VAT Tribunal

VAT Tribunal

Heads and Hands

RICHARD CURTIS considers the VAT definition of 'consultant'.

THE INDIAN PALMIST was the trading name of Mr Mohammed, a clairvoyant and palmist. His training started at the age of six and in doing this he was following a family tradition stretching back 200 years. He had been in practice for approximately 30 years.

The tribunal heard that Mr Mohammed's work was basically performing astrological calculations and phrenology and then giving spiritual and practical advice on family and financial problems, etc. At any one time he commonly had three or four clients, mainly from the Indian subcontinent and the United States. Mr Mohammed claimed that he was carrying out services as a consultant for recipients outside of the European Union. These activities fell under Article 9(2)(e), Sixth Directive as implemented into domestic law as Schedule 5 to the VAT Act 1994, which treats various services as supplied where received.

Paragraph 16, VAT (Place of Supply of Services) Order states that 'Where a supply consists of any services of a description specified in any of paragraphs 1 to 8 of Schedule 5 to the Act, and the recipient of that supply ... belongs in a country ... which is not a Member State ... it shall be treated as made where the recipient belongs'.

Returning to basic principles, section 1, VAT Act 1994 states that 'VAT shall be charged ... on the supply of goods and services in the United Kingdom'. Thus, if the place of supply is deemed to be outside of the United Kingdom via paragraph 16 of the VAT (Place of Supply of Services) Order, then United Kingdom VAT need not be charged.

Paragraph 3 of section 8 of Schedule 5 to the VAT Act 1994 includes 'Services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services; data processing and provision of information (but excluding from this head any services relating to land)'. Thus, the critical question was whether Mr Mohammed fell within the term 'consultant'. If he did, the supply would be outside of the United Kingdom and he would not have to add VAT to his fees to such persons.

There is no further clarification of the term 'consultant' in the Act, but counsel for Mr Mohammed mentioned that it had been the subject of some cases before the European Court of Justice and submitted that, unlike the policy for exemptions, the term should not be interpreted restrictively. Referring to Dudda v Finanzamt Bergiseh Gladback [1996] STC 1290, counsel argued that it was not essential that a consultant was a member of a 'liberal profession', the term found in Annex F of the Sixth Directive; for example, engineers and consultancy bureaux were not within that definition, but were mentioned in Article 9(2)(e).

In Linthorst & Others v Inspecteur der Belastingdienst/Ondernemingen Roermond [1997] STC 1287, the Advocate General did not think that Article 9(2)(e) intended 'to enumerate a catalogue or establish a genus or class of activities', but a veterinary surgeon was not within the definition as no common element could be established which would assimilate the vet into the Article.

Mr Mohammed contended that his advice would be termed counselling in a European culture and the fact that his methods were not capable of scientific verification was not relevant for inclusion within the Article.

Customs referred to the Christiane Adam case (C-267/99) where the European Court held that 'liberal professions' were 'activities which involve a marked intellectual character, require a high level of qualification and are usually subject to clear and strict professional regulations'.

Despite having no doubts as to his eminence and the fact that he was consulted, the tribunal agreed with Customs' interpretation that 'consultant' must fall within the above definition of a 'liberal profession'. Consequently, the exemption within section 8 did not apply here.

This decision seems to confirm Customs' view, as set out by John Price in Tolley's Tax Essentials — VAT, regarding the dividing line — which may not always be totally clear — regarding professional services: 'Paragraph 3 is seen by Customs as covering professional type services. Thus, an accountant using professional skills is covered, but routine bookkeeping may be thought borderline ... Similarly, engineering services are seen as those of qualified professionals, rather than of mechanics'.

(Nasim Mohammed t/a The Indian Palmist (18397).)

Issue: 3975 / Categories: