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HMRC internal manual

VAT Transport

HM Revenue & Customs
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Zero-rating of passenger transport: Cruises: Litigation

The policy set out in VTRANS021100 was adopted after the High Court case of P & O Steam Navigation Co Ltd (CO 2473/95) and the Tribunal decision in Virgin Atlantic Airways Ltd (LON 94/1530A).

Previously, as a result of the decision in River Barge Holidays Ltd (LON 77/345), we had treated holiday cruises as multiple supplies consisting of such elements as accommodation, entertainment, catering and passenger transport, of which only the transport was zero rated, subject to the normal conditions. Most entertainment cruises were previously treated as single supplies, not essentially of passenger transport, and standard rated.

In P&O, the Tribunal held that a conventional long-distance holiday cruise was a single supply of zero-rated passenger transport. We accepted the supply decision but appealed the liability aspect to the High Court, which confirmed that the supply was zero-rated.

In the Virgin case, the Tribunal considered the hire of passenger vessels for river cruises on the Thames, where separate charges were made for varying supplies of catering and entertainment provided with the cruise, and passengers could pay different prices for different options. The vessels were hired for private and corporate functions, which included dinner parties, wedding receptions, summer balls corporate entertainment and product launches and promotions. The Tribunal found that there were separate supplies of the various elements provided.

Business Brief 14/96, dated 15.7.96, publicised this policy VTRANS021370).

In Alan Hughes and Judith Hughes t/a Pennine Boat Trips of Skipton (MAN 97/1027), the Tribunal considered the provision of passenger transport on canal cruise boats to groups where, from the 1997 season, a single charge per passenger was made which varied according to the quality of catering taken. This ranged from a cup of tea to a substantial meal, and catering was supplied in-house rather than bought-in. Previously, Pennine had charged for the transport with a separate charge for the catering. Customs argued that in substance and reality there had been no change and that there were separate supplies similar to the Virgin case, with only the passenger transport being zero rated. The Tribunal held that Pennine made a single supply of zero-rated passenger transport to which the catering was incidental, irrespective of its quantity and quality. In so doing, it was influenced by the single price and the fact that Pennine’s vessels were hired by groups of pensioners and others for a day out on the canal, rather than for functions as in Virgin.

While awaiting another decision on catering and passenger transport (Sea Containers: see below), we confined the Pennine decision to that individual case, and refused any request for it to be applied generally.

Business Brief 5/99, issued 24th Feb 1999, publicised this policy (VTRANS021380).

In Sea Containers Services Ltd (LON 98/140), the Tribunal considered several different types of supply on the British Pullman train, which included high quality catering as an advertised feature of the journey. The supplies ranged from “moveable feast” trips sold to individual travellers, featuring a three-course meal to be enjoyed on a three hour round trip, to the charter of the entire train plus crew, again with high quality catering sometimes negotiated separately, and sometimes supplied at an all-in price. The Tribunal found that in each case there were separate supplies of zero-rated passenger transport and standard-rated catering. The decision of the Tribunal was upheld by the High Court in 2000 STC 82-90.

We regard this case, together with the comments of the ECJ in Card Protection Plan (C349/96), as confirming our policy on catering and other extras supplied with passenger transport, which continues as outlined above. We continue, therefore, to consider the Pennine decision to be confined to that particular case.

Requests from other traders to apply the principles of Pennine to their own circumstances should be refused.

Business Brief 10/99, issued on 22 April 1999, publicised this policy (VTRANS021390).