A tax tribunal was recently asked to consider the vagaries of the dating game, when it heard an appeal concerning a VAT dispute between HMRC and a high-end matchmaking service.
Gray & Farrar ran an exclusive business which provided clients with introductions to potential romantic partners, hand-picked for them by an adviser rather than by automated online dating apps. A 12-month membership, entitling a client to at least eight introductions from Gray & Farrar’s existing members, cost £15,000; while engaging the firm’s services to track down a bespoke partner from outside its client list could cost up to £140,000.
New clients would be invited to an in-depth initial consultation - either with the firm’s managing partner or a trained member of staff - to gather information about them and what they were looking for in a partner. This would include a degree of vetting and perhaps some dating coaching where appropriate. As the client began to contact and meet their matches, Gray & Farrar’s team would keep in close contact with them to discuss progress and provide further advice.
For VAT purposes, Gray & Farrar treated its service as a supply of consultancy, which meant that clients residing outside the EU were not charged UK VAT on its fees. However, HMRC noted that Gray & Farrar used intangible skills of intuition and reading of emotions in order to find suitable matches for its clients and took the view that this was not consultancy and all of the income should have been subject to UK VAT, regardless of the clients’ location. HMRC insisted that consultancy services should be regarded as the giving of reasoned, evidence-based intellectual advice. Gray & Farrar’s service, in HMRC’s view, did not qualify.
The tribunal rejected HMRC’s narrow definition of consultancy, finding that it was simply expert advice based on a high degree of experience. The use of intuition and experience as a tool to pick a match for a client did meet the tests to be regarded as consultancy.
Overall, however, the tribunal decided the case in favour of HMRC. It ruled that only the managing partner held the necessary expertise to be regarded as a consultant, and her staff simply gave the clients a listening ear and the kind of support someone might obtain from a friend, which was not consultancy. The tribunal thought that most of the client contact was handled by the staff and that the managing partner did not give sufficient input for the service of consultancy to be the predominant service.
This was a split decision, with one member of the tribunal finding that Gray & Farrar did provide consultancy because its staff’s work was performed under the supervision of the managing partner, who gave evidence at the hearing that she met many of the clients herself and chose matches for all them, albeit sometimes based on information provided by her team.
It remains to be seen whether Gray & Farrar may appeal this decision, which would appear to involve large amounts of VAT. The case is a useful reminder for advisory businesses to think carefully about whether their service constitutes ‘consultancy’ when determining the place of supply of their services to overseas clients.