Sharon Parker, 11 April 2023
The recent VAT tribunal case of ‘The Young Driver Training Ltd’ (‘the company’) highlights the relevance that HMRC and the courts can place on advertising and publicity in determining the VAT treatment of a particular supply.
The case concerned the VAT liability of a ‘driving experience’ available to under 17-year-olds at numerous UK venues, including car parks, county show grounds and military bases. These experiences allowed the children, who were all below the legal age limit to take formal driving lessons to drive specially designed or modified cars within a fenced off area on a special course. These available experiences included a ‘mock practical driving test’ and ‘driving lesson bundles’ (comprised of six ‘driving lessons’).
On their website and in various marketing materials, the company had always referred to itself as a ‘driving school’ and described the experiences it provided as ‘driving lessons'. During the application process to register for VAT in 2009, it had described its services as 'the provision of driving lessons off the highway for under 17-year olds’. As such, it had always treated the supplies it made of the driving experiences as subject to VAT at the standard rate.
On 8 July 2020, the Government announced that it was bringing in a temporary 5% reduced rate of VAT to apply to certain supplies relating to hospitality, hotel and holiday accommodation, and admissions to certain attractions, which were ordinarily standard rated. This specifically included admission to shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities. This was an urgent response to the coronavirus (COVID-19) pandemic and intended to support businesses severely affected by forced closures and social distancing measures.
One day after this announcement was made, the company requested to change its Standard Industry Code (‘SIC’) to reflect ‘activities of amusement parks and theme parks’ and that the description of its business activity be changed to ‘driving experience for under 17-year olds’, rather than driving ‘lessons’. It then proceeded to charge VAT at the reduced rate, contending that its customers were paying for admission to an experience similar to that of a circus or funfair, due to the fact that it took place in a fenced off area that was only available to ticket holders, it moved around different venues, and there were other activities and refreshments available on the site.
HMRC disagreed with this analysis and subsequently assessed the company for approximately £130,000 of under-accounted VAT output, on the basis that its supplies were standard rated.
Upon appeal the tribunal judge rejected the notion that the experience was similar to a circus or funfair. Rather than being able to wander around freely to view all the available attractions, customers who had purchased tickets for the ‘driving experience’ had paid for a ‘specific pre-booked experience in a fenced off area’.
In considering whether customers were paying for a ‘right of admission’, some considerable attention was paid to the tribunal decision in the case of Twycross Zoo East Midland Zoological Society Limited. In this case, it had been determined that ‘admission’ should be construed as having the ‘plain and ordinary’ meaning of the word, ‘nothing more and nothing less’. However, the way in which the company had consistently advertised its services was to refer to the experience as ‘driving lessons’, whereby experienced professionals would help children learn to drive. The website described the experience as a ‘training programme’ to encourage teens to become safer drivers, giving them a head start in learning to drive. Its publicity materials stated that ‘teens get plenty of teaching and fun behind the wheel’.
In ruling, the tribunal judge took the view that the supply comprised considerably more than a ‘right of admission’ to the fenced off area, but also the use of a vehicle, driving tuition and supervision. A ‘package of benefits over and above a right of admission to the fenced off area’ was being supplied. On this basis, the company’s appeal was rejected.
At the time of designing the website and marketing materials the company clearly had no idea that there would be a pandemic and that a temporary reduced rate would be introduced for certain types of services. However, the case does serve to highlight the degree of relevance that HMRC and the tribunal placed on the marketing materials in determining the VAT position.
It may well be worth taking professional advice from a VAT consultant prior to embarking on any major new publicity campaign or, in the case of start-ups, in designing a website, so as to ensure that any advertising does not inadvertently compromise the anticipated VAT position.