Clearwater Hampers Limited v The Commissioners for HMRC

This is an appeal brought by Clearwater Hampers Ltd (Appellant) against HMRC’s decision to refuse a claim for the repayment of output tax on supplies of food and drink gift hampers which come packaged in a lidded wicker basket totalling £425,529 over VAT periods 04/20 to 01/24. The Appellant’s case is that the lidded wicker baskets (lidded baskets)in which the items of food and drink (Food and Drink Supplies)come packaged do not constitute separate standard-rated supplies, as HMRC contend, but rather should share the same tax treatment as the Food and Drink Supplies. There is no dispute about the quantification of the Appellant’s claim in the event that it is successful on the substantive issue.

The background chronology to this appeal may be shortly stated. We do not understand there to be any dispute about the facts as set out and found in this background section.

The Appellant is an online retailer of food and drink gift hampers (Products), trading from its website at www.hampers.com. With one exception, each Product is comprised of a curated collection of food and drink items presented in one of four types of container, designed to be gifted by the purchaser (Purchaser)to another. The Appellant does not retail any of the component items individually. The four types of container are: a cardboard box (cardboard box); a tray made of bamboo (bamboo tray); an open wicker basket (open basket), and a lidded basket. Each Product is shipped in an outer cardboard shipping carton (shipping carton). (The exception is a seasonal Product consisting of a wicker picnic basket equipped with cutlery and plates (picnic basket) with items of food and drink packed within it. The Appellant accepts that the picnic basket is a separate standard-rated supply.)

Some of the food and drink items are standard-rated for VAT, whereas others are zero-rated. The Appellant therefore calculated a composite VAT rate for each Product, based on the relative value of standard-rated items within each Product and zero-rated items within each Product.

On 31 October 2023, the Appellant submitted an error correction notification (2023 ECN) claiming repayment of overpaid output VAT in the sum of £1,219,908.63 for periods 10/19 to 07/23 on the basis that in calculating the composite VAT rate for each Product which used a cardboard box, bamboo tray or open basket in these periods, it had should have excluded the value of that container from in the standard-rated portion, on the basis that the container and other packaging did not constitute supplies in themselves but were “incidental” to the Food and Drink Supplies.

HMRC accepted the 2023 ECN and on 22 February 2024 repaid the sum in full.

On 30 April 2024, the Appellant submitted a further error correction notification claiming a repayment in the sum of £425,529, on the basis that the composite VAT rate applied to Products using a lidded basket (Relevant Products) should likewise have been calculated by reference to the value of the food and drink items alone, excluding the value of the lidded basket itself (the Repayment Claim). The Appellant contended that the lidded baskets were “part of the overall single supply of the food”, on the basis that the lidded baskets served the “dual purposes of presentation and protection” of the luxury food items.

On 28 October 2024, HMRC refused the Repayment Claim. That refusal was upheld on review dated 27 November 2024, the reviewing officer being satisfied that the lidded baskets constituted a separate supply with VAT charged accordingly. On 18 December 2024, the Appellant brought the present appeal against that decision.

As the Upper Tribunal observed in R (on the application of Gloucestershire Hospitals NHS Foundation Trust) v Revenue and Customs Commissioners [2023] UKUT 28 (TCC), [2023] STC 350 at [101], there is a wealth of domestic and European authority on the issue of what constitutes a single supply as opposed to multiple supplies for the purposes of VAT. The starting point is that every supply must normally be regarded as distinct and independent. There are however two ways in which something which would otherwise be regarded as a distinct supply becomes part of a wider composite supply with another element or elements (leaving aside specific legislative provision for treatment of closely related activities, not relevant here):

As regards applicable principles when addressing a dispute about whether something constitutes a single composite supply or not, some of those principles pertain to the CPP Exception, some to the Levob Exception, and some to both. So for example in Frenetikexito – Unipessoal Lda v Autoridade Tributária e Aduaneira (Case C-581/19), the Advocate-General at [22]-[30] identified four indications for the purposes of a Levob analysis (to which the Upper Tribunal made reference in Gloucestershire Hospitals at [104]-[106]), and at [34]-[43] addressed indications for a CPP analysis. The CJEU followed this distinction, with more compressed reasoning, at [38-39] (Levob) and [40-42] (CPP).

In terms of principles relevant to both CPP and Levob analyses, without seeking to set these out exhaustively we would identify the following:

As regards principles relevant to the CPP Exception in particular, the CJEU in Frenetikexito observed as follows at [40-42]:

We may have regard to this notwithstanding that the decision was handed down after the end of the implementation period following the UK’s withdrawal from the European Union, see Gloucestershire Hospitals at [106]. In any case, this articulation merely restates earlier case law, such as Blackrock Investment Management (UK) C-231/19. The essential test is whether, from the perspective of the average consumer, the supply in question does not constitute an end in itself but is a means of better enjoying the principal supply. The respective value of the benefits of the transaction is relevant evidence to that question. Another factor that was identified as relevant in CPP itself was whether there was a single price, which may suggest that there is a single supply but is not decisive.

It is notable for present purposes that in AG Kokott’s lengthier analysis at [36], she stated: “Typical examples of ancillary supplies in the supply of goods are packaging or shipment.” During the hearing our attention was drawn to earlier cases on both aspects. As regards shipment, we note that CEC v British Telecommunications Plc [1999] STC 758 the House of Lords determined that a transaction for the purchase and delivery of a car was to be analysed as a single supply for VAT purposes, with the delivery being “incidental or ancillary” to the supply of the car [565]. We were also taken to various cases concerning packaging, and we consider these useful illustrations of how decisions have been reached on other facts.

These cases demonstrate the need for attention to the particular customer whose view is being considered (Kimberly-Clark); the ability of packaging to be held ancillary even in circumstances where it was more valuable than the food it contained (Simmers, Paterson Arran) and even if it had significant potential after-life as a container (Simmers, Patterson Arran, Kimberly-Clark), but most of all that each case will depend on its particular facts (so, for example, the factual differences in the nature, packaging and branding of the component elements in MD Foods and Simmers). It is therefore on the specific facts of the present case that we must concentrate.

We had as evidence before us, in addition to correspondence between the parties, screenshots of various product pages from the Appellant’s website, online reviews feedback, and a witness statement from Patrick Gore, the director of the Appellant. At the hearing we heard oral evidence from Mr Gore, who presented to the Tribunal five example Products which the Tribunal and HMRC had opportunity to examine, and who was cross-examined by HMRC. We found Mr Gore to be a truthful witness, who had evidently thought very hard about how to make his business successful, in particular what its customers wanted, and how the Appellant should most effectively provide that to them. In the light of that evidence, we make findings of primary fact as follows.

In terms of the marketing material on the Appellant’s website:

As regards the purpose of the packaging from the Appellant’s perspective, Mr Gore explained in general terms that the Appellant seeks to package its Products with two over-arching considerations, those of protection and presentation. This was a running theme of his written evidence (for example: “The packaging that we use serves a very specific purpose – to contain, protect and present the food and wine inside.”; “every food and wine item supplied must arrive pristine and undamaged while being beautiful to unbox”; “The packaging must both present and protect the food inside”). He made similar observations in his oral evidence. He explained how each Product is designed to be packed in a specific way, by way of a ‘packing map’, best to protect and present the items. So for example, glass jars and bottles are packaged in the containers in such a way as to minimise the risk of movement within the container and breakage; the packaging on some items, can ‘blush’ upon the packaging of others if they are adjacent, which would spoil the appearance; as a whole, the way in which the items are packed into wood wool both serves to protect them and to add to a pleasurable ‘unboxing’ experience whereby the component items might be discovered by the recipient of the gift.

As regards the specifics of the Products, from what we were shown and the documentary evidence:

Mr Gore accepted, and we find, that the Appellant does not choose the type of container for each type of gift solely by reference to the need to protect the items within. Mr Gore explained, and we accept, that in every case protection is an important factor. It is self-evident that the Appellant wants to ship Products in a way that minimises the risk of breakages. This is not only because of the costs that would be directly incurred by way of refunds, but also because if items arrived broken or damaged, that would ruin the experience of receiving the gift. In that respect, protection and presentation are not completely separate purposes: the appropriate protection of the items furthers the presentation of the gift. In our view, the primary driver of the use of each type of container is the perceived need on the part of the Appellant to present the Product in a manner that is commensurate with the price being charged. Mr Gore stated in his witness statement, “I would expect that most of our customers would consider it unacceptable if we tried to suggest sending their recipient a food and wine gift collection worth £350 in a cardboard box of any size.”, and he gave a similar statement in oral evidence. In other words, even if it were possible to package the component items safely in a cardboard box, it would diminish the perceived value of the Product being gifted and would not be commercially consistent with the goal of providing a gift presented in a way that is commensurate with the price of that gift.

On customer feedback, the reviews date from January to October 2025. Mr Gore gave evidence that he put the reviews into a spreadsheet and analysed them for the number that were referring to packaging, which was about 0.8% of the whole. The Appellant’s skeleton asserted that none of the reviews indicate that any of the Products was packaged in order to obtain a lidded basket, and HMRC did not take us to any example to contradict this. As a matter of impression, we note that there are several reviews that refer to the gift being “beautifully packaged” or words to similar effect. As a whole, we do not put great weight on this review evidence, but do consider that it is consistent with Mr Gore’s witness evidence that “From my experience of running this business for 15 years, it is my view that our customers want to buy and gift wonderfully presented food and wine collections which are delivered safely and without breakages, in attractive packaging which is fit for purpose.”

We set out below a summary of the submissions of the parties with the aim to do justice to them without unnecessarily lengthening the judgment. We assure the parties that to the extent that an argument has not been fully set out it was nevertheless considered when reaching our conclusion.

The Appellant’s primary contention proceeds on a CPP analysis, namely that for the Relevant Products, the lidded basket is incidental to the supplies of food and drink being made, and does not constitute an end in itself for the average purchaser, who is purchasing a collection of food and drink in presentable and appropriate packaging. That customer has no regard for any potential secondary use of the lidded basket by the beneficiary of the gift. Supporting evidence includes that there is a single price paid for the Product; the cost component of the lidded basket is only a small percentage of the total product price; and the fact that the lidded basket may be reused is not a point of distinction with Products using the cardboard box, bamboo tray and open basket, which have all been accepted by HMRC as not constituting separate supplies.

In the alternative, the Appellant pursued a Levob analysis, contending that the lidded basket formed an indivisible part, along with the food and drink supplies, of a single “sui generis” supply.

For their part, HMRC in their statement of case, skeleton argument and oral submissions made very limited contentions largely focused on two related points. The first was that HMRC’s VAT Notice 701/14 at 6.3 provides: “You must treat the following types of containers as separate supplies in their own right and account for tax on them… hampers and picnic baskets (other than simple cardboard cartons)” and the lidded baskets are “hampers” for the purposes of that provision of the guidance (VAT Notice 701/14 Argument). The overall tenor of this contention is that HMRC’s VAT Notice at 6.3 itself has the force of law as if it were a statute, and we note that reference to this guidance appears, incorrectly but significantly, under the “legislative framework” part of HMRC’s skeleton.

A second argument, also predicated on HMRC’s guidance, is that Notice 700 at section 8 (“Output tax for particular situations”) provides, at 8.2 in respect of packaging, that “if the packaging is more than is normal and necessary then there’s a multiple supply (read paragraph 8.1) and VAT is due on the packaging”; it is argued that the Appellant offers alternative containers for other Products demonstrates that the lidded baskets are not necessary for containment or transport and so there is a separate supply of the same (Notice 700 paragraph 8.2 Argument).

To the limited extent to which HMRC have sought to engage with the underlying contentions of the Appellant on the CPP analysis, HMRC contend that the baskets are not ancillary because they are capable of being “supplied”, “priced” and “retained” independently, are shown on the website as an individual item in the Product, of “intrinsic value”, “recognised as being distinct products by consumers and “deliberately selected to enhance the perceived luxury of the product”.

It was common ground before us that each Relevant Product had a mix of standard-rated and zero-rated food and drink items, as such, this is not an appeal about whether there was a single composite supply or multiple distinct supplies. There were, at a minimum, two supplies in each Product: a standard-rated food/drink supply and a zero-rated food/drink supply. The substance of the dispute was whether there was a distinct third standard-rated supply of the lidded basket, as HMRC contended, or not.

Mr Schofield argued that the fact that there might be two “principal” supplies should not preclude a CPP analysis. If packaging was ancillary to a single supply of goods contained in the packaging, then it could and should likewise be ancillary to the goods contained therein, even if some of those goods constituted a standard-rated supply and others constituted a zero-rated supply. For her part, Ms Donovan did not advance any specific argument as to why this would not be the case.

We agree with Mr Schofield on this. The CPP Exception is focused on the would-be ancillary supply, because it is the tax treatment of the ancillary supply that changes from what it otherwise would be if a separate supply. We do not see any principled reason why it should matter if it is ancillary by reference to a single other supply or, as here, ancillary to both a standard-rated supply and also a zero-rated supply, provided that the ancillary supply is apportioned accordingly between the two. We consider that it would be anomalous and unprincipled if this were not the case, because that would mean that ancillary packaging of a gift would not be a separate supply if the gift had a single tax treatment, but would be a separate supply if the gift had both zero-rated and standard-rated elements, despite the situation being the same in every other respect, i.e. despite the packaging being no less ancillary.

We do think however, that this feature of the present case likely precludes the Appellant’s alternative Levob analysis as articulated to us. A Levob analysis is inherently premised on their being a single, indivisible, complex economic supply, the nature of which then falls to be identified by reference to its predominant element (see further Gray & Farrar International LLP v HMRC [2023] EWCA Civ 121 para 47). But here, the Appellant accepts that the Product cannot constitute a single supply irrespective of the treatment of the lidded basket, because there are inescapably two supplies, a standard-rated food/drink supply and a zero-rated food/drink supply. So, the Appellant ends up by positing both that there are two supplies for its CPP argument, and that there is only one supply for the purpose of the Levob analysis. We do not see how this is tenable, although ultimately it is not a point that we formally have to decide, because for the reasons that follow, we find that the Appellant succeeds on its primary CPP argument.

The first step in our analysis is identifying “the average consumer” for the purpose of the CPP test. We find that person whose viewpoint we need to consider is the average Purchaser of the Relevant Products, and that person is generally buying the Relevant Product as a gift which will be received by another. We make this finding in the light of the evidence summarised above, and the centrality of gifting on the Appellant’s website, as well as inferentially from the nature of the Products themselves, as curated collections of ready-chosen food and drink designed and presented for gifting.

Then, standing back, the question that we have asked ourselves is whether from the perspective of that average Purchaser, the lidded basket is an aim in itself, or whether it is a means of better enjoying the Food and Drink Supplies. We conclude as a question of fact that the average Purchaser would not consider the lidded basket to be an aim in itself. We find that the essence of the Product is that it is a gift of food and drink items that is attractively and securely packaged in a way commensurate with its value. The lidded basket serves to present and protect the Food and Drink Supplies and thereby is a means of better enjoying them as the gift that the Purchaser intends to give. The supply of the lidded basket is therefore ancillary to the Food and Drink Supplies, and shares their tax treatment, such that the composite VAT rate calculated for the Product as a whole is to be determined from the relative value of the zero-rated and standard-rated Food and Drink Supplies alone.

We reach this conclusion in the light of all the facts as set out above. In particular we would note the following:

As regards HMRC’s arguments, we considered it disappointing that the main points that HMRC ran before us were the VAT Notice 701/14 Argument and the Notice 700 paragraph 8.2 Argument, both of which treated the HMRC guidance relied upon as though it was law, when it is not law and does not accurately reflect the law. We reject both arguments.

Taking the VAT Notice 701/14 Argument, we do not consider that the fact that a lidded basket may be described as a hamper (as one of the possible meanings of that word) necessarily means that it is a distinct supply. There is no legislative provision requiring that lidded baskets or ‘hampers’ be considered distinct supplies. We also note that this appears to have been the basis for why HMRC refused the Repayment Claim as regards the lidded baskets, but accepted the 2023 ECN as regards products using cardboard box, bamboo tray or open basket, i.e. because the lidded basket was a “hamper”, and therefore became separate supplies due to VAT Notice 701/14 paragraph 6.3. But this paragraph of HMRC guidance is not law, and this is not a proper basis for the distinction in treatment.

We also reject the Notice 700 paragraph 8.2 Argument that the test for us to apply is whether packaging in lidded baskets is “normal and necessary”. That does not reflect the legal principles on either a CPP or a Levob analysis, and HMRC’s argument is therefore wrong as a matter of law. We would also observe that we do not consider on the evidence before us that using a lidded basket to package curated collections of food and drink supplies at prices starting from £95 up to £899 is in fact more than is “normal and necessary” for Products of that value, weight and size. HMRC’s argument largely proceeded on the basis of a comparison with the Appellant’s cheaper, lighter and less sizeable Products.

We were also not persuaded by the sundry other points HMRC made. The contentions that the lidded baskets are not ancillary because they are capable of being “supplied” and “priced” “independently” / “recognised as being distinct products by consumers” seem to amount to an (unevidenced) assertion that a lidded basket could be purchased alone from a different retailer. That may or may not be the case, but even were it to be true, that would not alter our conclusion. The point about the separate availability of a supply is generally one raised as an indicator in a Levob analysis (see e.g. Gloucester Hospitals at [104], [116-117]), not a CPP one. In any case, the point would not be decisive, and we repeat the point above that the Purchaser does not have the option whether or not to buy one of the Relevant Products with a lidded basket or not, which seems to us more pertinent to the question of whether the lidded basket is an end in itself to that Purchaser. Second, the suggestions that the lidded basket has “intrinsic value” and has “ongoing utility” are not inconsistent with our conclusion, and we consider that these could equally apply to others of the containers such as open basket. Third, the argument that the lidded baskets are “deliberately selected to enhance the perceived luxury of the product” is in our view a point in the Appellant’s favour, i.e. the lidded basket served to promote the perceived luxury and value of the food and drink being gifted within.

For the above reasons, we allow the appeal.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.