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The First-tier Tribunal (FTT) has ruled that a company which used ghostwriters to turn people's life stories into books was making zero-rated supplies of books, not standard-rated supplies of ghostwriting services.
Customers would contact the company via its website and select one of three packages. They would then be matched with a ghostwriter, who would conduct interviews with them to establish the outline of the story. They would use the company's software to upload photos for use in the book and to design the cover. The company's designers would lay out the cover and interior, and the customer would sign off proofs before the book went to print.
HM Revenue and Customs (HMRC) took the view that the company was making standard-rated supplies of ghostwriting services for the purposes of the Value Added Tax Act 1994. After a review upheld HMRC's decision, the company appealed to the FTT.
It was common ground that the company's supplies to its customers were single supplies. The company's case was that its supplies were within Item 1 of Schedule 8, Group 3 of the Act and fell to be zero-rated. The end product was a book for the purposes of Item 1. That was the predominant element of the supply because it was the focal point of the company's offering and the theme of its contract with customers focused on the end result, which was four full-colour hardbacks and a digital copy of the book. The ghostwriting services were not available separately.
HMRC contended that the evidence, including the contracts, the customer reviews and the pricing structure, showed that the ghostwriting services were the predominant element of the supply. The company conducted the research, writing and design, which were all standard-rated services. Furthermore, Item 1 precludes zero rating of supplies arising in consequence of a supplier providing a bespoke service.
The FTT cited the Court of Appeal's decision in Gray and Farrar International LLP v Revenue and Customs as authority for the proposition that, normally, the starting point for the characterisation of a supply which is governed by a written agreement is the written agreement itself. The contract described the book as the 'final output', and clauses involving the standard the book must meet, the importance of proofreading and the replacement of ghostwriters demonstrated that the contract's purpose was to ensure that a book was produced.
The FTT did not consider that the bespoke nature of the company's supplies dominated to the extent that they were standard-rated. In the FTT's view, the contract's purpose reflected that of the typical consumer, which was ensuring that a book was produced to be shared and enjoyed in its physical form. The typical consumer would regard the provision of the book as the most important element of the supply. Therefore, in light of the contract, it was the predominant element.