[2012] UKFTT 608 (TC)
TC02285
Appeal number: TC/2011/05062
VAT – output
tax – supply of goods with charge for postage – whether a single supply –
whether supplier acts as agent for customer in contracting with Royal Mail - Customs
& Excise Commissioners v Plantiflor Ltd considered – single supply by
appellant – no agency established – appeal dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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ORCHARDCROWN
LIMITED
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE & CUSTOMS
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TRIBUNAL:
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JUDGE JONATHAN CANNAN
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Sitting in public at Manchester on 18 July 2012
Ms Angela Strettle, director for
the Appellant
Ms Pat Roberts of HM Revenue
& Customs for the Respondents
© CROWN COPYRIGHT
2012
DECISION
Introduction
1.
The appellant trades as a retailer of novelty goods. This appeal is against
a decision of HMRC that sums paid by customers in relation to postage of goods
purchased are subject to VAT at the standard rate. I understand that there has
not been any assessment issued to the appellant but that following an assurance
visit on 19 January 2011 HMRC contended that the sums received were subject to
VAT. A decision on the liability of those sums was given by the visiting
officer, Ms Fiona Richardson. The appellant asked for a review of that decision
and it was confirmed in a letter dated 16 June 2011. The appeal is against that
review decision.
2.
I heard evidence from the visiting officer, Ms Richardson, and also
from the directors of the appellant, Ms Angela Strettle and Mr William
Strettle. I set out below the legal framework in relation to the treatment for
VAT purposes of postage charges in such circumstances.
3.
The broad issue which arises in the present case is whether sums paid to
the appellant by its customers in respect of Royal Mail postage fall to be
treated as disbursements on the basis that the appellant was acting as the
agent of its customers. Alternatively whether they are part of the consideration
for a supply of delivered goods made by the appellant to its customers. In the
former case the sums are not subject to VAT because in general terms postal
services provided by Royal Mail are exempt. In the latter case they are subject
to VAT but there is no input tax credit because the supply of postal services
to the appellant is exempt.
Legal Framework
4.
The treatment of postage charges for VAT purposes has been a matter of
contention going back to at least 1980 when the issue came before the VAT &
Duties Tribunal in BSN (Import & Export) Limited v HMCE (Decision 998).
Since then the issue has been considered by the House of Lords in Customs
& Excise Commissioners v Plantiflor Ltd [2002] UKHL 33 and most
recently by the High Court in Osborne’s Big Man Shop v HMRC [2006] EWHC 3172
(Ch).
5.
During the course of the hearing I was referred to a number of HMRC
publications and notices dealing with the treatment of postage charges for VAT
purposes. I have not felt it necessary to refer to those notices because it was
not suggested that they had the force of law in relation to the matters in
issue.
6.
I was also referred to summaries considering the treatment of postage
charges in various other Member States. Again, I have not referred to that material
in this decision because it is not in the form of binding authority. I
concentrate instead on the terms of the Principal VAT Directive (Council
Directive 2006/112/EC) and those authorities which define the principles to
be applied in resolving the present issue. In particular the decision of the
House of Lords in Plantiflor.
7.
By article 73 of the Principal VAT Directive the taxable amount for VAT
purposes is, subject to exceptions, "everything which constitutes
consideration obtained or to be obtained by the supplier, in return for the
supply, from the customer or a third party".
8.
By article 78 the taxable amount shall include “incidental expenses,
such as commission, packing, transport and insurance costs, charged by the
supplier to the customer”.
9.
By article 79:
"The
taxable amount shall not include the following factors:
. . .
(c)
amounts received by a taxable person from the customer, as repayment
of expenditure incurred in the name and on behalf of the customer, and entered
in his books in a suspense account."
10.
By article 132 Member States shall exempt certain transactions including
“the supply by the public postal services of services other than passenger
transport and telecommunications services, and the supply of goods incidental
thereto”.
11.
Article 132 is implemented in UK law by Group 3 Schedule 9 Value
Added Tax Act 1994. At the time of the assurance visit in the present
appeal Group 3 exempted from VAT the following supplies:
“1. The
conveyance of postal packets by the Post Office company.
2. The supply by the
Post Office company of any services in connection with the conveyance of postal
packets.”
12.
Following a decision of the Court of Justice of the European Union in Case
C-357/07 TNT Post UK Limited v HMRC, and in order to comply with that
decision, the exemption in Group 3 was narrowed. With effect from 31 January 2011
it applies to exempt the following supplies:
“1. The supply of public postal services
by a universal service provider.
…
NOTES …
(4) Services are not ‘public postal
services’ if -
(a) …, or
(b) any of the other
terms on which the services are provided are freely negotiated.”
13.
As a result of that amendment the issue which arises on this appeal will
not affect the appellant in relation to future supplies. Since the amendment to
Group 3 the appellant has entered into a negotiated contract with Royal Mail.
However the issue will still affect the appellant’s liability to VAT in respect
of transactions prior to that negotiated contract being implemented.
14.
The terms of the Sixth Directive, which was replaced without material
amendment by the Principal VAT Directive, were considered by the House of Lords
in Plantiflor. In that case the taxpayer sold horticultural products by
mail order. Most customers did not collect the goods ordered but used a
delivery service offered by the taxpayer. The contract terms between the
taxpayer and its customers provided that postal charges would be advanced to
Parcelforce on behalf of the customers. The taxpayer also had a service
agreement with Parcelforce to deliver goods at an agreed price.
15.
The House of Lords held by a majority (Lord Mackay dissenting) that
postage charges did form part of the consideration for a taxable supply.
16.
The Commissioners in their case before the High Court had conceded that
there were two supplies. A supply of goods by the taxpayer and a supply of services
by the taxpayer in arranging delivery of the goods via Parcelforce. The Commissioners
wished to argue that there was a single supply of delivered plants but the
Court of Appeal refused permission for the Commissioners to withdraw their
concession. Lord Slynn was clearly troubled by the concession and stated as
follows:
“23. If, as I considered in Customs and Excise Comrs v British
Telecommunications plc [1999] 1WLR 1376,
1382 - 1383, and as I still consider, the appropriate question is whether one act
(here arranging the delivery) is "ancillary or incidental to another"
(here the supply of bulbs) or is "a distinct supply", it seems to me
on the contractual documents between Plantiflor and the customer which are
before the House that these arrangements constituted a single supply. What the
customer wanted and what Plantiflor agreed to provide was bulbs delivered to
the home.
24. There was a separate supply consisting of the delivery of
the bulbs from Plantiflor to Parcelforce, under a distinct contract. However,
under the contract between the customer and Plantiflor arranging the delivery
is ancillary to the making available of the bulbs. I do not consider that the
answer to this question will vary according to, or depend on, the precise event
or time when as a matter of English contract law the property in the bulbs
passed to the customer. The reality is that Miss Brierley paid one total sum
for one supply of delivered bulbs.”
17.
Having said that, Lord Slynn went on to consider the position on the
basis that there were two supplies by the taxpayer. He put the question in the
following terms at [25]:
“…the
question arises whether the money received by Plantiflor for postage can
constitute consideration received by Plantiflor or whether it is simply money
that is channelled through Plantiflor but never became Plantiflor's property so
that it cannot amount to consideration passing to Plantiflor.”
18.
The taxpayer had argued that it collected the postage charge and
conveyed it to Parcelforce as agent. He dealt with this argument as follows:
“27. As to the agency argument Plantiflor of course
relies on the provision of the catalogue "We will …. arrange delivery on
your behalf … We will then advance all postage charges to Royal Mail on your
behalf." They insist that for this reason no consideration moved from
Plantiflor to Parcelforce.
28. The tribunal [1977] V & DR 301, 322 accepted that
"the role of Plantiflor in relation to delivery was that of agent or other
intermediary"
29. This conclusion however does not take into account the
terms of the agreement between Plantiflor and Parcelforce. It is plain from the
terms of that agreement to which I have referred that Parcelforce was to
deliver parcels "for Plantiflor". Parcelforce was to "charge
Plantiflor" and Parcelforce was to pay invoices from Parcelforce by direct
debit transfer. There is nothing in that agreement to express or even indicate
that the two contracting parties were not acting as principals, in other words
that Plantiflor was acting as agent for its customers. There is no link between
Parcelforce and the customer. Since all that Parcelforce knew was the name of
the addressee on the parcel (or perhaps even only the address), it might well
not know the identity of the customer. Plantiflor agreed to pay postal charges;
Plantiflor and not the customer was liable to pay Parcelforce. Even though
Parcelforce supplied the service for delivery of the goods there was no
consideration passing from the customer to Parcelforce. Plantiflor agreed to
arrange delivery including paying Parcelforce for the postage and the customer
paid Plantiflor for that.”
19.
Lord Slynn then referred to what is now article 79 of the Principal VAT
Directive and stated at [31]:
“In the
present case it is not possible to say that £1.63 was paid out "in the
name and for the account of the customer" even if the moneys here can be
treated as entered in Plantiflor's books as a separate account. Even if, by the
time Parcelforce got the periodic direct credit for all parcels delivered during
the relevant period, it knew the name and address of the customers from the
parcels or even from a list, it would not be sufficient to constitute each part
of the global direct debit or credit as being in the name or for the account of
the individual customer.”
20.
Lord Millett gave the other reasoned opinion of the majority. He
referred to the arrangements in place and stated:
“59. To
this end [Plantiflor] worded its agreement with the customer to make it appear
that it is merely the customer's agent in relation to the delivery of the
goods. If this were truly the case, Parcelforce would make an exempt supply to
the customer of the service of delivery, and the consideration for the delivery
would pass from the customer to Parcelforce with Plantiflor acting merely as the
customer's agent for payment. There would also be a supply of agency services
by Plantiflor to the customer, but the consideration for these services would
not include the postal charge.”
61. …The
difficulty with this analysis, however, is that it does not fit the facts. As
Laws J correctly held, Parcelforce does not deliver the goods pursuant to any
contract with the customer or his agent. It makes delivery pursuant to its
contract with Plantiflor, which both parties entered into as principals.
…
63. … The
customer's acceptance of Plantiflor's terms does not authorise Plantiflor to
bring him into a direct contractual relationship with Parcelforce …
…
65. … It is not enough
that the recipient is bound by his contract with his customer to make the
payment and that the amount in question is entered in his books in a suspense
account. The payment must be made "in the name of and for the account
of" the customer, and this has regard to the payment from the perspective
of the recipient. It requires that the payment should discharge a pre-existing
indebtedness of the customer, not merely of the person making the payment.
Otherwise the description of the payment would mean nothing to the recipient.”
21.
It is clear from the judgment of the House of Lords and in particular
Lord Slynn that it is necessary firstly to consider the nature of the supply or
supplies. In particular whether there is a single supply of delivered goods.
Even if there are two supplies by a taxpayer, namely a supply of the goods and
a supply of the service of arranging delivery, it is still necessary to
consider whether the contractual arrangements are such that each customer
constitutes the taxpayer as its agent. That is as agent for the purpose of contracting
for the delivery of the goods by Royal Mail and also for the purposes of making
payment in satisfaction of the obligation of the customer to make payment to
Royal Mail.
Findings of Fact
22.
The appellant sells novelty goods. Customers purchase the goods either
online or by calling direct at the appellant’s shop premises. In the latter
case the customer will collect the goods themselves hence the issues in
relation to postage concern online sales only.
23.
Online sales are made either through eBay, Amazon or through the
appellant’s own website. The appellant’s own website is based on eBay.
Whichever platform is used a customer will have various options as to delivery.
The customer can opt either to collect the goods personally, have the goods
sent by courier or have the goods sent by Royal Mail. Charges for goods sent by
courier are standard rated for VAT purposes. This appeal is concerned with
goods sent by Royal Mail, either first or second class post.
24.
At the point of ordering the goods the appellant sets out on the website
the cost to the customer of the various delivery options. In relation to Royal
Mail delivery the cost may be for first class mail (including for some items
recorded delivery) or second class mail.
25.
Where a customer has ordered via eBay, or the appellant’s own website,
the order will be subject to eBay’s standard terms and conditions. The
appellant also sets out its own terms and conditions. I had an opportunity together
with the parties during the course of the hearing to look at the terms and
conditions. Ms Strettle accepted that if an item was damaged in the post then, whilst
it was what she described as a “grey area”, the appellant would be obliged to
refund the customer. If goods are lost or stolen in transit then the appellant
would not be responsible.
26.
When making an online order and checking out the customer identifies the
postage required. The customer can also change the delivery address so that
goods can be purchased for delivery to a third party. Payment is made online directly
to the appellant.
27.
Where a customer has ordered goods via Amazon, it is Amazon’s terms and
conditions which apply and the appellant cannot set any different terms. If
goods are lost or damaged in transit then the customer will make a claim to
Amazon which will itself make a refund and either stand the loss itself or set
it off against the seller’s account. The procedure on checking out is similar
to that of eBay save that the customer makes payment to Amazon which, after
deducting its percentage, credits the appellant’s Amazon account.
28.
In each case, where a customer chooses Royal Mail delivery the goods are
sent via the appellant’s local Post Office. The appellant has shop premises at 586 Blackpool Road, Preston. The local Post Office is at 592 Blackpool Road.
29.
When the appellant receives an online order it will receive electronic
notification of the order details including the customer’s name and the
delivery address. The appellant packs the goods and produces a sticky label
which is attached to the parcel. The parcels which are to be sent by Royal Mail
are placed in a shopping trolley. An employee of the local Post Office comes to
the shop periodically through the day and takes the shopping trolley with
parcels back to the Post Office. Each item is weighed by the Post Office,
postage stamps are attached and the parcel is accepted by them for delivery.
For each parcel the Post Office produces a standard form receipt showing the
date, time, weight and postage cost. An employee at the Post Office also hand
writes on each receipt the name and postcode of the recipient. Some items are
sent by recorded delivery but otherwise the system is the same.
30.
The Post Office provides all the separate receipts to the appellant on a
daily basis at which stage the appellant makes payment to the Post Office. The
appellant then attaches the relevant receipt to each order form. They are
retained by the appellant in its records as proof of posting.
31.
There have been isolated incidents where for one reason or another no
stamps have been put on a parcel. In those circumstances the recipient pays on
delivery of the parcel and will inevitably complain to the appellant which
refunds the postage.
32.
The Post Office is not specifically made aware of the identity of the
customer. It is only made aware of the name of the recipient and the delivery
address to which the goods are being sent. The recipient of the goods may or
may not be the appellant’s customer.
Decision
33.
It is clear from the decision in Plantiflor that it is necessary
to focus on the contractual relationships between each of the parties.
34.
Ms Roberts for the respondents submitted that postage charges are
ancillary to the supply of goods. There is a single supply of delivered goods
and the principal supply is the goods, which are standard rated. The fact that
postage charges are separately itemised or invoiced to customers does not
affect that analysis.
35.
This submission is based on the approach that Lord Slynn would clearly
have preferred to take in Plantiflor but which was not available because
of the concession made by the Commissioners earlier in those proceedings.
However each case must be decided on its own facts and so the first question is
whether on the facts of the present case there is a single supply of delivered
goods or two separate supplies, one of standard rated goods and one of agency
services in contracting with Royal Mail on behalf of the customers.
36.
Ms Strettle for the appellant identified what she described as “3 huge
differences” between the present case and Plantiflor:
(1)
Plantiflor had an individually negotiated contract with Parcelforce.
(2)
The appellant obtains a separate receipt from Royal Mail for each
individual customer showing the customer’s name and address. Each payment is
made separately.
(3)
If no postage stamps are placed on the parcel, the customer would be
liable to pay Royal Mail on delivery of the parcel.
37.
In my view the facts establish a single supply by the appellant of
delivered goods. In reaching that conclusion I have had regard to the
principles set out by the ECJ in Card Protection Plan v C & E Case
C-251/05 [1999] STC 270 (“CPP”). The ECJ was concerned with
the question of the distinction between single and multiple supplies. In
deciding whether a transaction which comprises several elements is to be
regarded as a single supply or as two or more distinct supplies to be taxed
separately, regard must first be had to all the circumstances in which that
transaction takes place, taking into account:
"29. …
first, that it follows from article 2(1) of the Sixth Directive that every
supply of a service must normally be regarded as distinct and independent and,
secondly, that a supply which comprises a single service from an economic point
of view should not be artificially split, so as not to distort the functioning
of the VAT system, the essential features of the transaction must be
ascertained in order to determine whether the taxable person is supplying the
customer, being a typical consumer, with several distinct principal services or
with a single service.
"30.
There is a single supply in particular in cases where one or more elements are
to be regarded as constituting the principal service, whilst one or more
elements are to be regarded, by contrast, as ancillary services which share the
tax treatment of the principal service. A service must be regarded as ancillary
to a principal service if it does not constitute for customers an aim in
itself, but a means of better enjoying the principal service supplied: Customs
and Excise Commissioners v. Madgett and Baldwin (trading as Howden Court Hotel)
(Joined Cases C-308/96 and 94/97) [1998] STC 1189, 1206, para 24."
38.
It would be possible, depending on the facts, for there to be separate
supplies of agency services by a trader such as the appellant to its customers.
However that is not the position on the facts of the present case. I do not
consider that the factual differences identified by Ms Strettle establish a
separate supply of agency services or indeed postage stamps.
39.
What the customers want and what they are paying for is the goods
delivered to the relevant delivery address. They make a single payment for the
delivered goods, albeit with the cost of delivery separately identified.
40.
There is no evidence to suggest that when payment was received by the
appellant it became the property of the Post Office or that it was paid to the
Post Office by the appellant in satisfaction of an obligation on the part of
the customer to the Post Office. In particular there is no evidence before me
that the appellant accounted for the sums received from customers by way of
postage in any different way to its turnover generally.
41.
A typical customer would consider that it was paying the appellant for
both the supply and delivery of the goods. Not that the appellant would itself
deliver the goods, but that it would in return for the total sum paid supply
the goods delivered to the relevant delivery address by the agreed method of
delivery. From the customer’s perspective he or she is entering into one
contract with the appellant. There is nothing in the order process or in the
terms and conditions of sale which states that the appellant will collect
postage charges and forward them to Royal Mail as agent of the customer or in
order to satisfy an obligation of the customer to Royal Mail. Similarly there
is nothing to indicate that the customer has authorised the appellant to bring
him into a direct contractual relationship with Royal Mail. Ms Strettle
indicated that the reason such terms are not included, at least in the case of Amazon,
is because Amazon does not allow specific terms above and beyond its own
standard terms. It was not clear why the appellant’s terms on eBay did not
reflect the alleged agency argument being put forward by Ms Strettle.
42.
I am not satisfied that payment was made by the appellant to Royal Mail
“in the name of and for the account of” the customers. That is the
requirement of article 79 which forms the basis of the appellant’s disbursement
argument. The Post Office was aware only of the recipient of the goods and the
delivery address. It did not know the identity of the customer unless the
customer happens to be the addressee.
43.
The reality is that there was no agreement between the Post Office and
the appellant’s customers. Indeed there was no real agreement between the
appellant and the Post Office beyond the appellant agreeing to pay for the
postage of parcels collected and accepted by the Post Office. Once the Post
Office had stamped and accepted the parcels for postage and then presented the
receipts for payment the obligation to make payment lay with the appellant and
not its customers. In the light of the contractual arrangements it is fanciful
to suggest that in making payment the appellant was at that stage merely acting
as agent for it customers and satisfying an obligation of its customers.
44.
There is no indication that the Post Office was entering into
contractual relations with anyone other than the appellant. Identifying a name
and delivery address on the proof of posting does not itself indicate that the
Post Office was contracting with the identified recipient. It simply acted as
confirmation for the benefit of the appellant as much as anyone else that goods
ordered for delivery to that person had in fact been posted at the date and
time recorded.
45.
The various contractual terms as to loss or damage in transit are to some
extent inconsistent. However it is clear that those terms seek to allocate the
risk of loss or damage in transit as between the seller and buyer. Such terms
would not be necessary if the customers had a direct contractual relationship
with Royal Mail. In those circumstances it would be clear that the obligations
of the appellant cease for all material purposes when parcels are collected by
Royal Mail.
46.
Taking all these factors into account I am satisfied that there is a
single supply of delivered goods. The appellant was not acting as the agent of
its customers for the purpose of entering into a delivery contract with Royal
Mail.
Generally
47.
There is some suggestion in the course of correspondence leading to the
decision under appeal that the visiting officer viewed the appellant as a
postal operator. Ms Richardson accepted that she had misunderstood the
significance of this term. She also accepted that she was not fully aware of
the arrangements between the appellant and the local Post Office for collection
of parcels. However I am concerned on this appeal with the ultimate decision
that sums paid by customers in relation to postage are standard rated. I have
considered that issue on the basis of all the evidence before me, rather than
the incomplete picture which Ms Richardson had at the time of her decision.
48.
Ms Strettle also suggested that it would be illegal for the appellant to
charge VAT in addition to the price of a postage stamp that it was selling to a
customer. On the facts of the present case I do not accept that is the case.
For the reasons given above the supply made by the appellant is of the goods
delivered to the address given by the customer. The appellant is not supplying
postage stamps to its customers.
49.
For the reasons given above I must dismiss the appeal.
50.
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.
JONATHAN
CANNAN
TRIBUNAL JUDGE
RELEASE DATE: 28 September 2012
