single supplies of a children’s party and, on that basis, are not exempt but attract VAT at the standard rate.
24.	In response to the Appellant’s contentions, he submits that the services and facilities supplied along with the space (the right to occupy the Hall) are more than merely ancillary and the supply as a whole is more than just a passive supply of land.
25.	Commenting on the exemption in item 1, group 1, Schedule 9 VAT Act 1994 he noted that it derives from art. 135(1)(l) of the Principal VAT Directive (Directive 2006/112/EC), formerly art. 13B(b) of the Sixth VAT Directive (Directive 1977/388/EC) which provides for an exemption for the leasing and letting of immoveable property.
26.	He cited Sinclair Collis Ltd. v Customs and Excise Commissioners [2003] STC 898 and Belgian State v Temco Europe SA [2005] STC 1451 for the propositions that such exemptions must be interpreted strictly, the fundamental characteristic of a letting of immoveable property lies in conferring, for an agreed period and for payment, the right to occupy property as if the person on whom it is conferred were the owner and the right to exclude any other person from enjoyment of such a right.  He submitted that the cases also establish that in order to determine the VAT treatment of transactions, regard must be had to all the circumstances in which the transaction in question takes place, so that its characteristic features can be identified.
27.	He submitted that the Temco decision had established that the key feature of a letting of immoveable property for VAT purposes was that it was “usually a relatively passive activity linked simply to the passage of time and not generating any significant added value” to be distinguished from “other activities which are either industrial or commercial in nature, such as the exemptions referred to in art. 13B(b)(1) to (4) of the Sixth Directive, or have as their subject matter something such as the right to use a golf course, the right to use a bridge in consideration of payment of a toll, or the right to install cigarette machines in commercial premises” (ibid. at [20]).
28.	The “exemptions referred to in art. 13B(b)(1) to (4) of the Sixth Directive” are the provision of accommodation in the hotel sector and similar supplies, the letting of premises for parking vehicles, lettings of permanently installed equipment and machinery, and the hire of safes.  Mr. Smith submitted that it was clear from the reference to these “exemptions” that they were examples of activities which were not in principle “lettings of immovable property” for VAT purposes, and that it was incorrect to regard “lettings of immovable property” as in principle including similar activities to these “exemptions”, with the “exemptions” referred to being the only such activities which were excluded by the Directive from being “lettings of immoveable property”.     
29.	Further citing Temco (at [26] and [27]), he submitted that it was for this Tribunal “to establish whether the contracts, as performed, have as their essential object the making available, in a passive manner, of premises or parts of buildings in exchange for payment linked to the passage of time, or whether they give rise to the provision of a service capable of being characterised in a different way”.
30.	He submitted that this test excluded the supplies in this case from being “lettings of immoveable property” because “there are other significant features being supplied in addition to the making available of premises or parts of a building” (to quote his Skeleton Argument at paragraph 14).  He accepted on behalf of HMRC that the hiring out of a hall for meetings or parties would constitute the supply of a licence to occupy land for VAT purposes.
31.	The other “significant features” in this case which were identified by Mr. Smith were the availability of the play equipment for use at a children’s party, the provision of refreshments and the services of the member(s) of staff to prepare the café room and clear up the Hall after a party.  In Mr. Smith’s submission it does not matter that it is open to the Appellant’s customers not to use the play equipment provided, the fact that they are able to do so as an incident of the service supplied to them is, he submits, “key to identifying the supply”.
32.	Mr. Smith submitted that the supply made by the Appellant to a customer who bought a children’s party was a single supply.  In order to characterise that supply correctly for VAT purposes he submitted that the approach adopted by the ECJ in Card Protection Plan, of identifying a principal service, to which other elements of the supply must be regarded as ancillary, was not the only, or the appropriate method in this case.  
33.	Instead, he submitted that in this case the Tribunal should follow the approach of the House of Lords in College of Estate Management [2005] STC 1597 and recognise that in this case the Appellant is making one over-arching supply comprised of several elements.  He also cited Levob Verzekeringen BV v Staatsecretaris van Financien [2006] STC 766 as supporting this approach.  This is a case, he contended, where “two or more elements or acts supplied by the taxable person to the customer, being a typical consumer, are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split” (ibid.  at [22]).  
34.	He also referred to the decisions of the Tribunal in Willerby Manor Hotels Limited (16673) and Chewton Glen Hotels Limited (20686) where it had been held that the supply of a room for wedding receptions as part of an overall package had been characterised as the supply of a wedding party, and not simply as the supply of a licence to occupy the room.
35.	He invited the Tribunal to consider why people would want to obtain the supply – echoing Lord Slynn in Card Protection Plan, when that case returned to the House of Lords [2001] STC 174 at [25].
36.	His submission was that the availability of toys and the provision of refreshments would be important to anyone booking a children’s party with the Appellant.  Customers of the Appellant in his submission would book children’s parties with the Appellant because of the overall supply of services and not just for the space in the Hall.  The provision of the other services meant that customers did not have to expend further effort to provide entertainment to the children and then to feed them.
37.	Summing up, he submitted that when characterising the supply, it is clear that this was not a simple supply of occupation of the Hall, or a supply of such occupation with some other services which are of minor importance and are ancillary to the supply of occupation.  It is, instead, he submitted, a supply which has a number of features, all of which have a more or less equal prominence and which, taken together, cannot be said to amount to the passive supply of land. The service provided could be called that of providing facilities and catering for a children’s party, but he contended that the label was unimportant.  The objective nature of the supply was the important issue. However labelled, he submitted that the services supplied were not exempt, but were standard rated.
Discussion
38.	We agree with Mr. Smith that our approach cannot be confined to considering whether there is an element in what is supplied by the Appellant which should be recognised as constituting the principal service, whilst one or more elements, by contrast, should be regarded as ancillary and sharing the tax treatment of the principal service – this was the analysis adopted by the ECJ in Card Protection Plan – ibid. at [30] et seq. That paragraph is introduced by the statement that “there is a single supply in particular in [such] cases”.  Clearly, therefore, the ECJ regarded the analysis of one of several that might be adopted according to the circumstances of any particular case.
39.	 This point was emphatically made by Lord Walker in College of Estate Management – ibid.  at [30].  He said that [30] of the judgment of the ECJ in Card Protection Plan was dealing with a particular case exemplified by the earlier appeal of Customs and Excise Commissioners v Madgett and Baldwin (Joined cases C–308/96 and C–94/97) [1998] STC 1189.  
40.	In College of Estate Management, the House of Lords decided that written materials provided by the College in the provision of distance-taught courses and training were an element in a single supply of educational services.  Lord Walker gave the leading opinion and his reasoning (besides respect for the decision of the fact-finding tribunal’s decision, which had been`	that there was only one supply, which was the provision of education ibid. [23], [36]) was that that analysis accorded with the “economic reality” of what the College was providing (ibid. [32]).  
41.	Lord Rodger agreed with Lord Walker and added “some short observations of [his] own” to which we were taken by Mr. Smith.  He stated that the ECJ in Card Protection Plan  at [29] had pointed out that every supply of as service must normally be regarded as distinct and independent, but that where a taxpayer is involved in a transaction in which he performs several services, none of which can be singled out as the dominant or principal supply: 
“it may nevertheless be necessary to consider whether, for tax purposes, they are properly to be regarded as a single supply.  The supply of restaurant services is one example: Faaborg-Gelting Linien A/S v Finanzamt Flensburg (C–231/94) [19096] STC 774.” (College of Estate Management, ibid. at [10])
42.	Lord Rodger said that the answer to the question of how to characterise a supply with two (or more) elements: 
“is not to be found simply by looking at what the taxable person actually did, since ex hypothesi in any case where this kind of question arises, on the physical plane the taxable person will have made a number of supplies”.  
Following Card Protection Plan  at [29], he said that: 
“for the purposes of the directive the criterion to be applied is whether there is a single supply ‘from an economic point of view’.  If so, that supply should not be artificially split, so as not to distort (altérer) the functioning of the VAT system.  The answer will accordingly be found by ascertaining the essential features of the transaction under which the taxable person is operating when supplying the consumer, regarded as a typical consumer.”  
He added: 
“Since the 1994 Act has not adopted any different mechanism to give effect to this aspect of the directive, the same approach must be applied in interpreting the provisions of the Act.  The key lies in analysing the transaction.”
43.	The approach which we must adopt is therefore to analyse the transaction which the Appellant enters into with a view to deciding whether there is a single supply as a matter of economic reality or, put another way, from an economic point of view, which should not be artificially split, so as not to distort the functioning of the VAT system.
44.	We identify the elements or components of what is supplied are as follows:
•	The use of the Hall;
•	The use of (or opportunity to use) tables and chairs in the Hall;
•	The use of (or opportunity to use) play equipment in the Hall;
•	The provision of refreshments;
•	The service of member(s) of staff in receiving customers and their guests and in preparing refreshments and preparing the Hall and the café room before use/cleaning them up after use;
•	The non-exclusive use of (or opportunity to use) the toilet and changing facilities in the building.                                                                                                                                
45.	On the evidence we regard the second and third of these components as ancillary to the first and the fifth and sixth of these components as ancillary to the first and fourth.  That is, we regard, from an economic point of view, the use of the Hall and the provision of refreshments as the main or principal components of what was supplied by the Appellant to customers, and that it would be artificial, and distortive to split out for VAT purposes the second, third, fifth and sixth of the listed components.  
46.	Mr. Smith in argument accepted that the second listed component (the use of – or opportunity to use – tables and chairs in the Hall) would be regarded as ancillary to the supply of the Hall if (which he contended was not the position) it was correct to regard the supply of the Hall as a supply for VAT purposes.
47.	We consider that likewise the service of member(s) of staff and opportunity to use the toilet and changing facilities are ancillary to the supply of the Hall and the supply of the refreshments (accepted to be a supply in the course of catering), however one analyses the supply of the Hall and the supply of the refreshments. 
48.	 We were impressed by the evidence that the play equipment in the Hall was only suitable for very young children, that it was gathered together and placed against the wall when the Hall is used for children’s parties at the weekend, and that the main attraction to customers of the Hall is the exclusive use of a very large and uncluttered covered and heated space for the a children’s party, in which the children can run up and down and use up their energy.  We conclude that the play equipment is by no means always used when a children’s party is held and that it would not be in accordance with the evidence to regard it as a main or principal component of what was supplied by the Appellant to customers.  Indeed we regard it as ancillary to the use of the Hall as it does not constitute for customers an aim in itself, but a means of better enjoying the use of the Hall (cf.  Card Protection Plan, ibid. at [30]).
49.	We do not, however, regard either the use of the Hall, or the provision of refreshments, as ancillary services in the sense used by the ECJ in Card Protection Plan.  Both are principal services in that sense, as we are satisfied that they both constitute for customer “aims in themselves” as opposed to a means of better enjoying the other service (cf. ibid. at [30]).  They both were services which we find the customers, as typical consumers (cf. ibid. at [29]), considered they were paying for in the single price charged by the Appellant for the “Weekend Play” parties.
50.	We therefore reject Mr. Pipe’s principal submission that the licence to occupy the Hall was the principal supply to which everything else supplied was ancillary.
51.	It follows that we must decide whether the supply of the use of the Hall and the supply of refreshments, made by the Appellant for a single price, and advertised as a “Weekend Play” party, is a single supply of a party, as Mr. Smith submitted, or, instead, supplies of two distinct services, the Hall and the refreshments.  
52.	When the Tribunal in argument suggested that the latter treatment was possibly the correct one, Mr. Smith for HMRC contended that it was not, whereas Mr. Pipe accepted that it was “not cut and dried that there was a single supply”  and submitted, alternatively, that there were two separate supplies.
53.	The starting point of the analysis is that “every supply of a service must normally be regarded as distinct and independent” but that this does not apply where there is a supply which constitutes a single service from an economic point of view, the splitting of which into its constituent elements would be artificial and distortive of the functioning of the VAT system (Card Protection Plan  at [29]). 
54.	It is important to have regard to all the circumstances in which the transaction takes place (ibid. at [28]) and the fact that a single price is charged is not decisive, though it may suggest that there is a single service (ibid. at [31]).
55.	However the legal test to be applied is whether a split of the transaction which the Appellant entered into with a typical customer into the two elements of the use of the Hall and the supply of refreshments would be artificial and distortive of the functioning of the VAT system.  It appears from Card Protection Plan at [31] that a split would not be artificial or distortive if the circumstances “indicated that the customers intended to purchase two distinct services”.  
56.	In that case it would, as the ECJ recognised (ibid. at [30]) be necessary to apportion the single price charged between the two identified supplies and “the simplest possible method of calculation or assessment should be used for this”.  An apportionment would not prove difficult in this case because there is clear evidence that the Appellant charges £2.00 including VAT (per head) at other times for the supply of the refreshments.  Therefore, if a split of the transaction into supplies of (a) the use of the Hall, and (b) the refreshments is the right analysis, the total consideration received by the Appellant (£7.95 including VAT per head) can easily be apportioned as £5.95 including VAT relative to the use of the Hall, and £2.00 including VAT relative to the refreshments.
57.	 In the search for the economic reality of the transaction (cf. College of Estate Management) we also considered Levob.
58.	 In Levob, the ECJ developed the analysis given in Card Protection Plan.  It held (as we have mentioned above) that a transaction gives rise to a single supply “where two or more elements or acts supplied by the taxable person to the customer, being a typical consumer, are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split” (ibid.  at [22]).
59.	In Levob, the “economic purpose” of the transaction in issue was found by the ECJ to have been “the supply ... of functional software specifically customised to [the customer’s] requirements” (ibid. at [24]).  The ECJ found that it followed that it would be artificial to conclude that the purchaser purchased “first, pre-existing software, which, as it stood, was nevertheless of no use for the purposes of its economic activity, and only subsequently the customisation, which alone made that software useful to it” (ibid.  at [24]).
60.	On the facts of Levob, separate prices had been charged for the two elements.  However, the ECJ held that that was not “of itself decisive” (ibid. at [25]).  It was not decisive because it could not affect “the objective close link which has just been shown with regard to that supply and that customisation, nor the fact that they form part of a single economic transaction” (ibid. at [25]).
61.	 Levob, therefore, is an example of a case where the pricing arrangements (a single price for the “package”, or separate prices for the “elements”) was not determinative of the issue of a single or multiple supplies.  
62.	We have to ask ourselves whether there has been an “objective close link” shown between the provision of the use of the Hall and the provision of the refreshments which demonstrates that they form part of a “single economic transaction”.
63.	They clearly form part of a single legal transaction but that does not mean of itself that they form part of a single economic transaction.  (Again, Levob is an illustration of the converse situation.)
64.	Mr. Smith, in submitting that there was a single supply, stressed that there was no option to take one element without the other.  The elements were always offered as a package and taken as a package.  He contended that what the customer wants, and pays for, is a children’s party (comprising both elements).  He cited Customs and Excise Commissioners v British Telecommunications plc [1999] STC 758 where Lord Hope said:
“It may be said that before the supply can be regarded as a separate and distinct supply it must, at least to some degree, be physically and economically dissociable from the other supply.  But it would not be right to take this factor as the sole criterion as to whether the supply was separate and distinct from the other supply or was merely incidental or ancillary to it.  If that were so, it would mean that in very case where it was possible to dissociate the two economically and physically (for example, because one supply was of goods and the other supply was of services and the price for each supply would be separately identified) the two supplies would have to be treated as separate supplies for VAT purposes.  That would not be consistent with the guidance which the Court of Justice gave in Card Protection Plan at [29] that a supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system.
According to this guidance, the question is one of fact and degree, taking account of all the circumstances.  Cases can be envisaged, such as the tours provided in connection with hotel accommodation in Customs and Excise Commissioners v Madgett and Baldwin (trading as Howden Court Hotel) (Joined cases C–308/96 and C–94/97) [1998] STC 1189, where the relationship between the two supplies would be so disproportionate as not to enable the transaction to be regarded as comprising one supply.  Another example, where the supply was of transport and delivery services, would be where the goods were transported by special arrangement with the purchaser by unusual methods or over unusually long distances.”
65.	Mr. Smith drew from those observations that just because it is possible to say that two supplies could be separated, that does not mean that they should be: an analysis of the transaction is called for.
66.	We notice that in the passage cited Lord Hope was stressing the need to regard the proportionality of the relationship between the two supplies. Here, the proportionality of the relationship between the element of the use of the Hall and the element of the provision of refreshments is such as to suggest that they should be regarded as two supplies, not one.  However, it is important to note that British Telecommunications was decided by reference to the Card Protection Plan test alone, and before the development of the test in Levob and College of Estate Management.
67.	 We agree with Mr. Smith that the elements of the transaction were always offered by the Appellant to customers as a package and taken as a package, and that what the customer wants, and pays for, is a children’s party (comprising both elements).  However we do not consider that College of Estate Management or any other authority obliges us to conclude from that that there was a single supply of a children’s party.
68.	It is possible to split the elements into two supplies, of the use of the Hall, and of refreshments, and the question is whether it would be artificial and distortive of the VAT system to make that split.
69.	In our view it would not be artificial and distortive to make the split if we are of the view that the fact that the elements were presented and accepted as a package illustrated only that the package, labelled a “Weekend Play” party, was a convenient and advantageous way of making what were in economic reality two supplies.
70.	We find support for this conclusion in the decision on the converse factual case in Levob.  There, the ECJ held that, despite there being ex facie separate supplies of goods and services, the economic reality was that the combination of the supplies was made as a package.  
71.	In Levob, the supplies of goods (software) and customisation service (services) were “so closely linked that they formed objectively, from an economic point of view, a whole transaction, which it would be artificial to split” because, in particular, the purchase of one element without the other would have been of “no use for the purposes of [the customer’s] economic activity” (ibid. at [24]).
72.	We consider, on the evidence in this case, that the provision of the two elements of the use of the Hall and the refreshments were not so closely linked that the purchase of one element without the other would have been of no use for the customers’ economic purposes, which were to entertain the children.  The fact that it was advantageous to the Appellant and may have been beneficial to the customers to be able to purchase the two elements together does not of itself establish the necessary close link between the two.
73.	The economic reality, we find, was that there were two elements of entertainment which the customers purchased as a package.  The first was the 75-minute slot in the Hall, where the children could play under the customers’ supervision and, presumably the customers hoped, exhaust themselves or at least ‘let off steam’.  Then there was stage 2 of the entertainment, which was the 45-minute slot in the café room, where the children (and, presumably, accompanying adults) would be given refreshments. This view of the economic reality echoes the language used in the advertisement on the Appellant’s website which we have mentioned above, at paragraph 12 of this Decision, in which what was offered was described as ‘exclusive use of the play barn for 1 hour 15 minutes followed by our hot or cold buffet’. It was no doubt convenient for the customers to purchase the two elements as a package, but we find that one element without the other would certainly have served their economic purposes.
74.	  We regard the economic reality of the “package” aspect of the transaction to be just that.  It was a convenient and advantageous way of grouping the provision of what were in reality two separate supplies of services. In that sense it was wholly different from the “package” in Levob or the “package” in College of Estate Management.  The fact that one may be able to give the package a specific description such as “a children’s party” does not signify, in the face of our finding that as a matter of economic reality two separate supplies of services were being made.
75.	We therefore conclude that the Appellant made two supplies, of the use of the Hall, and of refreshments, respectively.
76.	It remains to decide whether the separate supply of the use of the Hall (taking into account the ancillary supplies of the use of or opportunity to use the play equipment and the reception services and toilet and changing facilities) is an exempt supply of the grant of a licence to occupy land pursuant to item 1, group 1, Schedule 9, VAT Act 1994.
77.	On this aspect of the case, the authority cited to us (as mentioned above) was Belgian State v Temco Europe SA (Case C–284/03) [2005] STC 1451. In that case the ECJ reiterated that the concept of the letting of immoveable property within the meaning of article 13B(b) of the Sixth Directive was:
“essentially the conferring by a landlord on a tenant, for an agreed period and in return for payment, of the right to occupy property as if that person were the owner and to exclude any other person from enjoyment of such a right” (ibid. at [19]).
78.	The ECJ went on to distinguish:
“a transaction comprising the letting of immoveable property, which is usually a relatively passive activity linked simply to the passage of time and not generating any significant added value” 
from:
“other activities which are either industrial and commercial in nature, such as the exemptions referred to in art. 13B(b) (1) to (4) of the Sixth Directive, or have as their subject matter something which is best understood as the provision of a service rather than simply the making available of property, such as the right to use a golf course ...the right to use a bridge in consideration of the payment of a toll ... or the right to install cigarette machines in commercial premises”.  (ibid.  at [20])
79.	Even taking into account the ancillary supplies mentioned in paragraph 76 above, we have no hesitation in concluding that the supply of the use of the Hall by the Appellant to customers is a “relatively passive activity linked simply to the passage of time (75 minutes) and not generating any significant added value”.  
80.	We notice that the ECJ has not expressed itself in inflexible terms (“usually a relatively passive activity .... not generating any significant added value” (emphasis added)).  We consider, therefore, that there is sufficient flexibility in the test to enable, and require, us to conclude that the supply of the use of the Hall in this case was an exempt supply of the grant of a licence to occupy land pursuant to item 1, group 1, Schedule 9, VAT Act 1994.
Conclusion
81.	We decide therefore that the supplies related to children’s parties which are in issue are for VAT purposes a combination of two separate supplies, of the use of the Hall and of refreshments respectively.  Of the price charged for the parties (£7.95 per head including VAT), £5.95 per head including VAT is attributable to the supply of the use of the Hall, and £2.00 per head including VAT is attributable to the supply of the refreshments.
82.	The supplies of the use of the Hall are exempt, while the supplies of the refreshment, as supplies in the course of catering, are standard rated.
83.	In consequence there has been an overpayment of output tax by the Appellant in the VAT periods 12/04 to 09/07, but not so large an overpayment as the Appellant claimed in her voluntary disclosures.  The Tribunal leaves it to the Appellant and HMRC to agree the amount which HMRC must repay in accordance with what we have decided.  If agreement cannot be reached, the appeal should be relisted for hearing by a Judge sitting alone.
84.	We mention that Mr. Smith, for HMRC, expressly disclaimed any reliance on a defence of unjust enrichment, because he had no evidence to enable him to take the point.
85.	Finally, both sides said that they were not seeking costs in the event of success.  We therefore make no order as to costs.

JOHN WALTERS QC

JUDGE OF THE FIRST-TIER TRIBUNAL
RELEASE DATE: 6 November 2009