UTT case re consultancy service - Gray & Farrar

Update as at 28 November 2022: The Upper Tribunal allowed Gray & Farrar’s appeal. HMRC granted permission to appeal to the Court of Appeal. Listed for hearing on 17 or 18 January 2023.

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UTT case re consultancy service - Gray & Farrar International LLP

This is an interesting case, if only because of HMRC’s arguments as to what they class as consultancy services and because it considers whether “data processing and the provision of information” are one or two supplies.  It also considers single composite supplies.  You can find the full case transcript here.  

Background and FTT case

G&F provide matchmaking services.  The case revolved around whether these were “services of consultants” and therefore outside the scope of UK VAT where the client was outside the EU (this related to pre Brexit VAT periods ranging for 2012 to 2016.) Whilst HMRC argued that the supply did not fall within this definition and was subject to UK VAT. The assessment was for £1.7m.

The relevant legislation can be found in Article 59(c) of the Principal VAT Directive:

“the services of consultants, engineers, consultancy firms, lawyers, accountants and other similar services, as well as data processing and the provision of information”

G&F describes its business in advertisements as a “matchmaking service”. Once a client signs up, there is a 1.5 to 2 hour meeting which is person or via Skype and G&F then prepare a brief, which is sent to the client for approval.  Introductions to potential partners would then be instigated and there would then be follow-up telephone calls often once or twice a week to the client by a support team.

On balance, the FTT concluded that the effect of the inclusion of the support team’s services in the service provided by G&F was that the service “went beyond” the provision of information and expert advice and so could not fall within Article 59(c).

UTT decision

G&F was given leave to appeal against the FTT Decision on the grounds that the FTT failed to give effect to the “predominant element” test – if it had done so it would have concluded that G&F’s supply fell within Article 59(c) because the predominant element of its supply was services of consultants and/or the provision of information.

HMRC challenged the FTT decision on the basis that the FTT erred in law:

• in concluding that G&F’s services fell within the scope of “services of consultants” within Article 59(c) because they did not possess any of the essential characteristics of an activity of a “liberal profession”
• in its interpretation of the phrase “data processing and the provision of information” in Article 59(c) as referring separately to both (i) data processing and (ii) the provision of information rather than as a single composite phrase requiring the provision of both data processing and information

The UTT rejected HMRC’s arguments that the listed activities in Article 59(c) are not confined to services provided by members of the liberal professions, and agreed with the FTT that “data processing” and “provision of information” are separate activities.

The UTT then went onto give their view of a single composite supply.

• The primary test is the “predominant element” test as set out in the decision of the CJEU in Mesto, where the CJEU decided that, where it was possible to identify a predominant element amongst the elements that characterize the single complex supply, the supply should be characterized by reference to that predominant element.
• The “principal/ancillary” test as set out by the CJEU in CPP is also an available test. However, in most cases where the test can apply, the predominant element test can also apply and will produce the same result
• An element is ancillary to the principal supply if from the point of view of the typical consumer it does not constitute an aim itself, but is a means of better enjoying the principal service.

The UTT decided that

• All of the material elements of the supply – the provision of the advice through the matchmaking process, the provision of information (i.e. contact details) and the provision of the post-introduction liaison by the support team – have to be taken into account.
• The qualitatively most important element to the typical consumer was the provision of the introduction to a prospective partner.
• The post introduction liaison services as sufficient to disturb our conclusion that the combination of the expert matchmaking advice and the provision of the information regarding a potential match was the predominant element of the supply made by G&F.

Therefore, the supply fell within Article 59(c).