London Tribunal Centre Lon/2004/0903

19755

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

LONDON TRIBUNAL CENTRE LON/2004/0903

PRET A MANGER (EUROPE) LtdAppellant

- and -

HER MAJESTY’S REVENUE AND CUSTOMSRespondents

Tribunal:Adrian Shipwright (Chairman)

Mrs Penny Jonas

Sitting in public in London on 5 and 6 May 2005 and 10 and 11 November 2005

Andrew Young, Counsel for the Appellant

Angus Edwards, Counsel instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

DECISION

Introduction

Pret a Manger (Europe) Ltd (“Pret”) appeals against a refusal by HM Revenue and Customs (“HMRC”) to accept and process a VAT repayment claim for some £800,000 paid to HMRC by Pret on the basis that certain supplies were standard-rated which Pret argues should have been zero-rated. The decision appealed against is contained in a letter dated 17 December 2003.

The Issue

The essential question at issue in this case is whether supplies of cold food (such as prepacked ready-made sandwiches and fruit) are zero-rated as supplies of food or are standard-rated as supplies of catering in the particular circumstances. This raises two further points:

(1)Was there a supply of catering per se? and

(2)Was there a supply of catering within the extended meaning given in Note (3)(a)?

The Law

The provisions relating to food and catering are found in Group 1 of Schedule 8 Value Added Tax Act (“VATA”). The broad effect is that food is to be zero-rated except as otherwise provided when presumably it is standard rated. This Group provides insofar as is relevant:

“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 …”

The Authorities

A bundle of authorities was produced. This contained the following items.

Customs & Excise v B H Cope [1981] STC 532

R v Customs & Excise Ex P Sims [1988] STC 210

Travellers Fare Limited v Customs & Excise, Trib ref 13482

Armstrong v Customs & Excise (1984) VATTR 53

Bishop & P Elcocks v Customs & Excise, Trib ref 17620

E & g Catering Services Ltd v Customs & Excise, Trib ref 15,552

Fresh Seafoods Barry Ltd (1991) VATTR 317

Ashby Catering v Customs & Excise, Trib ref 4220

Whitbread plc v Customs & Excise, Trib ref 18,706

Whitbread Group plc v Customs & Excise [2005] All ER 396

Robert Ross v Ryanair Ltd 2002 CL209468

Robert Ross v Ryanair [2004] EWCA Civ 1751

Faabor-Gelting Linien A/S v Finanzamt Flensburg (C-231/94) [1996]

Bristol City FC v Customs & Excise, Trib ref 164

Skilton & Gregory v Customs & Excise, Trib ref 11723

Customs & Excise v Safeway Stores plc 1997 STC 163

Compass Contract Services UK Ltd v Customs & Excise, Trib ref 19053

Blasi v Finanzamt Munchen [1998] STC 336 (C-346/95)

SUFA v Staatssecretaris van Financien (C 348/87)

The most useful authority was Compass on which we rely below. We adopt its analysis. We have read and considered the other authorities carefully. We have concluded that we agree with the analysis of the cases in Compass and feel it unnecessary and not helpful to repeat this analysis in detail. We find the other Tribunal cases useful illustrations but ones which depend on their own particular facts (cf Peter Smith J in Whitbread at paragraph 20).

Evidence

Oral evidence was given by Jonathan Paul Hemens, Pret’s internal auditor and by Terry Parkinson, a VAT partner with Haines Watts. A witness statement was provided for Mr Hemens.
An agreed bundle of documents was produced. It was admitted as evidence.
A site visit was arranged to Terminal 4 at Heathrow and the Folkestone Channel Tunnel Terminal. This was attended by the Tribunal and representatives of both parties. This occupied the first day of the hearing. We found this most useful in reaching our decision as it enabled us to see the particular setting and context. It seems this was not an advantage that others have had in reaching their decision.
This appeal also concerned supplies made at Terminal 1 at Heathrow. The parties have agreed to treat the two Heathrow sites as identical in all respects. Hence no site visit was made to Terminal 1 at Heathrow.

Finding of Facts

From the evidence (including the site visit) we make the following findings of fact.
Pret – General Matters

(a)Pret carries on business selling sandwiches, fruit, yoghurt, pastries and some fast food as well as coffee, tea and soup. This case is only concerned with cold food such as sandwiches and fruit (references to sandwiches in this decision, where appropriate, include all the cold food items in question here).

(b)Customers can consume their purchases from Pret in areas controlled by Pret or take them away to eat.

(c)Customers select the items of the type this case is concerned with which they wish to purchase from the cold cabinets and displays in the retail outlet and take them to the till to pay for them.

(d)At the till customers were asked whether the items are for consumption on the premises or not. If the items are for consumption on the premises they will be put on a tray. If they are for consumption off the premises they will be packed into a convenient bag. A paper napkin or serviette will be provided in either case.

(e)Seating areas are provided by Pret for “on consumption”.

(f)The flooring of these areas tends to match that in the selling area and the snack area is designated in some way by the flooring (eg. pink tiles in some cases such as Terminal 4 at Heathrow).

(g)Neither the unit at Heathrow nor at Folkestone could itself be locked but the display cabinets seem to be capable of being closed and/or being cleared. Access to theses areas could be restricted though and persons asked to leave.

(h)The branding of the units clearly showed that they were occupied by Pret and were clearly under Pret’s control and not the licensor or lessor’s control.

Pret – Heathrow

(a)The unit in question at Heathrow is “Airside”. It is a unit within the complex of retailing units in the Departure Lounge in Terminal 4 where people can wait before being called to the relevant Gate for the departure of their particular flight.

(b)This is in an area after the manned barrier at which one has to show one’s boarding pass and passport but before the Departure Gates which lead to the aircraft. As well as passengers other people have access to this area. It is called “Airside” to distinguish it from the “Landside”, ie the area before the passport control manned barrier.

(c)Various people such as maintenance workers, officers of HM Revenue and Customs, retail workers and others have access to Airside (where the Pret premises in question are) and so could take advantage of the Pret facility.

(d)The unit in question at Terminal 4 consists of a retail area with the till towards the back of the unit. There are display units and cabinets from which the customers select their food. There is a separate designated sitting area with tables and chairs at which the food can be consumed. The area is edged by pink tiles which show its extent.

(e)People who sat in the seating area without having made a purchase from Pret could be asked to move if Pret was busy.

(f)The occupation of the retail unit and the eating area are the subject of an agreement with BAA. This agreement provides for Pret to occupy the retail area and the seating area. This is done for payment which is to be calculated on a turnover or royalty basis. Hence the agreement provides for prices to be in line with certain other sites and for the Heathrow sites to be open between particular times. These seem to us likely to be included because of the turnover calculation to provide a "floor".

(g)The agreement also provided for Pret to keep its unit tidy and to remove rubbish etc. Provision was also included that Pret should stop its rubbish etc from overflowing into the Departure Lounge. This does not give Pret control over the Departure Lounge.

(h)We find as a basic fact that there was no joint-venture or partnership or similar arrangement between Pret and BAA. We further find that the Pret retail unit and seating area were separate premises from the Departure Lounge. We are able to do this because of observations made during our site visit.

(i)We also find that the premises in question at Heathrow on which the supply was made by Pret were the retail unit and seating area and that supplies for consumption outside the retail unit and seating area were not supplies of food for consumption on the premises on which it (ie the food etc) is supplied. Those premises were neither Airside nor the Departure Lounge.

(j)We find that there was no common purpose to which the food supplied at Heathrow was linked. We consider that the passengers all have various reasons and purposes for travelling. Travel was ancillary to those purposes. No evidence showing common purpose was led by either party. We consider it probable that if a traveller were asked what their purpose in being at Heathrow was they were likely to answer to enable them to catch a plane so as to enable them to carry out their main purpose such as a business meeting or a holiday. This is not the same as the common purpose of attending a wedding or party to celebrate a marriage or some other particular event.

(k) The supplies here were to individuals to meet their need for sustenance. They were not part of some larger experience or enjoyment of the airport or terminal or of travel to be shared with others.

For the sake of clarity we make the following findings the basic fact:

i.Sale of sandwiches not service(s)

What was sold and bought here were sandwiches and other cold food. There was no element of service involved in what Pret did in respect of items sold which were not for consumption on the premises. We find that there was a sale of goods and not a supply of services.

ii.Having visited clear premises Pret’s area and not Airside

Having had the benefit of the site visit we find that the premises in question at Heathrow were those premises over which Pret had control. In other words, the premises were the retail unit and the relevant seating area. This was clear to us as a result of the site visit. The branding and delineation showed this to be clearly the case when conducting the viewing. It could not be said that the premises were the whole of Airside or the Departure Lounge in considering whether the food was consumed on the premises on which the food was supplied which we find was the area under Pret’s control.

iii.Takeaway supplies unless for purpose of on consumption

We find as a basic fact that all supplies other than those where the customer stated that they were for on consumption were takeaway supplies of goods. Accordingly, they were not supplies of catering in its ordinary meaning or on the extended meaning given in Note (3) but supplies of goods namely the sandwiches and other cold foods.

iv.For the sake of completeness we find in addition that on the balance of probabilities those purchasers who turned right out of the retail unit towards the Gates were proceeding with their purchasers to the aircraft (cf Peter Smith J in Whitbread at para 23).

Pret – Folkestone

(a)The arrangement at Folkestone was similar to that at Heathrow. There was a retail area with a designated seating area indicated by the particular flooring. This was in an area with signs saying ‘Food Court and other food vendors’.

(b)The seating areas for the Food Court were such that it could be more convenient for customers to sit in area for which other food vendors were responsible. However, neither party, they told us, wished to take any point on this.

(c)The Pret unit in the Food Court was in a facility which could only be accessed by car. There was a barrier at which the relevant ticket had to be shown before entering the Channel Tunnel complex. Tickets were issued for the car rather than for the individual passengers.

(d)The car could then proceed to the train but more usually would be directed to the waiting area where cars could be parked to wait to be called for to take the train they were booked on. There was a separate passport control on the way to the train.

(e)The facility in which the Food Court is contained is adjoining the waiting area where cars can be parked.

(f)The lease under which Pret occupied its unit provided for a turnover or royalty rent. It had similar provisions concerning base prices and opening hours to those in the Heathrow document (see above).

(g)We find as a basic fact that there was no joint-venture or partnership or similar arrangement between Pret and the landlord at Folkestone. We further find that the Pret retail unit and seating area were separate premises from the Food Court. We are able to do this because of observations made during our site visit.

(h)We also find that the premises in question at Folkestone on which the supplies were made by Pret were the retail unit and seating area and that supplies for consumption outside the retail unit and seating area were not supplies of food for consumption on the premises on which it (ie the food etc) is supplied. Those premises were not the Food Court nor the Folkestone facility in which it was situate nor the Channel Tunnel facility itself. We also find that a car would not be part of the premises so that sandwiches consumed in a car would be consumed off and not on the premises.

(i)We find that there was no common purpose to which the food supplied at Folkestone was linked. We consider that the passengers all have various reasons and purposes for travelling. Travel was ancillary to those purposes. No evidence showing common purpose was led by either party. We consider it probable that if a traveller were asked what their purpose in being at the Channel Tunnel they were likely to answer to enable them to catch a train to enable them to carry out their main purpose such as a holiday. This is not the same as the common purpose of attending a wedding or party to celebrate a marriage or some other particular event.

(j)The supplies here were to individuals to meet their need for sustenance. They were not part of some larger experience or enjoyment of the Food Court or the Facility or of travel to be shared with others.

For the sake of clarity we make the following findings the basic fact:

i.Sale of sandwiches not service(s)

ii.Having visited clear premises Pret’s area and not Airside

Having had the benefit of the site visit we find that the premises in question at Folkestone were those premises over which Pret had control. In other words, the premises were the retail unit and the relevant seating area. This was clear to us as a result of the site visit. The branding and delineation showed this to be clearly the case when conducting the viewing. It could not be said that the premises were the Food Court or the whole of the facility in considering whether the food was consumed on the premises on which the food was supplied which we find was the area under Pret’s control.

iii.Takeaway supplies unless for purpose of on consumption

iv.For the sake of completeness we find in addition that sandwiches for consumption outside the Food Court were for consumption off the premises and not on the premises. We also find that a car in the car park is not part of the same premises in fact.

The Parties Contentions

Pret’s Contentions

In essence Pret’s contentions were:

(a)What was involved here was a supply of goods, no supply of service or of services was involved.