The new year has brought with it reports of another victory for taxpayers in a mixed supply case. The case involves the VAT liable on membership fees paid to Harley-Davidson Europe Ltd by members of the Harley Owners Group (HOG).
HOG was not a conventional distinct legal entity, society or club, but rather a business unit of Harley-Davidson Europe Ltd. For the £55 annual subscription for full membership of HOG, members received a membership card; a hard copy magazine four times a year; a leather wallet; a touring map, including a guide to events; access to a number of websites, including the ability to publish photos; and opportunities for discounts at hotels and other businesses. The £55 payment was wholly standard rated as a supply of membership according to HMRC. However, the taxpayer argued that each specific benefit should be considered for individual VAT liability. For example, as printed matter, the magazines members received should be zero-rated.
Whilst cases such as these continue to be a grey area for VAT, each mixed supply case has four questions which need to be addressed:
Firstly, is each benefit or supply distinct and independent from the others?
Secondly, what does the typical customer consider he/she is buying?
Thirdly, is there a main supply, with other benefits being supplemental to this principal element?
Fourthly, are some supplies a way of enhancing the enjoyment of the main supply, or is each supply an aim in itself?
A good example to understand what this means is to compare a cheap flight during which the passengers are given complimentary tea or coffee, with a four course meal with wine on the Orient Express. The hot drinks are a way of helping passengers to enjoy their zero-rated flight, rather than a supply of standard rated catering. In contrast, a customer would rightfully complain if they didn’t receive their food and drink on the train journey, as they expect to experience both the journey and fine dining experience. As such, the flight and beverages are a single supply, whereas the Orient Express excursion and meal are clearly a mixed supply.
In the case of the HOG membership fee, the tribunal concluded that ‘the typical member… places real value on the tangible items’, meaning that the individual items received were more important than the esteem of the link to the Harley Davidson name. Additionally, the company carried out a survey of its members where 89% described the quarterly magazine as ‘somewhat or very important’, backing up the conclusion of the tribunal.
It’s also worth noting that, had Harley-Davidson Europe Ltd been a ‘not for profit’ organisation, the case would not have reached the tribunal as the magazine could have been zero-rated without issue. This is because of a concession which exists for splitting different VAT rates for benefits packages for members of such organisations, which include charities and members’ golf clubs.