© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
C3. Services
Meaning of supply of services
- Any transaction which does not constitute a supply of goods
"(1) ‘Supply of services’ shall mean any transaction which does not constitute a supply of goods." (PVD Article 24)
GENERAL
- Not constrained by ordinary meaning of service
"[23] It may be said that the obligation undertaken by Blue Lagoon might not comfortably be described as a “service”. However, section 4(2)(b) of VATA makes clear that the term “supply of services” here includes anything which is not a supply of goods but is done for consideration." (Blue Lagoon Beach Hotel & Co Ltd v. Assessment Review Committee [2023] UKPC 24)
- Must be a specific benefit to a particular consumer rather than a general benefit to the general public
"[29] VAT is a tax on consumption which aims to tax a consumer’s financial capacity, as reflected in his or her expenditure of wealth to procure a consumable benefit. Therefore, a transaction for the purposes of VAT can exist only where the taxable person provides a specific benefit to a particular consumer. If, on the other hand, the recipient of the subsidy merely provides a general benefit to the general public, that does not result in a taxable transaction." (PSA C-615/23, AG Kokott)
- Supply of service is objective enquiry, without need to inquire into intention of taxable person
"[41] It is also apparent from the case-law of the Court that the term supply of services is therefore objective in nature and applies without regard to the purpose or results of the transactions concerned and without its being necessary for the tax authorities to carry out inquiries to determine the intention of the taxable person (see, to that effect, Halifax and Others , paragraphs 56 and 57 and the case-law cited)." (Newey C-653/11)
"[11] ... Further, the term “supply of services” must be interpreted objectively without regard to the purpose or results of the transactions concerned and without it being necessary for the tax authorities to carry out inquiries to determine the intention of the taxable person: see Commissioners of Revenue and Customs v Newey (C‑653/11) judgment of 20 June 2013 EU:C:2013:409, para 41." (Blue Lagoon Beach Hotel & Co Ltd v. Assessment Review Committee [2023] UKPC 24)
Examples
- Greenhouse gas emission allowance transfer is supply of services
"[28] At the outset, it should be stated that, as the referring court noted, transactions consisting in the transfer, for consideration, of greenhouse gas emission allowances must be classified as a supply of services within the meaning of the VAT Directive (see, to that effect, judgment of 8 December 2016, A and B, C‑453/15, EU:C:2016:933, paragraph 30)." (Climate Corporation Emissions Trading C-641/21)
- Currency/bitcoin exchange
"[31] Consequently, the answer to the first question is that Article 2(1)(c) of the VAT Directive must be interpreted as meaning that transactions such as those at issue in the main proceedings, which consist of the exchange of traditional currency for units of the ‘bitcoin’ virtual currency and vice versa, in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, constitute the supply of services for consideration within the meaning of that article." (Hedqvist C-264/14)
- Vouchers are a service (right to future goods or services)
"[26] Consequently, in so far as those vouchers do not immediately transfer the right to dispose of property, their provision constitutes, for VAT purposes, not a ‘supply of goods’ within the meaning of Article 5(1) of the Sixth Directive, but a ‘supply of services’ within the meaning of Article 6(1) of that directive, since, under Article 6(1), any transaction which does not constitute a supply of goods within the meaning of Article 5 is regarded as a supply of services." (Astra Zeneca UK Ltd C-40/09)
- No supply where government, acting in common interest, compensated farmer for ceasing milk production because no benefit/consumption
"[20] In a case such as the present one, there is no consumption as envisaged in the Community VAT system.
[21] As the Advocate General notes at point 27 of his Opinion, by compensating farmers who undertake to cease their milk production, the Community does not acquire goods or services for its own use but acts in the common interest of promoting the proper functioning of the Community milk market.
[22] In those circumstances, the undertaking given by a farmer that he will discontinue his milk production does not entail either for the Community or for the competent national authorities any benefit which would enable them to be considered consumers of a service. The undertaking in question does not therefore constitute a supply of services within the meaning of Article 6(1) of the Directive." (Mohr C-215/94)
"[31] The Court has thus differentiated, from the very beginning, according to whether there exists a supply for the purposes of VAT law in return for which the subsidy was granted. ( 15 ) This was rejected by the Court ( 16 ) where the operator merely agreed to produce less milk and to receive compensation (a subsidy) in return. The Court found that the discontinuation of milk production by the farmer was in the interest of the subsidy provider, but did not provide a consumable benefit to it, and was instead in the common interest of promoting the proper functioning of the EU milk market. ( 17 ) In particular, as the Court expressly stated, the farmer did not provide services to an identifiable consumer or any benefit capable of being regarded as a cost component of the activity of another person in the commercial chain. ( 18 )" (PSA C-615/23, AG Kokott)
- Lending is a supply of credit, not a supply of the money
"[22] Finally, it was common ground between Mr Cordara and Mr Paines that when a bank lends money to a customer, the bank makes a supply of credit (i.e. the use of the money lent) rather than the supply of the money itself. The consideration is therefore the interest (and any relevant charges) payable by the borrower, rather than the aggregate of the interest, the charges and the value of the promise to repay the principal. If the customer provides security for the loan, that is not a supply to the bank. It is merely the performance of a condition of the loan agreement. This common ground is to be found reflected in paragraph 47 of the Opinion of Advocate General Lenz in BLP Group plc v Customs and Excise Commissioners (Case C-4/94) [1995] STC 424, at 432. That is no doubt why the argument before the Tribunal (and the COBE Tribunal) centred on the question whether the assignment of receivables by the bank as part of the securitisation process was or was not an assignment by way of security for a loan." (MBNA Europe Bank Limited v. HMRC [2006] EWHC 2326 (Ch), Briggs J)
- Recipient of a loan does not provide any service
"[11] In C-4/94 BLP Group v Customs and Excise Commissioners [1995] STC 424 at [47], the Court of Justice of the European Union ("the CJEU") held that to take out a loan does not involve a VATable transaction by the borrower at all, even if he pays interest: he is the mere recipient of a service provided by the lender..." (ING Intermediate Holdings Limited v. HMRC [2017] EWCA Civ 2111, Arden, Kitchin, Floyd LJJ)
- Bank accepting deposit is providing banking service (not just receiving a loan)
"[5] There are three issues:
Issue 1: Did IDUK in law supply services or do the facilities it provided fall to be treated in law for VAT purposes simply as the receipt of deposits made by the public in return for interest?
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[42] I also agree with the Upper Tribunal that the facts in this case are materially different from those in MBNA. The transfer of securities in MBNA was an essential part of the transaction. Here they are not. The customer can only get the services if he makes a deposit, but he does not need to use the services provided by IDUK, and may not do so.
[43] The fact that the terms and conditions use the word "service" does not of course bind the tribunals to find that there is a supply of services, but the parties' own description of the nature of a transaction is contemporaneous evidence as to what it really was and may sometimes throw light on that matter (see per Lord Neuberger in Secret Hotels2 at [32], paragraph 39 above).
[44] In my judgment, [the taxpayer's] skilful argument falls down at the first stage. The terms and conditions set out what the parties have agreed. They also make it clear, as the Upper Tribunal held, that the deposit and banking services were not interdependent. A customer could deposit money without using many of the services which IDUK offers. The ability to place deposits is not dependent on his using the services whereas in MBNA the drawdown of the loan would certainly have been dependent on the grant of security." (ING Intermediate Holdings Limited v. HMRC [2017] EWC Civ 2111, Arden, Kitchin, Floyd LJJ)
- Currency exchange is a supply of currency exchange not a supply of currency
"[20] In Customs and Excise Commissioners v First National Bank of Chicago (Case C-172/96) [1998] STC 850, the taxpayer FNBC dealt in foreign exchange transactions, earning its profit by the spread between bid and offer price for different currencies, rather than by taking commission. On the basis that currencies are legal tender and not tangible property, (as the ECJ held), the exchange had to be analysed as involving the supply of services rather than goods. A rigorous application of Article 6 on a turnover basis might have suggested that FNBC and its customer each made a supply to the other of a different currency, the consideration being in each case the value of the currency moving in the opposite direction. But the Court held that consideration for the supply made by FNBC was only the value of the spread, rejecting the turnover based argument of the bank. Although the case was treated as turning on the proper interpretation of Article 11 (which identifies the taxable amount by reference to the consideration for the supply), the key to the Court's conclusion lay in identifying the relevant supply as the provision of a currency exchange service by FNBC, rather then the supply by way of sale of a particular form of legal tender to the customer." (MBNA Europe Bank Limited v. HMRC [2006] EWHC 2326 (Ch), Briggs J)
- Assignment of debts to factor/as security not a supply
"[21] In Finanzamt Gross Gerau v MKG Kraftfahrzeuge Factory GmbH (Case C-305/01) [2003] STC 951, the ECJ had to analyse a factoring agreement so as to identify the factor's VAT output profile. The agreement required the factor to assume without recourse the risk of default on the debts assigned, and the burden of their recovery. A rigorous turnover-based application of Article 6 might have led to the conclusion that the trader made an outright supply of the debts to the factor for a consideration consisting of the face value of the debt less the commission and del credere fee charged by the factor. The Court held however that the true VAT analysis of the transaction was that the factor provided a supply to the trader consisting of a factoring service, for a consideration consisting of the aggregate of the commission and the del credere fee. Although the VAT output profile of the trader was not in issue, I cannot conceive that the Court would have accepted an argument that the same transaction also constituted a supply of the debts assigned by the trader to the factor. The assignment of the debts was merely the necessary step which the trader had to take in order to obtain the benefit of the factoring service. It was not a supply at all." (MBNA Europe Bank Limited v. HMRC [2006] EWHC 2326 (Ch), Briggs J)
- Assignment of debts to SPV offering securitisation service to bank not a supply of those debts
"[102] Put in bare outline, in my judgment the assignments were, viewed separately from the rest of the scheme, in theory capable of constituting supplies, but because they were no more than the necessary pre-condition to the supply of a securitisation service to the banks, by the SPVs set up to operate that service, they are thereby deprived of the character of a supply by the banks. They therefore constitute an addition to the exceptional class of transactions which look prima facie like a supply, but which lose that character when viewed in their context. Other examples are the sale of currency to a forex dealer to obtain an exchange service, the assignment of debts to a factor to obtain a factoring service, and the assignment of property to a lender as security for (i.e. to obtain) a loan.
[103] In more detail, the starting point is that the securitisation scheme as a whole plainly provided a service to the banks. The SPVs took over a selection of the banks' Receivables on a rolling basis over a defined period, bundled up in a form suitable as first class security for a loan to them, and then made the consequential cash available to the banks for the same period in a manner which did not involve the banks either borrowing or granting security themselves, and at a more competitive cost than if the banks had done precisely that. For this purpose of deciding whether the banks made a supply it is irrelevant that the service was provided to the banks by more than one legal person, or by a series of interlinked contracts, rather than just one.
[104] Equally plainly, the service could not be provided at all unless the banks made available to the SPVs on a rolling basis a sufficient number and value of Receivables, to enable the SPVs to use them as first class security. A car owner cannot obtain a repair service unless he bails his car to the mechanic. While there may be other reasons why the bailment is not a supply by the car owner, one of them is that the owner is not providing a service to the mechanic at all." (MBNA Europe Bank Limited v. HMRC [2006] EWHC 2326 (Ch), Briggs J)
- Assignment of rights in enforcement proceedings a supply of goods/services
"[35] If that were the case, the assignment transaction at issue in the main proceedings, which occurred, according to the observations submitted to the Court, the day before the judgment ordering the property concerned to be awarded became final, would consist in a transfer of tangible property — that is, immovable property — by one party which empowers another party actually to dispose of it as if he were its owner, which would amount to a supply of goods (see, to that effect, judgment of 27 March 2019, Mydibel, C‑201/18, EU:C:2019:254, paragraph 34 and the case-law cited). If that were not the case, the transaction at issue in the main proceedings would consist in the assignment of intangible property, the subject matter of which would be rights over immovable property, and would fall within the concept of the supply of services, in accordance with Article 25(a) of Directive 2006/112. It is for the referring court to conduct the necessary checks in that respect.
[36] In the light of the specificities of the transaction at issue in the main proceedings, as set out in paragraphs 31 to 35 above, whether it is characterised as a supply of services or a supply of goods, it is, by its nature, different from the transaction at issue in the case giving rise to the judgment of 27 October 2011, GFKL Financial Services (C‑93/10, EU:C:2011:700). The transaction examined by the Court in that judgment consisted in the purchase by an operator, at his own risk, of defaulted debts at a price below their face value, in respect of which the Court concluded, in paragraph 26 of that judgment, that an operator purchasing such debts does not effect a supply of services for consideration and does not carry out an economic activity falling within the scope of the Sixth Directive when the difference between the face value of those debts and their purchase price reflects the actual economic value of the debts at the time of their assignment. By contrast, the transaction at issue in the main proceedings consists in the assignment, to a third party, for remuneration, of all the rights and obligations deriving from a taxable person’s position in enforcement proceedings for recovery of a debt recognised by a judgment." (Paulo Nascimento Consulting C-692/17)
NATURE OF THE SERVICE
Right to benefit
- Provision of right of access to golf club is supply for consideration irrespective of whether the member attends
"[40] As the Commission argues, the fact that in the case before the national court the annual subscription fee is a fixed sum which cannot be related to each personal use of the golf course does not alter the fact that there is reciprocal performance between the members of a sports association such as that concerned in the main proceedings and the association itself. The services provided by the association are constituted by the making available to its members, on a permanent basis, of sports facilities and the associated advantages and not by particular services provided at the members' request. There is therefore a direct link between the annual subscription fees paid by members of a sports association such as that concerned in the main proceedings and the services which it provides." (Kennemer Golf C-174/00)
- Subscription service for consulting services to be available when required is supply for consideration
"[32] By its first question, the referring court asks, in essence, whether Article 24(1) and Article 25(b) of the VAT Directive must be interpreted as meaning that the term ‘supply of services’ includes subscription contracts for the supply of consulting services, in particular those of a legal, commercial or financial nature, under which a supplier has agreed to be available to the customer during the term of the contract and has undertaken to refrain from entering into contracts with a similar subject-matter with the customer’s competitors.
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[40] Those considerations are applicable to a subscription contract for consulting services, such as the contract at issue in the main proceedings — the legitimacy of which it is however for the national court to check —, in which the customer has undertaken to pay the remuneration agreed between the parties by way of fixed sums, irrespective of the quantity and nature of consulting services actually supplied during the period to which that remuneration relates." (Asparuhovo Lake Investment C-463/14)
Object of supply is not to provide specific advice
"[47] As has been explained at paragraphs 40 and 41 above, in the case in the main proceedings, since the object of the supply of services is not to provide specific advice but to be available to the customer in order to advise it, the service provider makes the supply of services by the very fact of being available during the period set in the subscription contract, irrespective of the quantity and nature of the consulting services actually provided during the period to which that remuneration relates." (Asparuhovo Lake Investment C-463/14)
- Hotel's supply was reservation of accommodation irrespective of whether it was occupied
"[12] Blue Lagoon argues that the supply of services here is the supply of the hotel room, meals and other services to a guest who occupies the room for which the tour operator has paid. If no guest arrives, there is no supply of services to which the payment of consideration by the tour operator to Blue Lagoon is linked, directly or at all. It asserts that Blue Lagoon can only be said to be supplying rooms once a tour operator has referred a client to it. Prior to that, the tour operator is simply given the opportunity of selling rooms to clients for a profit. Blue Lagoon relies on Esporta Ltd v Revenue and Customs Commissioners [2014] EWCA Civ 155; [2014] STC 1548 (“Esporta”) to the effect that one must have regard to the economic realities and to all the circumstances in which the transaction takes place.
[13] The Board disagrees with that analysis. As the ARC correctly found, the service provided by Blue Lagoon to the tour operator is the reservation of the accommodation which the tour operator can then confidently sell on to its clients, knowing that when the guest arrives at Blue Lagoon’s hotel, they will be welcomed and provided with a room and meals during their stay. The ARC’s conclusion is supported by decisions in Mauritius, the UK and the EU." (Blue Lagoon Beach Hotel & Co Ltd v. Assessment Review Committee [2023] UKPC 24)
- Payment due upon termination is consideration for the supply of the right to benefit under the contract
“[18] In that regard, it should be added that, as is apparent from the case-law of the Court, a predetermined amount received by an economic operator where a contract for the supply of services for a certain period is terminated early by its customer, or for a reason attributable to the customer, which corresponds to the sum that that operator would have received for the remainder of that period in the absence of such termination, must be regarded as the remuneration for a supply of services for consideration and subject, as such, to VAT, even though that termination entailed, inter alia, the deactivation of the services referred to in that contract before the expiry of the agreed period (see, to that effect, judgment of 11 June 2020, Vodafone Portugal, C 43/19, EU:C:2020:465, paragraph 33 and the case-law cited).
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“[20] First, the consideration for the amount to be paid by the recipient of the supply of services is constituted by the recipient’s right to benefit from the fulfilment, by the supplier, of the obligations under the services contract, even if the recipient no longer wishes to avail itself of that right for a reason attributable to it (see, to that effect, judgment of 11 June 2020, Vodafone Portugal, C 43/19, EU:C:2020:465, paragraph 35).
[21] In a situation such as that at issue in the main proceedings, the supplier of services not only placed the customer in a position to benefit from the supply of services, within the meaning of the case-law cited in paragraph 17 above, but, since it had already begun the agreed works, actually provided part of that supply, it being noted that the supplier was prepared to perform that contract to completion.” (rhtb: projekt gmbh C-622/23)
Right to benefit condition upon making agreed payments
- Customer who does not pay gym membership still being provided with same service: right of access provided they pay monthly fees
"[35] In my judgment, the contract provides for the member to be allowed access to the facilities in return for the monthly payments during the Commitment Period and thereafter until termination, but that access is conditional on the regular payments being kept up. The exclusion of members on non-payment does not mean that they are being provided with no services at all. They are being provided with the same services as before, namely the right to access to the facilities provided they pay the monthly fees.
[36] The fact that the conditions provide for a member's exclusion for non-payment does not put that member in the same position as any other member of the public or even a terminated member. The member of the public has no right to demand access to the facilities even on payment of fees. The club can choose if it wants to contract with him. The same position prevails if the club terminates the membership. In the case, however, of members whose membership contracts continue, they remain even after default entitled to access to the club's facilities provided they pay up what is due under their contracts." (Esporta Limited v. HMRC [2014] EWCA Civ 155 - query how a (late) payment can be consideration for a service that is a right to a benefit conditional upon that payment)
"[48] Like Vos LJ, I consider that the Upper Tribunal erred in expressing that conclusion. There was a continuing supply of a conditional right to use the premises throughout the period of membership, that is, the Commitment Period and the period up to the date of expiry of the notice period. That supply takes place even if the member does not exercise his right to make a payment in order to gain actual access. The supply does not, therefore, have to be related back to actual use of the premises in January, February or March." (Esporta Limited v. HMRC [2014] EWCA Civ 155, Arden LJ)
Loyalty scheme
- Provision of collector points to customer in return for payment from retailer/sponsor is supply of services (right to receive goods)
"[10] It is common ground that the provision of points to collectors in return for payment by the sponsors is a taxable supply by LMUK. When LMUK charges VAT on the payments which it receives from the sponsors, it is therefore charging VAT on the amount which it receives as consideration for granting to collectors the right to receive goods and services in exchange for the points..." (HMRC v. Aimia Coalition Loyalty UK Limited [2013] UKSC 15)
- Redemption of points in return for goods is supply of redemption service to scheme organiser (who pays redeemer) irrespective of whether goods are zero-rated
"[10] ... The redeemers in turn charge VAT on the payments which they receive from LMUK. The VAT is charged at the standard rate, regardless of whether the goods and services provided to the collectors are zero-rated or exempt, on the basis that it is charged in respect of a service supplied by the redeemers to LMUK." (HMRC v. Aimia Coalition Loyalty UK Limited [2013] UKSC 15)
- And a supply of the goods to the customer
"[412 On the basis of its assessment of the economic reality, the Court of Justice concluded, in the first place, that loyalty rewards were supplied by the redeemers to the collectors. That much was not in dispute between the parties, and had been understood by the Court of Appeal." (HMRC v. Aimia Coalition Loyalty UK Limited [2013] UKSC 15)
- But payment by loyalty points scheme operator to redeemer of points was consideration for supply to it of redemption services, not the supply of goods to the customer
"[85] As the Court of Appeal pointed out, if the provision of goods or services by redeemers were treated as a taxable supply to the collector (other than to the extent to which any monetary consideration might be paid by the collector), the tax authorities would receive not only VAT on the amount received by LMUK for supplying the right to receive those goods and services, but also VAT on the amount which LMUK must pay to satisfy that right. If, on the other hand, the consideration paid by LMUK to the redeemers is regarded as the consideration for the supply of a service to LMUK (a service which encompasses the provision of goods and services to collectors), the tax authorities will still receive VAT from LMUK on the difference between the value of the supplies which it makes in the course of its business (ie its receipts from the supply of the right to receive such goods and services) and the value of the supplies which it receives for the purposes of that business (ie the cost to LMUK of satisfying that right). The tax authorities will thus recover VAT on the value added by the taxable transactions entered into by LMUK, taking the issue and redemption of points as a whole. That conclusion is in accordance with the basic principle of VAT.
(HMRC v. Aimia Coalition Loyalty UK Limited [2013] UKSC 15)
For determining which supply is for consideration see further D1: For consideration
- But where retailer subcontracts operation and provision of rewards, there is a supply of services to retailer (in part) and a supply of goods to customer
"[58] In Case C‑55/09, it is also evident from the order for reference that the loyalty rewards are invoiced by @1 to Baxi at the retail sale price with the addition of the delivery costs applicable at the order point where ownership is transferred and points are redeemed. Accordingly, after deduction of @1’s profit margin consisting of the difference between the retail sale price of the loyalty rewards and the purchase price at which @1 acquired those rewards, the payment by Baxi to @1 constitutes the consideration for the supply of those rewards.
[59] In Case C‑55/09, Baxi claims, however, that the consideration for the payment does not correspond to a supply of goods, but to a complex advertising service under which the supply of loyalty rewards to customers is one of a number of services.
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[62] Accordingly, as is, moreover, acknowledged by both the United Kingdom Government and the Commission, a payment such as that at issue in the main proceedings in Case C‑55/09 can be divided into two elements, each of which corresponds to a separate service.
[63] Consequently, the purchase price constitutes the consideration for the supply of loyalty rewards to the customers, whereas the difference between the retail sale price, paid by Baxi, and the purchase price paid by @1 in order to acquire the loyalty rewards, namely the profit margin, constitutes the consideration for the services which @1 supplies to Baxi." (Baxi Group Ltd C-55/09)
"[50] The question whether there was also a supply of services to the promoter of the scheme was considered by the court principally in relation to the scheme with which the Baxi case was concerned. That scheme was of a different character from the Nectar scheme. It was an in-house scheme under which Baxi issued points to its own customers, which they could redeem in order to obtain rewards in the form of goods. The operation of the scheme had been subcontracted to an operator, @1, which purchased the rewards and supplied them to customers in return for points. Baxi paid @1 the retail sale price of the rewards. The court held that there was a supply of goods by @1 to the customers." (HMRC v. Aimia Coalition Loyalty UK Limited [2013] UKSC 15)
Assignments
- Paying person to accept assignment of lease is service by recipient of assignment
"[20] As the referring court explained, the supply at issue in the main proceedings consists of a prospective tenant, as the supplier of services, agreeing to accept an assignment of a lease of property from a lessee, as the recipient. Thus, in the case before the national court, there is, contrary to the Commission's appraisal, an identifiable supply of services, which falls within the scope of the Sixth Directive by reason of Article 2(1) thereof and which is therefore taxable, unless one of the exemptions prescribed by a particular provision of that directive applies. Therefore, it is appropriate to consider whether that supply of services falls within Article 13B(b) of the Sixth Directive." (Cantor Fitzgerald C-108/99)
- No supply of services by assignor where assignor pays assignee to accept assignment
"[23] On the contrary, it was the new tenant, CFI, which, by agreeing to take on the rights and obligations arising under the existing lease, supplied a service to the former tenant, Wako. Wako did not make a supply of services to CFI but paid consideration in cash for the service supplied by CFI, consideration which, as such, is not liable to VAT. The landlord was the only person to effect a supply of services to CFI within the meaning of Article 2(1) of the Sixth Directive, which was exempt under Article 13B(b) thereof, namely the right to occupy its property in consideration for the payment of rent." (Cantor Fitzgerald C-108/99)