19644

Value Added Tax – Supply – Whether Appellant made supplies of services in own name or as agent for others

LONDON TRIBUNAL CENTRE

                             MARTIN LESLIE HARROD                             Appellant 
                                   T/A ROADCRAFT UK

- and -

	               HM COMMISSIONERS FOR REVENUE AND CUSTOMS        Respondents

				Tribunal: Dr David Williams  (Chairman)
					     Paul Adams FCA (Member)	

Sitting in public in Cardiff on 6 June 2006

The Appellant represented himself

Sarabjit Singh of counsel, instructed by the Acting Solicitor to Her Majesty’s Revenue and Customs, for the Respondents.

© CROWN COPYRIGHT 2006

DECISION

1	The Appellant ran a training consultancy called Roadcraft UK (“Roadcraft”). Throughout the period relevant to this appeal Roadcraft was run by Mr Harrod as a sole trader. The business of Roadcraft was to supply customers (referred to as trainees) with the necessary training courses, materials and arrangements for the trainees to become registered driving instructors for training others to drive cars.

2	The issue under appeal in this appeal was whether Roadcraft itself provided all these facilities to trainees, including the services of independent instructors and tutors, or whether Roadcraft acted as agent in respect of the services of those instructors and tutors. HMRC contended that Roadcraft supplied a single service to each trainee save for the amounts incurred for the trainee as an entry fee to examinations or as a registration fee as a driving instructor. As a result, Roadcraft was liable to account for value added tax on its full fee to the trainee, save only for the examination and registration fees. Roadcraft contended that it did not have to account for value added tax on the fees charged to it by the independent instructors and tutors for the services they supplied directly to the trainees.

3	Mr Harrod represented himself at the hearing of the appeal, and gave oral evidence under oath. He also presented the tribunal with a copy of the contract and other standard forms used by Roadcraft. Mr Singh presented no additional evidence.

The facts

4	The tribunal find Mr Harrod to be an honest and straightforward witness and accept what he told the tribunal. He set up Roadcraft as a business on his own, and he had taken only limited advice on value added tax aspects of what he was doing. He ran Roadcraft as a national consultancy, in competition with other major providers. His aim was to provide a one stop shop for someone who wished to qualify as a driving instructor. 

5	Roadcraft’s relationship with a trainee would start with an assessment interview in which both Roadcraft’s interviewer and the potential trainee would discuss whether the individual should undertake the driving instructor training. Roadcraft would decide as a result of the interview whether to offer its services to a trainee. If it did so, the trainee was asked to sign a standard form contract with Roadcraft, and to pay a single fee when returning the contract. Roadcraft offered its services in exchange for the fixed fee. On occasions a different fee would be agreed with an individual, but normally the standard fee was charged. And, unless the trainee was being funded by a government training scheme grant or similar, full payment was collected before the training started.

6	Training was in three phases. In Part 1 the trainee was given advice on his or her own driving skills ahead of the later practical training and also tutored ahead of the Theory examination that is the initial stage in all driving examinations. Both the instructor who conducted the assessment drive and the tutor who helped with the mock theory examinations were self-employed individuals working at agreed hourly rates with Roadcraft. They were not employees. Roadcraft also supplied the trainee with a pack of books and materials. When the tutor assessed that the trainee was ready for the examination, Roadcraft made the arrangements for the trainee to take the examination. All relevant examinations are conducted by the Driving Standards Agency (“DSA”). Roadcraft paid the DSA examination fees on behalf of the trainee.

7	Part 2 of the training is in driving proficiency. When the trainee had been informed that he or she had passed the theory examination, Roadcraft would contact a local instructor to conduct the driving proficiency training with the trainee. Roadcraft worked with up to 48 driving instructors located throughout England and Wales in providing this part of the training. Each driving instructor ran his or her own driving school. None were registered for value added tax. Once Roadcraft was established it also worked only with ORDIT approved driving instructors (those on the voluntary register maintained by the Official Register of Driving Instructor Training for Great Britain and Northern Ireland).

8	Roadcraft would inform each trainee of the name and contact details of the instructor selected by Roadcraft for that trainee. Roadcraft also contacted the instructor. The instructor was asked to arrange training with the trainee direct, but to invoice Roadcraft weekly for lessons performed. Roadcraft agreed an hourly rate with the instructor, and that the instructor would arrange the number of lessons necessary with the trainee to prepare the trainee for the Part 2 examination. 

9	Mr Harrod told the tribunal that trainees were not required to make any payment direct to the instructor. Some instructors would sell their own manuals to the trainees, but that was a private matter. Instructors billed Roadcraft direct, and Roadcraft settled the bills against invoices at the agreed rate. Roadcraft budgeted on an instructor providing a trainee with 20 driving sessions, but the trainee was not aware of that. If, as Roadcraft hoped, a trainee was ready with fewer than 20 lessons then Roadcraft gained. If more than 20 lessons were necessary, then Roadcraft lost. Roadcraft would make arrangements for the DSA driving examination at the appropriate stage.

10	Once the trainee had passed Part 2, the process was repeated by Roadcraft and the instructor with the trainee for Part 3, on driving instruction skills. When a trainee passed the Part 3 examination, Roadcraft registered the trainee on the official register of Approved Driving Instructors.   

11	In addition, Roadcraft also advertised itself as a driving school. Newly qualified instructors trained through the Roadcraft package were permitted to use the “Roadcraft UK” name while getting their own businesses established. The name was used in this way without any fee or other conditions. Roadcraft would pass any enquiries about driving training to its recently registered past trainees. 

The law

12	This is another appeal that raises the central questions for value added tax of who supplied what to whom. The tribunal was taken only to the decision of the European Court of Justice in Card Protection Plan Ltd v Commissioners of Customs and Excise, Case C-349/96, of 25 February 1999. This emphasises the need to decide if a supply of services is a supply of a service as a distinct and independent supply that is not artificially split, or if there are supplies of several distinct principal services. The tribunal was also taken to the list of the eight points used by HMRC to identify disbursements in paragraph 25 of the main VAT Guide No 700.  Neither party drew attention to any other authorities or guidance.

13	While the tribunal finds the list of eight factors set out by HMRC in paragraph 25.1 of Notice 700 useful, it emphasises that it is no more than that. The factors help identify underlying legal problems, and also help focus on the facts about who supplied what to whom, but they do not replace the law or themselves impose additional legal requirements. Specifically, the tribunal does not accept as a statement of law the wording of the guidance (in bold print) that all those conditions must be satisfied before a taxable person can treat a payment as a disbursement for value added tax purposes. However, it can see why the Appellant in this case argued that by complying with those listed items (as it contended it did) it met the requirements of the law.

14	The question to be answered in this appeal is both more general and more specific than compliance with that, or any other, list. Did Roadcraft itself supply a single service to its trainees, or were the trainees supplied with a series of separate supplies by Roadcraft and others? Roadcraft contended that it was supplying only certain aspects of the training package to the trainees, while others supplied other aspects. To establish that, Roadcraft has to show that those other supplies were directly made between the trainees and those others. For that to be the case, Roadcraft also has to show that it was involved in some of the transactions only as an agent. 

15	The role of Roadcraft was tested in this case both by reference to the arrangements made with the DSA for the examinations, and by reference to the arrangements with instructors for driving lessons. 

16	HMRC has accepted, rightly in the tribunal’s view, that the payment by Roadcraft of the examination fees to the DSA for each trainee was payment by Roadcraft as an agent for the trainee. The DSA fees are fixed, standard fees. The standard form contract between Roadcraft and each trainee provided expressly that Roadcraft “will pay the examination fees on behalf of the client in respect of this examination”. Roadcraft did precisely that. And it charged no additional fee for doing this for a trainee. In other words, Roadcraft acted as agent for the trainee. No doubt this would also be clear from the DSA entry forms used, although the tribunal did not see any of them as the point was not directly in issue.
 
17	The tribunal agrees with Mr Singh that the same approach cannot be applied to the arrangements with the instructors. These are not mentioned in the standard contract signed between Roadcraft and a trainee. Nor was a trainee aware of the amount involved, or required to make any payment directly to an instructor. Put another way, the tribunal can identify no contract directly between a trainee and an instructor. There was a clear written contract between Roadcraft and the trainee, and all funds passed under that contract. Under this contract the trainee paid a fixed fee to Roadcraft regardless of how many sessions (if any) were provided to the trainee by the instructor. There was also a contract between Roadcraft and an instructor. On Mr Harrod’s evidence this was partly verbal and partly in writing. Under this contract, the instructor invoiced Roadcraft for each hour’s tuition provided, at an agreed hourly rate. 

18	Mr Harrod argued that an agency arrangement was indicated by the use of the description “training consultants” for Roadcraft, and also because his intention was that there should be an agency arrangement. He assumed that because the instructors did not charge him value added tax, and because Roadcraft itself did not provide the instruction, so therefore Roadcraft was not providing any service directly to the trainee in respect of the driving tuition. The tribunal finds that the label “consultant” does not assist Roadcraft’s arguments at all. Nor is the argument assisted by Mr Harrod’s underlying intentions, as against the terms of the supply contracts actually agreed with the trainees and the instructors. Nor is it of importance that the supplies to Roadcraft by the instructors were not themselves subject to value added tax.    

19	The tribunal finds that Roadcraft was neither agent for the trainees in dealing with the instructors nor agent for the instructors in dealing with the trainees. It stood as a principal in its own right between them. Save for paying the examination fees and registration fees as agent for the trainees, Roadcraft provided each trainee with a single supply of services – an all-inclusive service to assist a trainee to register as, and then start in business as, an approved driving instructor starting with a consultation and ending with use of a trading name. For that, the trainee paid a single fixed fee, and signed a single standard form contract. 

21	HMRC rightly assessed Roadcraft to value added tax on that fee, with the specific agreed exceptions for fees. The appeal must therefore fail. 

DAVID WILLIAMS
CHAIRMAN

RELEASED: 6 July 2006

LON/05/778