The case brings into question the concept of goods vs services, and the importance of distinguishing the supply. As a background to the case, Magic Memories group (the appellant) sells photo books to tourists at attractions throughout the UK. The appellant takes photographs of tourists/visitors at the attractions, prints those photographs and inserts them into a photo-book. The photo books are then offered for sale as the visitors leave the attraction. The visitors have no involvement in the photo selection nor enter into a contract with the photographer unless they agree to purchase the photo-book.
The Appellant considered that it was making supplies of goods i.e. photo-books, which were zero-rated ‘booklets’ for the purposes of Schedule 8 VAT Act 1994.
HMRC, put forward its main argument that the Appellant was actually making standard rated supplies of photographic services to the visitors.
Additionally HMRC argued that if the FTT held that the Appellant was supplying goods, the goods were principally a supply of standard rated photographs to which the photo-books were ancillary, so that the Appellant was making a single standard rated supply. And in the event that the FTT should find that the supply was one of photo-books, HMRC contended that photo-books were not ‘booklets’ for the purposes of Schedule 8 VAT Act 1994.
The FTT dealt with HMRC arguments as summarised:
- The Appellant was not engaged by the visitor to take the photographs and then produce the photo-book. The Appellant took the photographs speculatively with a view to the production and sale of the photo-books, therefore there was a supply of goods not services;
- There was, in the FTT’s opinion, a single supply of the personalised photo-book, and it would be artificial to split that supply;
- Case law indicated that ‘booklet’ had to be given its ordinary meaning, and the indicators would be that it consisted of a number of pages bound together with a certain degree of permanence which contained information and was intended to be read. Therefore, the FTT held that the photo-books were within Item 1 and zero-rated.
For more information on the case please contact your local Accordance VAT advisor.