United Kingdom Matchmaking is not consultancy for UK VAT

The predominant element of the supply of services consisting of several elements, is the first and mandatory test for characterising a composite supply for VAT purposes

Gray & Farrar provided match-making services which included an obligation to supply introductions, and other elements such as post-introduction liaisons and dating advice.

The issue in the case relates to the determination of the place of supply of the services provided to individual clients outside the UK and EU, which depends on the correct characterisation of the bundle of services.

If the B2C service supplied to overseas clients is characterised as “services of consultants … and similar services … and the provision of information …” then within special place of supply rules in paragraph 16(2)(d) of schedule 4A of the VATA, the services will be treated as supplied outside the scope of UK VAT.

If the service is not characterised as “services of consultants… and similar services … and the provision of information …”, then as per the general rule for B2C supplies, the place where a service is supplied is deemed to be the place where the supplier is established. This would mean that the service supplied by Gray and Farrar is liable to UK VAT.

Here, it was held that matchmaking services, which were supplied to non-UK, non-EU clients, were not supplies of consultancy, data processing or the supply of information and, therefore, the general B2C place of supply rule applied. This was held based on objective consideration of the view of the typical customer and from that perspective identifying the predominant element in the supply of services.

It was considered that a typical customer would regard introductions as the qualitatively most important (and the predominant) element of the service. As this service was not one habitually supplied by consultants, it fell within the general B2C place of supply rules and was treated as made in the UK, and therefore liable to UK VAT.

Key takeaway

This decision by Court of Appeals endorses the approach taken by the UT in the case of Metropolitan International Schools Ltd [2017] UKUT 431 (TCC) and by ECJ in the case of Město Žamberk v Finanční ředitelství v Hradci Králové (Case C 18/12).

Applying the principles and tests for characterising a composite supply is very fact driven difficult and is often susceptible to VAT litigation especially where the VAT liability of the services depend on this characterisation.

However, establishing the predominant element of the service from the point of view of the customer, to characterize supplies, is a critical and important test.

The question of what is and what is not consultancy services remains a very contentious area as different types of businesses are tested in the courts. The taxpayer here has applied for leave to appeal to the Supreme Court and if it gets there, we may at last get a bit more clarity.