Single or multiple supplies for VAT purposes

The FTT has considered the application of the principles in Middle Temple v HMRC to a supply of plant hire with fuel and held that the fact that payments for fuel were optional and separately invoiced meant that they were separate to the supplies of plant: Gap Group v HMRC [2023] UKFTT 970. These factors outweighed the fact that the fuel was integral to the use of the plant. In addition, the FTT noted that as payments were fuel were only made once the contract hire was over meant that it could not be said that they were merely a better means of enjoying the use of the plant since that use was finished at that point.

The decision is an interesting application of the principles set out in Middle Temple and the FTT's acceptance, in particular, that the supply of fuel was only made once the hire was ended (despite the fact that the plant was provided with a tank of fuel at the outset) is a novel approach to the question whether it could be ancillary to the supply of the plant.

Background

The taxpayer made supplies of plant hire. Where the plant required red diesel fuel to operate, its normal practice was to supply the plant with a full tank of red diesel. If a customer returned the plant with less than a full tank, then the taxpayer would charge for the amount of red diesel required to top-up the tank at the end of the hire. Customers were expected to supply their own fuel during the course of the hire and the charge for red diesel at the end of the hire was generally higher than the normal cost of such fuel.

The taxpayer contended that it made separate supplies of plant (standard rated) and red diesel (at a reduced 5% rate). HMRC argued that it made a single supply of plant and fuel where the fuel was ancillary to the supply of plant.

Decision of the FTT

Whilst the contracts in this case were not altogether unambiguous, the FTT accepted that the taxpayer ordinarily provided the plant with a full tank of fuel to enable the plant to be initially moved, delivered and operated and that customers understood (based on general industry practice and the contracts) that there would be an additional fuel charge if it was returned with less fuel than when delivered. The price for the hire was the same regardless of the amount of fuel in the tank when the plant was delivered.

HMRC argued that the taxpayer supplied fuel at the outset and, although the fuel was only invoiced at the end, the supply should be treated as made at the beginning of the hire. The plant was unusable without the fuel. The FTT rejected that argument. It was unclear at the outset whether any charge would be made for fuel and, indeed, whether any charge would arise was entirely dependent on the customer. In addition, the rate charged for any fuel would depend on the rates at the end of the hire when the plant was returned.

It was clear that the supplies of plant and fuel were linked, the question was whether they were so closely linked as to be a single economic supply. Referring to the decision in Middle Temple [2013] STC 250, the FTT noted a number of features which pointed towards separate supplies:

• The payment for fuel was essentially an optional extra, with the customer having a genuine freedom to choose whether to supply their own fuel or receive a supply from the taxpayer.
• It was also relevant that the decision on fuel was made only once the hire had been completed. As such, it could not be said that the customer's aim in paying for the fuel was a means of better enjoying the main supply of plant since that supply was already finished. The aim was the convenience of not having to refill the fuel tank. The FTT was not persuaded by the argument that the supply of fuel was of no use without the plant.
• The fuel was separately invoiced.

As a result, the FTT held that there was a separate supply of fuel where charged for at the end of the hire, quoting the court in Middle Temple: "... the CJEU cases show that where there is a genuine contractual freedom to obtain a service from a third party and, consequently, a separately identified charge is made for the service, this supports the existence of several independent supplies rather than a composite single supply".

Comment

This is certainly an interesting application of the principles around single / multiple supplies. There can be few things more integral to the use of the plant in this case than the fuel and the plant was normally provided with a full tank of fuel. However, despite that, the economic reality was that provided the customer returned the vehicle with the same amount of fuel then no charge for fuel arose. As such, in essence, the customer had the choice to provide its own fuel (as replacement) and payment for the fuel provided at the outset was entirely optional. Furthermore, the FTT's analysis that any supply of fuel only arose at the end of the contract (despite the fact it was actually provided from the outset) meant that it could not be treated as merely a better means of enjoying the use of the plant as that use was now finished.