19386
VAT – Assessment – Whether supply of transport of passengers or making of arrangements for transport of passengers – Sch 8 Grp 8, Item 4 and Item 10 Value Added Tax Act 1994 – No – Agreement or undertaking to provide transport of passengers – Standard rated – Appeal dismissed

LONDON TRIBUNAL CENTRE

	THAMESDOWN TRANSPORT LIMITED	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	KAMEELKHAN  (Chairman)
						MRS M SMITH

Sitting in public in London on 4 October 2005

Mr R Barlow of counsel, for the Appellant 

Mr C Mellor of counsel, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1.	The Appellant appeals against an assessment to VAT in the amount of £49,148 made on the 16 July 2004 for the period 09/02.
2.	The Assessment relates to a payment, in the sum of £330,000 made by Swindon & Marlborough NHS Trust (“the Trust”) to the Appellant for the purchase, by the Appellant, of three new buses. In return for the payment,  the Appellant had undertaken to operate a scheduled bus service between the Swindon Town Centre and the Great Western Hospital. The Agreement between the Trust and the Appellant is evidenced by a draft Agreement dated November 2001 (“the Agreement”) and a letter from the Appellant to the Trust, dated 26 September 2002 (“the Letter”).
3.	The Agreement provides:- 

“In return for the Grant from the Trust, Thamesdown Transport agrees to operate a registered local bus service between Swindon town centre and the bus interchange facility at the Great Western Hospital.  This service would be operated as a limited stop, “express” shuttle service (the “Shuttle”) for at least the main daytime hours, although picking up and dropping off passengers at additional stops would be permitted in the evening period after 1900 and all day on Sunday and Bank Holidays. The Bank Holidays for service operation are defined in accordance with the Swindon Borough Council’s normal conditions of tender” (Clause 1.3.1).
4.	The Shuttle is to be run on a commercial basis with the Appellant charging passengers and retaining the revenue so generated. This is confirmed by the Agreement which states :

“As with any other commercial bus service, the Revenue taken on the Shuttle and any other off-bus revenue attributable to the service will be retained by Thamesdown Transport. If or when a park and ride service becomes operational in or around the Commonhead area of Swindon, the Trust will support any proposal by Thamesdown Transport to combine the Shuttle with a park and ride service, using The Vehicles referred to in this Agreement….” (Clause 1.3.6).
5.	Although the Agreement is in draft, no part of this dispute turns on the basic facts as agreed between the parties.  The letter of 26 September between the parties confirms, in essence, the main terms of the Agreement.  Mr John Owen, Managing Director of the Appellant who was called as a witness, confirmed that the Agreement and the Letter represented the intention of the parties.
6.	The Commissioners have said that the payment of £330,000 (approximately) was consideration for a standard rated supply and assessed the Appellant accordingly.  The Appellant contends that the payment was for the zero rated supply of transport of passengers or the making of arrangements for the supply of transport of passengers pursuant to Schedule 8, Group 8, of the Value Added Tax Act 1994 (VATA 1994).  The Appellant accepts that the supply was made to the Trust and is no longer pursuing the argument that the payment, made by the Trust, constituted a grant which is outside the scope of VAT.  This argument is therefore not raised in the Appeal.

Appellant’s Arguments
7.	Mr Barlow for the Appellant says that the plain wording of the relevant provision supports the argument that the nature of the supply is determined by the fact that passengers are carried and that if the supply is to a third party it is still the transport of passengers if that is how it is physically carried out.

	He also says that third party consideration is just as much payment for a supply as any other and refers to Article 11 (1) (a) Sixth Directive and in this case the fact that the Trust, a third party, pays for the transport of passengers is not a factor which should influence the analysis of the tax treatment of the supply.
8.	The Appellant also says that the payment made by the Trust to Thamesdown was for an indefinite number of journeys which could not be identified until they occurred.  The payment could therefore be said to be an arrangement for the transport of passengers rather than directly for transport.  In this sense the paying for the buses is not divorced from the provision of the transport service.
9.	He says further that the arrangements made are for the transport of future passengers and the arrangements being made were for the transport of passengers to the hospital. The making of arrangements is not confined to arrangements made by an agent or intermediary. The making of arrangements for the transport of passengers is an alternative argument to the transport of passengers argument. The transport of passengers provision is contained in Schedule 8 Group 8 Item 4 VATA 1994 and the making of arrangements is contained in Schedule 8 Group 8 Item 10 VATA 1994.  Both supplies are zero rated.
10.	Mr Barlow suggested that the supply in question was in fact a commitment to provide a bus service and a bus service by its nature usually means the transportation of passengers. In this sense, the Appellant could only have complied with the Agreement if they actually carried passengers. The running of the buses empty would not have satisfied the Agreement. A supply has to be for services and there must be a link between the service being provided and the payment. Mr Barlow said that the transport of passengers would not have occurred without the payment of the £330,000 and the fact that passengers are carried on the bus is evidence itself of the transportation of passengers, which is a condition of the Agreement. Mr Owen confirmed that the bus service would not have been provided on a commercial basis without the payment from the Trust.

Respondents’ Arguments
11.	The Respondents argue that for the supply of passenger transport is necessary to supply a vehicle with driver/crew for carriage of passengers. Such a supply may be made either directly to the consumer or to a sub-contractor. (See C&E Commissioners v Blackpool Pleasure Beach Co. 1974 [STC] 138 (“Blackpool Pleasure” case)).
12.	The second point made by the Respondents is that the transaction has to be looked at objectively.  Counsel draws reference to the case of British Railway Board v Customs & Excise Commissioners 1977 [STC] 221 at 229 (“BRB” case).  In BRB, Brown L. J. stated that, the vital question to be asked is:  “what was the Board supplying to Miss Owen (the purchaser of the card) in consideration of her payment of £1.50” or, put another way, “what did the Board supply in consideration of the £1.50”. This quotation is referred to in support of the position that the motive or intention of the individual receiving and the person supplying the goods is irrelevant and the transaction itself must be looked at objectively to determine the supply which is being made. 
13.	Mr Mellor for the Respondents argues that there must be a direct link between the supply to the third party and the consideration being given.  He said that the Trust is getting an undertaking from the Appellant that the buses and transportation will be available and the service will be provided to prospective passengers.  The passengers, however, are getting transport and are paying for that service.  Mr Mellor said that even if no passenger got on the bus, the Appellant would still satisfy their obligation of providing a service pursuant to the Agreement. The Respondents contend that payment must be for services rendered (See Apple & Pear Development Council v C&E Commissioners 1988 [STC] 221).  In this case the recipient of the service (i.e. transport) is different from the party providing consideration for the buses used to provide the transport and they submit that this must be a relevant consideration in deciding whether the necessary direct link exists between the provision of the service of passenger transport and the consideration which is being paid by the third party Trust.  The Respondents sought to distinguish the BRB case where there was no third party involvement and the recipient of the transport in that case was also the party providing the consideration.

They say that there is no direct link between the payment made by the Trust and the transport of the passengers but there is a direct link between the consideration paid by the passengers and the provision of the transport by the Appellant.  Their submission is that the Agreement simply provides an undertaking from the Appellant to the Trust.

For there to be a link between the payment by the Trust and the transport of  passengers, the payment would have had to either subsidise the fares paid by the passengers (who pay full fares) or be treated as a part payment of the fare which they paid.
14.	While it is accepted that under Article 11 (1) (a) of the Sixth Directive third party consideration is “just as much payment for a supply as any other” in order for the supply in question to fall within Schedule 8, Group 8, VATA 1994 the consideration provided by the Trust must be for the supply of passenger transport and, for the reasons previously given the Respondents say that this is not the case. The payment is not part payment, nor does it go to reduce the fares paid by the passengers.  It is simply consideration for an undertaking given by the Appellant to run a scheduled bus service.
15.	Further, the Respondents say that Schedule 8, Group 8, Item 10(b) VATA 1994 applies to agents and intermediaries.  In the present case the Appellant is making both the supply to the Trust and a separate supply of passenger transport to the passengers.  In such circumstances, the Appellant cannot bring themselves into these provisions because the arrangements are being made for their own supplies. The Appellant cannot be a principal and an intermediary at the same time.
16.	The Respondents therefore conclude that the supply in this case is not a supply of passenger transport or the making of arrangements for such supply, within Schedule 8 Group 8 of the VATA 1994 Act and the supply is correctly standard rated.

Our decision is given below:
17.	The Agreement between the parties, which shows their intention, states that the payment by the Trust to the Appellant is so the latter “agrees to operate a local bus service between Swindon Town Centre and the bus interchange facilities at the Great Western Hospital” (see Clause 1.3.1). They agree the schedule, timetable, frequency and type of buses for the service. The period of service is also agreed. The Agreement states that the Appellant “undertakes to provide and operate the Shuttle commercially “for a period of 18 months” (see Clause 1.3.3). The payment is to “support commercial operation of the Shuttle Bus Service”. 
18.	Payment to purchase the buses or rather to reimburse the payment made by the Appellant, for the purchase of the buses, cannot be said to be made for the transport of passengers.  It may be seen rather as requiring the Appellant to give an undertaking to provide the Shuttle service or to reimburse the costs of the buses but it is not sufficient to be a payment for the supply of transport to passengers.
19.	The transport of passengers is a wider concept.  The term “passenger” denotes a person being transported in a vehicle being driven by someone else. Transport would normally involve the supply of a vehicle together with a driver and other crew required to operate the vehicle, at the very least, with driver operated buses it would involve a bus and driver. The meaning of “transport”, according to the Oxford English Dictionary, is the action of carrying or conveying a thing or person from one place to another. It is inherent in these definitions that a purchase of a bus is simply not sufficient to constitute the transport of passengers although the bus will be used in the transportation of passengers and the reimbursing of money used to purchase the bus does not involve an element of transport.
20.	The payment of an amount of money to reimburse the Appellant for money expended on the purchase of buses in return for an undertaking to provide transport to passengers is not the transport of passengers as contemplated by the legislation.  It is rather akin to an investor who invests money in the purchase of a bus knowing that the bus would be used in the transport of passengers but who is not involved in the transportation of the passengers themselves. It is the provision of the money to buy the buses.
21.	A second question, which arises, is whether there is a direct link between the payment by the Trust and the payment of the passengers (see Apple and Pear Development Council v C&E Commissioners 1998 [STC] 221). We cannot see that there is such a link. The passengers on the bus pay full fare. The payment by the Trust did not involve wholly or in part a payment towards the fare of the passenger.  It was not a part payment nor a subsidy to reduce the fare which is charged on a commercial basis by the operator of the service, the Appellant. 
22.	A case which is helpful on this point, is the BRB case.  In that case the British Railways Board started a scheme whereby students could travel for half fare.  Students who wished to take advantage of this scheme had to purchase a railcard for £1.50. The Commissioners issued an assessment charging VAT on these supplies.  The Board appealed and contended that the supplies should be zero rated under what is now Schedule 8, Group 8, Item 4 VATA 1994.  The Court of Appeal allowed the Board’s appeal.  Lord Denning said that the payment of £1.50 was “part and parcel of the payment which the student made for travelling on the railway.  Just as a season ticket is payment in advance for travelling on the railway (whether the passenger uses it or not) also this £1.50 is part payment in advance”. The idea here is that the payment is “part and parcel” of the transaction involving travel and the payer and recipient of the service are the same person.

In our case, there is no direct link in the same way between the payment by the Trust and the transport of passengers. Mr Barlow says that the supply in question was in fact a commitment to provide a bus service and a bus service by its nature means that there will be transportation of passengers. It is accepted that the Appellant does something for the money it receives – it agrees to provide a bus service.  But the payment made is not for the running of the bus service but rather in return for an agreement to provide the transport service to people wanting to go to the hospital.  The timetable is agreed and the vehicles specifications are agreed.  There is no direct link to any specific individual supply to a passenger and the payment is not “part and parcel” of the transaction with the passenger. Unlike the BRB case, the payment made by the Trust was not for discounted travel to passengers nor was it part payment of the passengers’ fares. In the BRB case, the transaction was between the passenger and BRB and while third party consideration can be provided for a supply, in this case there is no nexus between the transportation of passengers and the payment. There is no link between the payment and the running of the bus service and the payment is not “for the transport of passengers”. The most that can be said is that the parties have made mutual promises to each other in that the Trust agrees to reimburse the cost of the buses and the Appellant agrees to provide the service defined in the Agreement.
23.	A question raised by the Appellant is whether the payment by the Trust can be taken as a third party payment under Article 11(1)(a) of the Sixth Directive. The real question is whether the payment by the Trust is part payment for the transport of passengers and can it be part of the fare paid by the passenger and so “directly linked to the price of such suppliers” (Article 11(1)(a) Sixth Directive).  We must go back to the basic question, what is the payment for and is it for the supply of passenger transport. The answer is clearly no. We have dealt with the question of what the payment is for and to reiterate, it is for an undertaking to run a scheduled bus service.  Schedule 8, Group 8 VATA 1994 requires that the payment be “for the supply of passenger transport” and this supply was paid for separately, by the passenger, when they paid their fare and not by the Trust when it made its payment to the Appellant.
24.	Mr Barlow’s alternate ground for the Appellant is that should it not be the transport of passengers then, it could be for the making of arrangements for the transport of passengers (Schedule 8, Group 8, Item 10(b) VATA 1994).  He says that the making of arrangements is not limited to arrangements of a particular type and the arrangements can be made by the same person as the person who provides the transport.  The arrangements being made are for the transport of passengers in the future which arrangements can be made by agents, sub-contractors or other parties.  Mr Mellor, for the Respondents, argues that the particular provisions in question deals with agents and intermediaries and in the present case the Appellant is making both the supply to the Trust and the separate supply to the passengers themselves and they cannot be making arrangements for their own supplies. The Appellant is acting as a principal in supplying transport and cannot also be an intermediary.  
25.	The words “making of arrangements” denote a connection between arrangements and the main supply. In this sense the services are linked.  We are therefore concerned with the making of arrangements for the transport of passengers.  It is apparent that the making of arrangements does import a third party concept into the legislation and the parties undertaking these tasks would be intermediaries, brokers or agents who make arrangements for the transport.  In the present case, the Appellant is not an intermediary in relation to the passenger but rather the principal.  They are involved in buying the buses and are paid by the Trust to do so and in this sense, one could argue that they are intermediaries in making arrangements for the buying of buses but not in the making of arrangements for the transport of passengers.  The making of arrangements for the buying and paying for buses is different from the making of arrangements for the transport of passengers and the payment for those supplies for the passengers. The crucial point is that the Appellant is acting as a principle with regard to the supply of transport and so cannot be an intermediary with regard to those supplies. We therefore do not accept that the Appellant comes within Schedule 8, para 8, item 10(b) VATA 1994. 
26.	For the reasons given above the supplier does not constitute a supply of passenger transport or the making of arrangements for such a supply within the meeting of Schedule 8, Group 8 VATA 1994 and the supply is correctly standard rated.
27.	The Appeal should accordingly be dismissed.  There would be no order as to costs.

DR KAMEEL KHAN
CHAIRMAN

RELEASED:16 December 2005

LON/04/1622
££Thamesdown Transport Ltd v Her Majesty's Revenue and Customs [2005] UKVAT V19386 (16 December 2005)