Mercy Global Consult Limited (in liquidation) v Abayomi Adegbuyi-Jackson & Ors
[2023] EWCA Civ 1073
The Commissioners for HMRC v Gray & Farrar International LLP
13 February 2023
[2023] EWCA Civ 121
Court of Appeal
A matchmaking company didn't pay VAT on its services, claiming they were consultancy. The courts decided the main service was arranging introductions, not advice, so they *did* have to pay VAT.
Key Facts
- •Gray & Farrar International LLP (G&F) provided matchmaking services to clients outside the UK and EU.
- •G&F did not charge VAT on these services, claiming they fell under Article 59(c) of the Principal VAT Directive as consultancy services.
- •HMRC disagreed, arguing the services were within the scope of VAT.
- •The First-tier Tribunal (FTT) dismissed G&F's appeal (majority decision).
- •The Upper Tribunal (UT) allowed the appeal, finding the FTT erred in not applying the predominant element test.
- •HMRC appealed the UT's decision to the Court of Appeal.
Legal Principles
Value Added Tax (VAT) is an EU tax charged on the supply of goods or services.
Council Directive 2006/112/EC (Principal VAT Directive), Article 2.1
Article 59(c) of the Principal VAT Directive provides an exception for certain services supplied to non-taxable persons outside the EU, deeming the place of supply to be where the customer is established.
Council Directive 2006/112/EC (Principal VAT Directive), Article 59(c)
The predominant element test is the primary test for characterizing a single complex supply for VAT purposes. This test must be applied from the perspective of the typical consumer considering both quantitative and qualitative importance of elements.
CJEU case law, specifically Město Žamberk (Case C-18/12)
In characterizing services under Article 59(c), the focus is on the nature of the service supplied, not the characteristics of the provider. The list of professions is illustrative, not exhaustive.
CJEU case law, particularly Linthorst (Case C-167/95), von Hoffman (Case C-145/96), Commission v Germany (C-401/06)
Article 59(c)'s “data processing and the provision of information” should be interpreted disjunctively; either is sufficient.
FTT and UT interpretation, challenged by HMRC
When classifying a transaction, the contract is a starting point but must be considered alongside the economic and commercial reality.
Secret Hotels2 Ltd v HMRC [2014] UKSC 16
Outcomes
Court of Appeal allowed HMRC's appeal.
The UT erred in its application of the predominant element test. The predominant element of G&F's service was the provision of introductions, not consultancy or information provision. This was the core of the contract and the economic reality.
The FTT's decision was restored.
G&F's services did not fall within Article 59(c) and were therefore subject to VAT.