19354

Value added tax – exempt supplies – finance – whether part of the additional cost of monthly paid membership fees for a sports club, as compared with the cost of annually paid membership fees, was an exempt supply of finance –whether membership was annual membership with fees paid monthly or monthly membership 

LONDON TRIBUNAL CENTRE

P D AND G TAYLOR
	T/A RIVERSIDE SPORTS AND LEISURE CLUB	           Appellants

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	DR DAVID WILLIAMS  (Chairman)
						CHRISTOPHER J PERRY, C.ENG 

Sitting in public in Birmingham on 11 October 2005

Richard Barlow of counsel, instructed by the VAT Consultancy, for the Appellants 

Owain Thomas of counsel, instructed by the Solicitor to Her Majesty’s Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1	The Appellants, Mr and Mrs Taylor, are husband and wife and also business partners. For simplicity in this decision “the Commissioners” refers both to the Commissioners of HM Customs and Excise and their successors the current Respondents.  This case is about whether supplies, or parts of supplies, made by the Appellants are exempt for the purposes of value added tax (“VAT”). The decision in principle under appeal - that none, and no part, of the supplies made by the Appellants were exempt - was taken for the Respondents in April 1999. But the appeal is even older than that. The original decision was taken by an officer in January 1998 and confirmed on review in June 1998. It followed a voluntary disclosure of overpayment in November 1997. 

The Penalty Tribunal proceedings

2	The main reason why the case is so old is that the Appellants did not originally appeal against the 1998 or 1999 decisions. Instead, Mr Taylor chose to ignore its terms. The consequence was that the Commissioners assessed Mr Taylor to a penalty under section 60 of the Value Added Tax Act 1994 for dishonest evasion of VAT. The penalty was notified on 8 November 2000 for the periods from 02/98 to 02/00 inclusive. No assessment was made against Mrs Taylor. It was made clear at the hearing before this tribunal that no accusation of dishonesty had ever been made against Mrs Taylor by the Commissioners. 

3	Mr Taylor appealed the penalty assessment to a tribunal. The tribunal, consisting of three members with Mr Nicol chairing, heard the appeal on 5 and 6 December 2002. It dismissed the appeal and confirmed the penalty. In March 2003 it released a full and thorough decision stating its reasons for confirming the penalty and the mitigation applied by the Commissioners. It is decision LON/2000/1387. No attempt is made in this decision to repeat, summarise, or reanalyse the key issue of dishonesty, or its context, in that decision. That tribunal is referred to in this decision as the “Penalty Tribunal”.

The current appeal

4	The current appeal was filed late shortly after the release of the decision by the Penalty Tribunal. This unusual step was taken by new advisers instructed by the Appellants after the Penalty Tribunal hearing. The new advisers were aware of a decision made by the Commissioners to settle an appeal then about to come before a VAT and Duties Tribunal. The case was known as Hightone Health & Fitness. This tribunal was assured that those responsible for that appeal had waived any right to confidentiality about those proceedings, so authorising the release and publication of the essential details to and by this tribunal. The Hightone case was settled following a change of policy by the Commissioners that favoured Hightone shortly before that tribunal hearing. Mr Barlow stressed the importance of the timing of that change of view. He told this tribunal that it came after the hearing by the Penalty Tribunal but before the release of the Penalty Tribunal’s decision. While that was known to those now representing the Appellants, it was not known to the Appellants or their previous advisers. Mr Taylor found out about it from the trade press a month after the release of the Penalty Tribunal decision. There is no reason why the Penalty Tribunal should have been aware of this. But it was argued in the letter accompanying the notice of appeal in this case that the Hightone issues was “on ‘all fours’ with our client’s case”. In other words it was contended that if the Commissioners had taken the same view in this case as they took at that time in settling the Hightone case then there would be no basis for finding that Mr Taylor had been dishonest.

5	The Commissioners did not agree. Instead, they applied to have the current appeal struck out on two grounds. First, the issue had been assumed to be correct in the Penalty Tribunal hearing and decision and could not now be challenged. Second, the appeal was in any event out of time. In reply, the Appellants asked for an extension of time to present the appeal. They contended that they had an arguable case that the Penalty Tribunal decision was, as a consequence of the Hightone proceedings, based on a wrong view of the status of the Appellants’ supplies.

6	On 21 May 2004 a tribunal allowed the Appellants’ application to appeal out of time and refused the Commissioners’ application to strike out the application. It applied the two stage approach in Wans Chinese Takeaway (VAT Decision 14829). It allowed the application on the basis of the submission that otherwise the Appellants would be denied the same treatment as other businesses. It was accepted that at the time of the Penalty Tribunal the Appellants were unaware of the possible change of policy.

7	It was agreed by both parties that this tribunal is now concerned with the issue of principle about the Appellants’ alleged exempt supplies. Once that is determined, figures have been agreed. It was also agreed by the parties that the tribunal should decide the matter on the basis of the evidence of the business conducted by the Appellants at the Riverside Sports and Leisure Club at Gloucester only (“Riverside”), notwithstanding that the Appellants also conducted a similar business in Nuneaton (“Abbey”) and that the relevant assessments related to both activities as part of the same business. 

8	The parties also agreed that the periods in question for the purposes of this appeal are from 12/97. There appears to be some disagreement whether the periods run to 2/00 or to 4/99. The precise extent of the period in dispute is not important to the decision in principle. But it is important to note the initial dates. They are now a long time ago. The almost inevitable results include fading memories and lost documents.  It was also contended that the Penalty Tribunal relied on evidence that postdated this period and was therefore irrelevant to it. Aside from that, it was necessary at the hearing by this tribunal to try and unpick the evidence in the bundles relevant to these periods as compared with that relevant only to later business activities of the Appellants.

The relationship between this tribunal and the Penalty Tribunal

9	Before turning to the issue of principle, this tribunal stresses that it is not, and cannot be, a court of appeal from the decision of the Penalty Tribunal. Nor can it sit in any capacity that would appear to be a judicial review of that tribunal’s decision. Only the High Court has jurisdiction in those capacities if timely application is made. The decision of the Penalty Tribunal was taken after a full public hearing. As noted, it gave the fullest reasons for its decision. No application was made to appeal against that decision. No application was made for judicial review. No application was made to set that decision aside. No application was made to have any part of that decision corrected for error. It is now almost three years since that decision was made. It is now, in the view of this tribunal, too late to attempt to make any such application. That decision is final. Nonetheless, the tribunal has accepted at an earlier stage that it has before it an arguable case that the Penalty Tribunal wrongly assumed that the Commissioners were right to assess a penalty based on the assumption that their decision that the Appellants were not making any exempt supplies was right.

10	It is therefore important to note what the Penalty Tribunal did not decide. As its decision records (paragraph 41) “we are not required to come to any decision on the appeal that might have been pursued against the Commissioners’ decision…”.  And it did not make any such decision. Instead it assumed – as it had to assume – that the Commissioners’ decision was right. If that assumption was wrong, then the basis of the Penalty Tribunal decision is undermined. If that is so, and the Appellants are right, then the most fundamental principles of justice and fairness require that this tribunal, having jurisdiction to do so, should put the record straight even at this late stage.  The reverse reasoning cannot apply. It cannot be said that the penalty decision against Mr Taylor establishes in law that the Appellants did not make exempt supplies.

11	It is also important to note what the Penalty Tribunal did decide. It was dealing with an accusation that Mr Taylor was dishonest and so liable to a civil penalty. Paragraph 37 of its decision records the requirement that the Commissioners prove their case to a high degree of probability. The oral evidence considered by the Penalty Tribunal included the evidence of Mr Taylor and the evidence of two officers who interviewed him on 25 April 2000. The Penalty Tribunal itself observed that no corroborative evidence was called by Mr Taylor (paragraph 40). It concluded that “we found it necessary to look at Mr Taylor’s explanations, both in the interview and in evidence, and also in the statement, with considerable caution” (paragraph 40). That was the conclusion of the three-person tribunal hearing Mr Taylor’s evidence on oath and under cross-examination when his honesty was specifically in issue. The decision sets out a full summary of the evidence given by Mr Taylor on which the tribunal drew for both its findings of fact and that conclusion.     

12	For the Appellants, Mr Barlow pointed out that the Appellants were then represented by other advisers. He submitted that they should have been, but were not, aware of the parallel Hightone case. Further, Mr Barlow contended, the Commissioners should have been aware of it, and the tribunal should have been more alert to the question whether the underlying decision was right. There was potential fault, at least by omission, on all sides. The matter should therefore be looked at again with all those reservations in mind. 

13	This tribunal is not persuaded to adopt an approach questioning all sides of the previous hearing in that way. In the judgment of this tribunal, the Penalty Tribunal was fully entitled to assume that, as the Appellants were professionally represented, the representatives would bring all relevant evidence and issues to the attention of the tribunal. It is not for a tribunal to seek to interfere in any way between a party and that party’s representatives. Indeed, the opposite is true. To interfere between a party and that party’s representatives before the tribunal would be a blatant breach of the principles of natural justice. To do so in the case of an appellant accused of dishonesty in dealings with a government department could also breach the fundamental principles enshrined in Article 6 of the European Convention on Human Rights, including that of equality of arms as between individuals and public authorities. This is particularly so when the tribunal is considering a penalty assessed on the basis of dishonesty that has to be proved to the tribunal. If the Appellants have any complaints about the quality of their professional representation, they must pursue those complaints elsewhere through other well-established channels. 

14	Nor does this tribunal, in so far as it has any power to consider the matter, accept that the Penalty Tribunal in some way failed to carry out its responsibilities fully. That tribunal was entitled to rely on the professional representatives. It was also entitled to assume that those advisers would advise the Appellants to make an appeal against the substantive issue if they felt that there were grounds to do so. But the Penalty Tribunal clearly went beyond those positions to consider in some detail the advice within the papers about whether the Appellants should appeal. It also returned to that issue and reviewed it in the light of the evidence that it heard before reaching its own decision. It specifically commented (at paragraph 41) that the evidence it heard was clearly in accordance with the conclusion in the advice to the Appellants that the Commissioners’ decision had been right. This tribunal does not see any possible basis on which that tribunal could have gone any further on that issue without interfering with the way the parties put their cases to it. On the contrary. It might be argued that that tribunal went further than it needed to do to satisfy itself that it was acting properly on the issues, evidence and arguments before it. Nor does this tribunal see any possible argument that that tribunal was in any way unfair in the way it dealt with those issues. This tribunal, in so far as it is in a position to do so, therefore entirely rejects any argument that would call into question the approach taken by the Penalty Tribunal on the issues it had to decide. That, however, does not mean that the Penalty Tribunal was right in its assumption on the issue of substance.   

15	In the usual case, a penalty assessment would not be considered until any appeal on the substantive issues had been either determined or the ordinary appeal periods had passed. The Appellants persuaded the tribunal in 2004 that this was arguably not a usual case, with the consequence that an appeal was allowed to be made against the decision of principle much later than would normally be the case, and after the penalty proceedings. This was specifically based on the contention that this case was on all fours with the Hightone case. If that is so, the implicit accusation is that the Commissioners were acting inconsistently between Mr Taylor and other similar businesses. Not only that, but it is implicit that the Commissioners knew, or should be assumed to know, that this was so at the time they were arguing for a penalty against Mr Taylor. That would not only breach the principles of neutrality on which value added tax is founded but also offend fundamental principles of justice and fairness.  

16	In summary, this tribunal is neither an appellate or reviewing body to the decision of the Penalty Tribunal nor in any way bound by its decision on the issue of law now to be determined. It must now decide the underlying issue of principle. It is a question of law to which the Penalty Tribunal assumed an answer that is of no persuasive value before this tribunal.

17	But the proceedings, record and decision of the Penalty Tribunal are important for another reason. They constitute a record of the oral and documentary evidence of questions of fact of direct relevance to the current appeal. What weight should be given to those records and findings in this appeal? This tribunal is, of course, not bound by any finding of fact made by the Penalty Tribunal save in so far as it is agreed by both parties. It was clear that in this case the fundamental factual questions are not agreed. 

18	Nonetheless, this tribunal considers that it should take as its starting point in assessing all the relevant evidence that the evidence recorded by the Penalty Tribunal is correctly recorded and that its findings of fact should be accorded considerable weight by this tribunal in making its own findings of fact. This is so for several reasons. First, the evidence of Mr Taylor  - given first in an interview in April 2002 and then to the tribunal in December 2002  - was given much nearer in time to the relevant events than evidence given to this tribunal. It is therefore of its nature more likely to be an accurate reflection of what Mr Taylor remembered of the relevant events. Second, that evidence was given first in a formal interview and then under oath and subject to cross-examination. And it is clear that the evidence in the interview was reviewed in the evidence under oath. This tribunal would need the strongest persuasion from Mr Taylor’s own representatives before it takes a view that his evidence at the Penalty Tribunal hearing was in breach of his oath to tell the truth. And it would need equally strong persuasion that the record of that evidence, as recorded at length in its contemporary and unchallenged decision by the Penalty Tribunal, was wrong. There is a further reason for this tribunal relying on any relevant findings of fact of the Penalty Tribunal. The Penalty Tribunal specifically recorded its reservations about the evidence given by Mr Taylor and it assessed the evidence with those reservations in mind. Again, those reservations went unchallenged at that time.

19	In conclusion, this tribunal stresses that it regards the decision of the Penalty Tribunal about the credibility of Mr Taylor’s evidence in 2002 as now being a closed issue. If this appeal is a very belated attempt to appeal against that decision, or to get it reversed in some other way, then this tribunal rejects it entirely. But it must take account of any further evidence not considered by the Penalty Tribunal, and it must take a view on the underlying issue of law in the light of all the evidence before it in 2005 unhindered by the views of the Penalty Tribunal on the issue of principle.

The issue of principle

20	The original contention of the Appellants, made in the letter of 24 November 1997, was that they had been overpaying VAT on their membership income. It was put this way:

We offer an annual membership at Riverside for £230 and offer a payment instalment system by monthly standing order as an alternative. The charge for this is £25 a month which, it is pointed out to the prospective member, is £300 per annum and thus more expensive than paying on an annual basis. It is my belief that the £70 difference in these rates is not VAT liable in as much as it is an interest charge for deferred payment.

I have operated an approximate 30% credit charge for standing orders since 1990 at Riverside and from day one at Abbey (February 1997). By accumulating the standing order income for both clubs and taking 30% of that value I can assess the value of membership income which should not have attracted VAT (see below) over the last three years. 

The letter, under the signature of Mr Taylor, then set out some figures. The income received under standing order for 1997 was put at £132,915 for Riverside and £40,529 for Abbey. The total “credit charge” element of the income of both clubs for 1995, 1996 and 1997 was put at £101,347 for Riverside and £12,158 for Abbey. It was on this figure that VAT was said to have been overpaid. 

21 	The Commissioners asked in reply for a copy of the constitution and terms of membership and a copy of the document issued to members that explains the facility for instalment credit and details the terms of the arrangement. Mr Taylor responded with a standard membership application form for Riverside and a statement that a similar form was used at Abbey. As these were proprietary clubs, there was no constitution or other terms of membership, although there were some rules governing behaviour. No other documents were produced.

22	Officer Paterson of the Respondents replied for the Commissioners in January 1998. Basing her decision, apparently, only on the above information, the officer stated that the view of Customs was that the monthly charge is for a series of separate and successive supplies of monthly membership. There could not, as a consequence, be a supply of credit but simply a comparatively larger consideration for each month’s membership than might be paid if an annual membership were taken out. The whole of the membership fees were therefore liable to VAT and no refund was due.

23	In response, the then accountants for the Appellants disagreed. They contended that there was only one category of membership: annual. Some people paid annually and others paid monthly. Therefore the difference between the amounts paid annually and the cumulative monthly payments was exempt as a credit charge.

24	That view was stated for the Appellants in March 1998. There appears to be no substantive change in the views of either party in the subsequent seven and a half years. The key issue for this tribunal is exactly the issue clarified in January and March 1998. Did the Appellants offer only annual membership of their clubs, or did they offer both annual and monthly membership? 

25	This is subject to the rider that any changes in position between early 1998 and early 2000 would be directly relevant to this tribunal’s decision. However, although a number of changes were identified as occurring after 2000, and particularly after 2001, neither party put any particular weight on any changes between the letter at the end of 1997 and 2000, and the tribunal finds none. Before considering the evidence, it is expedient to clarify the issue of law.

The relevant law

26	  The provision on which the Appellants rely to claim exemption is Item 2 of Group 5 (Finance) to Schedule 9 (Exemptions) to the Value Added Tax Act 1994. This exempts:

	The making of any advance or the granting of any credit.

Note 3 to that Group adds that:

Item 2 includes the supply of credit by a person, in connection with a supply of goods or services by him, for which a separate charge is made and disclosed to the recipient of the supply of goods or services.

27	Item 2 brings into United Kingdom law the required exemption imposed by Article 13B(d)(1) of the EC Sixth Council VAT Directive (77/388/EEC). This requires the exemption of:

the granting and the negotiation of credit and the management of credit by the person granting it

And it entitles and requires member states to:

exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse…   
	 
28	The European exemption was considered by the European Court of Justice in Muys’ en De Winter’s Aanemingsbedrijf BV v Staatssecretaris van Financien, Case C-281/91, [1997] STC 665. The decision of the Court is stated more briefly than usual and can be captured by citing three paragraphs:

15 The national court’s question refers to the specific situation in which a supplier of goods, in this case land, grants his customer the possibility, in return for payment of interest, of deferring payment of the price until delivery only. The court must therefore assess whether that situation is also a grant of credit.

[Paragraphs 16 and 17 then quote articles 10(2) and 11A(1)(a) of the EC Sixth
VAT Directive]

18	Under these provisions, where the supplier of goods agrees that the purchaser, in return for payment of interest, should defer payment of the price until delivery, the total value of the goods must be regarded as including that interest, even if the contract treats it as distinct from the price.

19 	Accordingly, the reply to be given to the national court’s question is that article 13B(d)(1) of the Sixth Directive must be interpreted as meaning that a supplier of goods or services who authorises his customer to defer payment of the price, in return for payment of interest, is in principle making an exempt supply of credit within the meaning of that provision. However, where a supplier of goods or services grants his customer deferral of payment of the price, in return for payment of interest, only until delivery, that interest does not constitute consideration for the grant of credit but part of the consideration obtained for the supply for goods or services within the meaning of article 11A(a)(a) of the Sixth Directive.

29	Mr Barlow submitted that this would cover credit charges as well as interest charges, and it would cover instalment payments as in this case as well as delayed payment. It therefore confirmed that the Appellants were entitled to the benefit of exemption for identified differences in charges on those who paid monthly as against those who paid annually. If, as he contended, the Appellants offered only annual membership with an additional price paid by those whom the Appellants allowed to pay by monthly instalments, then the additional amount was exempt.

30	Mr Thomas took the tribunal to the Advocate General’s full analysis of the question as well as the brief indication of views by the Court. He accepted for the Commissioners that where a person pays a fee periodically which is in the nature of a payment deferred beyond the time of supply then any additional amount paid over and above that which was due in any event can amount to consideration for a supply of credit.  But, he contended, this did not happen in this case if, as the Commissioners argued on the facts, what was paid for was monthly rather than annual membership.  

Was membership annual or monthly or both?

31	The question whether the membership of Riverside was annual or monthly is essentially a question of law if the contract is in writing and of fact if it is not. In each case, the question is: what were the terms of the contract between the Appellants on the one part and each member on the other part on this issue? 

32	As in all cases of a contract of unclear content, that must depend on what was offered and what was accepted. And that in part depends on who made the offer and who accepted it. If there are any documents, then it must be decided whether those documents set out the whole terms of the contract or merely evidence some part of those terms. These are fundamental issues of contract law and do not need a recital of supporting authorities. 

33	The evidence before this tribunal consisted of the form sent in by the Appellants in response to the request by Officer Paterson, other forms produced to this tribunal, the oral evidence given by Mr Taylor to this tribunal, and the evidence and findings recorded by the Penalty Tribunal. It can only be adduced by implication that some members of the club will have made a payment to the Appellants (whether by way of offer or acceptance) of an initial sum equivalent to a monthly payment, and others will have paid an initial sum equivalent to an annual payment. But the only specific evidence of the extent of monthly payment rather than annual payment was in the sums that the Appellants claimed should be treated as exempt supplies. The letter of voluntary disclosure of 24 November 1997 quoted in paragraph 20 above gave figures for the income received on standing orders. However, this gave no idea of the individual or average duration of standing orders. 

34	No attempt has been made to argue at any stage anything other than that the terms of membership were set out as in the various forms and flyers produced. This would suggest that the Appellants were offering membership, and individuals were accepting it. An adviser to the Appellants (Mr Hincks in a letter in July 2000) identified precisely the question that then arises: 

	“We need to look at what the member thinks he is getting”.

He then advised:

“If it is necessary to appeal the matter to the VAT Tribunal it will be most advantageous if a number members (sic) could act as witnesses to confirm what they consider is actually being received eg an annual membership payable by 12 monthly instalments, or which there is an interest charge, or simply monthly membership.”

This tribunal received nothing by way of evidence of what members thought they were getting, nor of any list of members or of their periods of membership, nor of any specific case in which the Appellants agreed that someone could be a member otherwise than for a full year at a time, nor of any specific dispute between the Appellants and a member where a member treated the membership as monthly but the Appellants did not, nor of any specific correspondence about the terms of membership. Nor was any evidence produced about the way in which the receptionists referred to on the “membership Form” handled the forms or spoke with people becoming members, nor of any specific incident of, or specific instructions dealing with, a case of someone who sought to exercise membership rights on a monthly rather than annual basis.

The documentary evidence

35	The earliest of the documents produced is a leaflet headed “Membership Categories and Fees” for Riverside stating that “The following membership rates are applicable from 1st October 1990”. The leaflet sets out categories of entrance fee and annual membership. It adds that the entrance fee is required only with the first year subscription, and that an entrance fee is due “whether membership fees are paid on an annual or monthly basis”. It then sets out various “monthly membership rates (by 12 Standing Order payments)”.  At the end of the form is a “monthly standing order application form” addressed to a bank in the usual way and to be signed. That form contains the phrase “PLEASE DEBIT MY/OUR ACCOUNT AS INSTRUCTED FOR A MINIMUM OF 12 MONTHS”.

36	This form, read as a whole, does not appear to the tribunal to be a record of a contract between the Appellants and a member. The application form is to a bank, not the Appellants. There is nowhere else on the form for individual details to be added. If that was all the documentation at that time, then it strongly suggests that the membership contract was oral not written. And, without more, the tribunal’s view is that based on this evidence alone it is not beyond argument that the membership is annual or both annual and monthly. Or perhaps there was an alternative for which neither party contended, namely that membership was in reality either annual membership or monthly membership subject to a minimum initial membership of 12 months (as this is what the standing order form mandates). 

37	The form later sent by Mr Taylor to Officer Paterson appears to have evolved from that form. The newer form is double sided. Both sides bear the name and address of Riverside. One side is headed “Membership Form”. The other is headed “Annual Membership Rates”.  At the bottom on both sides is a form designed to be detached from the rest of the A4 sheet of paper and headed “Monthly Standing Order application form” – as with the previous form. Unlike the terms of the previous form, there is nothing on this form stating any minimum number of monthly payments. This form requires completion by the addition, on one side, of usual personal details plus: membership category; membership fee; entrance fee; method of payment; and a signature of the member and the date of signature. The signature goes above a line stating “All members must abide by the rules of the Club, which are available on request.” No copy of a written statement of those rules, if there was any such statement, was produced to the Commissioners, to the Penalty Tribunal or to this tribunal. Nor is there any evidence of how a member (or a receptionist) filled in this form. Was the membership fee stated on the form as the annual membership fee or the monthly fee? The tribunal was not told.

38	On the other side of this form there is a table of various categories of membership by activity and by applicant (eg for squash or tennis or gym or for different ages of applicant or times of use). This is headed “Annual Membership Rates” in bold type. Further down the form the following information is set out in a box entitled “Standing Order”:

For those who prefer to pay membership fees by instalments a standing order mandate is printed below. 
The entrance fee and first month’s fees are due when joining, with the standing order starting one month alter. Rates can not be altered without your authorisation and you are responsible for cancellation.
Paying by monthly standing order incurs an interest charge which represents approximately 30% of the annual rate. 

Below this is a table that sets out various figures for “membership fee” and “monthly rate”. For example £100 annual membership fee is £11 monthly and £360 annually is £40 monthly. 

39	In the absence of fuller evidence, it is not clear that this form constituted the contract between the Appellants and individual members rather than a record of key information relevant to that contract. Nor is the document unambiguous in connection with the question whether the membership was annual or monthly. However, in this form the possible previous basis of membership as “monthly with a minimum of 12 months” appears to have been removed. There is, in particular, nothing on this form that makes it clear that members can join only for whole years regardless of how they pay. But equally there is nothing that makes it clear that there are two separate categories of membership. And the tribunal again emphasises that it was given no specific evidence from members or about the behaviour of members to show how they regarded matters.

40	The tribunal was also shown a later form. It does not regard this as relevant. It clearly deals with a period after that currently under consideration. (This is because at a later stage the Appellants opened a swimming pool at Riverside and the form refers to the pool). 

41	Do these forms establish – tested on the balance of probabilities – that membership was exclusively annual? That is clearly so for some categories of membership, because only annual membership fees were payable. However, those are not the memberships in dispute in this case. They merely set part of the context for those that are in dispute. It is not clear in other cases.  

42	As the only other evidence was the oral evidence of Mr Taylor the tribunal considers it right, for the reasons set out above, to take into account the evidence before the Penalty Tribunal, and what the Penalty Tribunal made of that evidence. It would seem that the Penalty Tribunal was shown a “membership application form” in similar, but not identical, terms to that seen by this tribunal. In particular there is a quotation at paragraph 5 of the Penalty Tribunal’s decision of a statement that there is “no contractual obligation to pay your membership for any set length of time”. The Penalty Tribunal refers to this as being on a document of “Membership Details”. Neither party was able to produce a copy of that document to this tribunal, or to state to what time period that form related. Mr Taylor was also unable to assist when giving evidence. The rates are higher than those of the 1990 leaflet described above, and are the same as those on the Membership Application Form said to be relevant at the times in issue in this appeal. It may therefore have been a leaflet issued as advertising matter contemporaneous with the relevant form. The Penalty Tribunal clearly considered it relevant to the periods it was considering. This tribunal has no evidential basis on which to question that. If so, the implication is that membership could be both annual and monthly.  

What do the documents show?

43	In argument before this tribunal, both parties put much weight on the terms used in the documents produced.  To some extent those arguments may implicitly have been based on the assumption or approach that the contracts of membership either must have been or were written contracts. The terms of the contracts would then be a matter of law and the interpretation of any unclear language in the contracts would also be a matter of law. That is not how this tribunal sees it.  The evidence that was produced leads this tribunal to find that there was no one clear contractual document setting out in full the terms and conditions of membership of the Appellants’ clubs consistently through the period relevant to this dispute. Not only was that not so for the Appellants’ business as a whole, but it was also not so for Riverside alone. This tribunal further finds that the contract between the Appellants or their agents and an individual member (or family) was essentially an oral contract. The documents seen by both this tribunal and the Penalty Tribunal are evidence of the terms of the contract – or some of them – and do not determine those terms as a matter of law. That evidence is to be weighed with the only other evidence available, namely that of Mr Taylor.  

44	The tribunal must therefore reach its conclusion on the issue in dispute – whether membership was exclusively annual - as a matter of fact. In doing so, as the Appellants’ own advisers pointed out some years ago, it must do so without any direct or indirect evidence of the views of one of the parties to each of the contracts, namely the individual members. And it does so without any clear evidence of whether an individual member was likely to be the offeror or the acceptor of a contract. It must again note the other potential sources of evidence on the question that were available but not before the tribunal. The tribunal simply had no evidence before it, other than that of Mr Taylor, indicating that members in fact remained members for complete years rather than complete months (or a minimum of twelve months). 

Mr Taylor’s evidence

45	The other evidence is that of Mr Taylor. For the reasons set out above, this tribunal takes the view that it should consider in full the evidence given by Mr Taylor to the Penalty Tribunal (and in the interview with the officers before that tribunal) as well as the evidence given on oath to this tribunal. And it recalls that no attempt was made at any appropriate time to challenge the views taken by the Penalty Tribunal about the quality of Mr Taylor’s evidence or its record of that evidence. 

46	This tribunal does not find it necessary to repeat the evidence recorded by the Penalty Tribunal or to set out the evidence given to this tribunal by Mr Taylor in full. The crucial question was whether Mr Taylor could offer any further evidence that showed that the assumption made by the Penalty Tribunal about annual or monthly membership, based on his evidence to that Tribunal and the other evidence indicated above, to be wrong either as a matter of law or in fact. This tribunal heard no such evidence. What was offered to this tribunal by Mr Taylor as evidence was, in the view of this tribunal, little better than assertion. He stated that membership was annual only. And he explained why he wanted annual memberships paid at the start of membership and how it fitted into to his business plans. But he did not give evidence of any individual discussion with an identified member that evidenced the imposition of that asserted view in an individual contract. Nor did he give evidence of membership being rejected because a member would not accept annual membership. And, as the tribunal has observed above, he produced no documentary evidence of actual membership details or records to add specific details to confirm his general views. He claimed only a vague recollection of the proceedings before the Penalty Tribunal, and was unable clearly to assist about the use of the documentation produced to this tribunal within the club, or about the documentation considered by the Penalty Tribunal.  

47	Under cross-examination, Mr Taylor accepted that there were cases where a member would, in his terms, be allowed to end membership otherwise than on an annual basis. Examples given were those of members who moved out of the area and members whose injuries stopped them using the facilities. He told the tribunal that these cases were agreed on an individual basis. There was no suggestion in his evidence that these conditions were set out down in any document or were made otherwise than on an individual basis. The tribunal finds that to be consistent with the contracts with individual members being oral. His explanation of the additional cost of becoming, in his terms, an annual member paying monthly, as against becoming a monthly member, did not show any clear reason why he and his wife would accept only annual members, as against preferring minimum periods of membership. Nor did it show that they had instructed their staff only to accept membership on the clear basis that an individual paying monthly had, as a term of the contract of membership, to remain a member for full years rather than parts of years.  

Conclusions

48	While the tribunal had no evidence of the views of a member, it can see that a member might well be attracted to short term membership by the terms offered. By contrast, the cost of paying for annual membership by monthly payments, if viewed as a finance charge, was high.  On the main form in evidence, the annual family membership for the Gym was shown as £360. The monthly cost was shown as £40, or £480 annually. The additional cost was therefore £120. If factored across a year on a rough basis, the effect of monthly payment as against annual payment in advance is that about half the annual cost is left outstanding for most of the year. On that basis a family would be paying £120 for the privilege of effectively deferring payment of about £180 for most of a year, a finance charge representing an interest rate in the region of 60 per cent per annum. The tribunal can only speculate why a member who wanted annual membership would pay that level of charge as a finance charge to the Appellants rather than borrow the money elsewhere. 

49	This tribunal has considered the evidence of Mr Taylor on each of the occasions on which he gave evidence, the view taken by the Penalty Tribunal about the evidence given by Mr Taylor to it, and the available documentary evidence. It finds, as stated above, that the contract of membership of the Appellants’ clubs was in each case an oral contract between the Appellants or their agents and the individual members. And it finds that on the balance of probabilities that membership of the categories of membership now in dispute – those where payment could be made monthly or annually – could as a matter of fact be monthly as well as annual and was not exclusively annual membership. There is no basis in the nature of monthly membership for separating out an element of the monthly membership fee in the way contended for the Appellants. It therefore finds that both the view of the Commissioners and the assumption of the Penalty Tribunal as to the terms of membership are correct.  

50	The tribunal finds no basis in fact for the argument that a part of the membership fees paid monthly to the Appellants was an exempt supply of finance services for the purposes of value added tax. It must therefore dismiss the appeal.  	

DR DAVID WILLIAMS
CHAIRMAN

RELEASED: 28 November 2005

LON/03/570	
££Taylor & Anor (t/a Riverside Sports & Leisure) v Revenue and Customs [2005] UKVAT V19354 (28 November 2005)