Tribunal Rules Fuel Supply Separate from Plant Hire in VAT Case Gap Group Limited v HMRC, Highlighting Importance of Customer Perception and Contractual Freedom

Citation: [2023] UKFTT 970 (TC)
Judgment on

Introduction

In the case of Gap Group Limited v The Commissioners for HMRC ([2023] UKFTT 970 (TC)), the UK First-tier Tribunal (Tax Chamber) considered whether the supply of fuel should be treated as a part of the supply of plant hire as a single composite supply or as a separate supply for Value Added Tax (VAT) purposes. The Tribunal’s decision provides insight into the application of VAT law concerning the distinction between single and multiple supplies, and the correct VAT treatment for each supply.

Key Facts

Gap Group Limited (the Appellant) is a plant hire company that supplies various equipment along with optional fuel, specifically red diesel. Historically, the Appellant treated its supplies of fuel as separate from its plant hire supplies, charging a reduced VAT rate on fuel supplies. HMRC challenged this practice, arguing that the fuel supply was part of the single supply of plant hire, and thus should be charged at the standard VAT rate.

The case centered on the VAT periods between 06/2017 and 12/2020. HMRC’s initial assessment of underdeclared VAT was £1,440,141, later reduced to £844,909 after review and amendment. Gap Group Limited appealed against this assessment.

The Tribunal considered various legal principles to determine the nature of the supplies. The principles, derived from Upper Tribunal decision in The Honourable Society of Middle Temple v HMRC and CJEU cases, primarily focused on whether the customer perceives the supplies to constitute several distinct principal supplies or a single economic supply.

Among the key principles considered were:

  • The fundamental requirement to regard each supply as distinct and independent unless they are so closely linked they form an indivisible economic supply that would be artificial to split.
  • The need to examine the essential features or characteristic elements of the transaction from the perspective of a typical consumer.
  • The importance of determining whether the supply is a single transaction where one element is principal and another ancillary, sharing the tax treatment of the principal element.
  • The requirement to assess if the customer has genuine contractual freedom to obtain a service from a third party, supporting the existence of several independent supplies.

Cases referenced included Talacre Beach Caravan Sales Ltd v HMRC (C-251/05) and Stadion Amsterdam CV v Staatssecretaris van Financiën (C-463/16), addressing the potential for different tax treatment for elements of a single supply and the conditions required for such separation.

Outcomes

The Tribunal concluded that Gap Group Limited’s supplies of plant and supplies of red diesel constitute multiple supplies for VAT purposes. The Tribunal found that the fuel was supplied only at the customer’s choice at the end of the hire and customers had genuine freedom to choose whether or not to be supplied with a fuel service from the Appellant, reflecting separate considerations.

If it were decided that there were single supplies, the Tribunal determined, based on Stadion Amsterdam, that the single supply would have to be taxed solely at the rate applicable to the principal element of the supply, regardless of whether the price of each element could be identified.

Conclusion

The First-tier Tribunal’s decision in Gap Group Limited v The Commissioners for HMRC underscores the pivotal role of contractual freedom and customer perception in determining VAT liability in composite supply arrangements. By closely examining the transaction’s characteristic elements and the customer’s genuine freedom to choose, the Tribunal affirmed that the Appellant’s fuel supply was separate from the plant hire, thus allowing different VAT treatments for each supply. This decision reinforces the nuanced approach required when adjudicating VAT disputes involving potential multiple supplies within a single transaction.