Introduction

The case of W M Morrison Supermarkets PLC v. HMRC ([2013] UKUT 247 (TCC)) presents a pivotal examination of the application of Value Added Tax (VAT) rates on mixed supplies. Morrison Supermarkets challenged HMRC's refusal to grant a VAT refund related to the sale of disposable barbecues, specifically contending that the charcoal component of these products should attract a reduced VAT rate under Schedule 7A Group 1 Item 1(a) of the Value Added Tax Act 1994 (VATA 1994). The primary issue centered on whether such barbecues should be treated as a single supply subject to the standard VAT rate or as a mixed-rate supply with the charcoal component taxed at a reduced rate.

Summary of the Judgment

The Upper Tribunal upheld the First-tier Tribunal's decision, dismissing Morrison's appeal. The core reasoning was that the UK domestic legislation did not provisionally "carve out" the charcoal element of the disposable barbecues, thereby treating the entire supply as a single standard-rated supply. The Tribunal concluded that Morrison could not apply the reduced rate to the charcoal component independently.

Analysis

Precedents Cited

The judgment extensively referenced several pivotal cases, notably:

• Card Protection Plan v. Customs and Excise Commissioners (CPP) (Case C-349/96)
• Commission of the European Communities v. French Republic (Case C-384/01)
• Talacre Beach Caravan Sales Ltd v. Customs and Excise Commissioners (Case C-251/05)
• Zweckverband zur Trinkwasserversorgung und Abwasserbeseitigung Torgau-Westelbien (Case C-442/05)
• Commission v France (Case C-94/09, also known as French Undertakers)
• Purple Parking Ltd v. Commissioners for HM Revenue & Customs (Case C-117/11)
• Director General, Mauritius Revenue Authority v. Central Water Authority (Case [2013] UKPC 4)

Legal Reasoning

The Tribunal analyzed the distinction between the CPP test and the French Undertakers' analysis. The CPP test focuses on determining whether a transaction should be considered as a single or multiple supplies based on economic substance and consumer expectations. In contrast, the French Undertakers' analysis assesses whether specific aspects of a supply can be taxed differently under reduced rates, particularly when domestic legislation imposes such limitations.

In this case, the Tribunal found that since UK legislation did not explicitly limit the reduced VAT rate to specific components of the barbecues (i.e., the charcoal), the entire supply should be treated uniformly at the standard rate. The reduced rate could not be applied selectively to the charcoal component.

The Tribunal emphasized that the French Undertakers' test is only applicable when a Member State has legislatively restricted the application of reduced VAT rates to specific aspects of a supply. Since no such legislative provision existed for disposable barbecues in the UK, the CPP analysis was deemed appropriate, leading to the conclusion that the entire barbecue was subject to the standard VAT rate.

Impact

This judgment clarifies the boundaries within which Member States can apply reduced VAT rates to specific components of a mixed supply. It underscores the necessity for clear legislative provisions if a reduced rate is to be applied selectively. Future cases involving mixed supplies will likely reference this ruling to determine whether reduced rates can be independently applied to specific components or if the entire supply must adhere to a single VAT rate.

Complex Concepts Simplified

CPP Test

The Card Protection Plan (CPP) test is a judicial framework used to determine whether a transaction comprising multiple elements should be treated as a single supply or as multiple distinct supplies for VAT purposes. It considers the economic substance of the transaction and the perspective of a typical consumer.

French Undertakers' Analysis

The French Undertakers' analysis allows Member States to apply different VAT rates to specific components of a supply if the domestic legislation restricts the application of a reduced rate. This analysis focuses on whether such components are "concrete and specific" aspects of the overall supply.

Schedule 7A Group 1 Item 1(a) VATA 1994

Schedule 7A Group 1 Item 1(a) VATA 1994 pertains to the reduced VAT rate of 5% applicable to the supply of domestic fuel, including coal, coke, and other substances held out for sale solely as fuel. Morrison argued that the charcoal in disposable barbecues should fall under this provision.

Conclusion

The Upper Tribunal's dismissal of Morrison Supermarkets' appeal reaffirms the importance of clear legislative directives when applying reduced VAT rates to specific components of a supply. The judgment delineates the appropriate application of the CPP test versus the French Undertakers' analysis, reinforcing that without explicit legislative provisions, mixed supplies must generally adhere to a single VAT rate based on their predominant characteristics.

This decision has significant implications for retailers and businesses in structuring their products and understanding VAT obligations, ensuring that any attempt to apply reduced rates to specific components must be firmly grounded in clear legislative authority.