Revenue and Customs v Thorsteinn Gardarsson t/a Action Day a Islandi:

Factual and Procedural Background

The Appellants ("HMRC") appealed a decision of the First-tier Tribunal Tax Chamber ("FTT") released on 8 July 2019. The FTT had determined that an "action day planner" ("ADP") supplied by the Respondent was a "book" and thus zero-rated for VAT purposes. The Respondent, who operates his business from Iceland, supplied the ADP to UK customers via Amazon since 2013. HMRC considered these supplies standard-rated and backdated the Respondent's VAT registration to July 2013, issuing assessments for unpaid VAT and penalties for failure to notify registration liability and inaccuracies in VAT returns. The Respondent contested these, maintaining the ADP was zero-rated as a book. The FTT allowed the Respondent's appeal, cancelling HMRC's assessments and penalties.

Legal Issues Presented

1. Whether the supplies of the "action day planner" qualify as zero-rated supplies of a "book" under the Value Added Tax Act 1994 ("VATA").
2. Whether the First-tier Tribunal correctly applied the legal test for the classification of the ADP as a "book".
3. The implications for VAT assessments and penalties if the ADP is or is not a "book".

Arguments of the Parties

Appellants' Arguments

• The FTT erred in law by failing to apply the correct legal test from the binding High Court decision in Customs and Excise Commissioners v Colour Offset Ltd [1995] STC 85 ("Colour Offset").
• The correct test requires determining the "main function" of the item as to whether it is to be read or looked at (a "book") or to be written in (not a book).
• HMRC argued that the ADP's main function is to be written in, not read, and thus it is not a "book".
• HMRC criticized the FTT's reliance on VAT Notice 701/10, which treats crossword books and exam guides as "books", noting that such practice has no force of law and the statutory provisions do not mention these items.
• HMRC contended the FTT's test, emphasizing "informing/educating or recreational enjoyment" as the main function, was incorrect and broader than the legal test in Colour Offset.
• HMRC also raised a secondary argument based on EU VAT Directive and UK Purchase Tax legislation, suggesting the ADP could not be zero-rated as it would not have been exempt under the previous tax regime; however, this argument was not pursued on appeal.

Respondent's Arguments

• The Respondent, representing himself, relied primarily on VAT Notice 701/10, arguing the ADP is a "book" because it contains educational content and is similar in nature to crossword books and exam guides which are treated as zero-rated "books".
• He emphasized the ADP's purpose to teach time management, suggesting this educational function supports classification as a "book".
• The Respondent did not refer to the statutory provisions or binding case law in his submissions.

Table of Precedents Cited

Court's Reasoning and Analysis

The Upper Tribunal identified that the FTT had erred in law by applying a test for "book" that included any item with educational or recreational function, relying heavily on HMRC's VAT Notice 701/10, which lacks statutory authority. The correct legal test, as established in Colour Offset, requires determining the "main function" of the item, focusing on whether it is primarily to be read or looked at (a "book") or primarily to be written in (not a book).

The Tribunal analyzed the ADP's physical and functional characteristics: it has 115 pages, with only 14 pages of instructive text and 104 pages designed specifically for the user to write in weekly plans and notes. The ADP is produced for a calendar or academic year, reinforcing the purpose of holding written entries.

While the instructive pages provide general guidance on time management, the Tribunal concluded that these are outweighed by the extensive writable planner sections. The main function of the ADP is therefore to be written in, not to be read or looked at, and thus it does not meet the statutory definition of a "book" for VAT zero-rating.

The Tribunal declined to consider HMRC's additional argument based on the EU VAT Directive and UK Purchase Tax legislation as it was not pursued on appeal.

Because the FTT applied the incorrect legal test, its decision was set aside. The Tribunal found it appropriate to remit the case to the FTT for reconsideration of VAT assessments and penalties on the basis that the ADP is not a "book". Further factual determinations on penalties and assessments are necessary but were not possible without additional evidence.

Holding and Implications

The Upper Tribunal ALLOWED the appeal by HMRC, set aside the FTT's Decision, and REMITTED the matter to the First-tier Tribunal for reconsideration.

The direct effect is that the ADP is not a "book" for the purposes of VAT zero-rating and therefore the VAT assessments and penalties imposed by HMRC may stand subject to further factual inquiry. The Tribunal did not set any new precedent beyond clarifying the correct application of the existing legal test from Colour Offset.