Indirect Tax Update for week ending 27 May 2016

1. © 2016 Grant Thornton UK LLP. All rights reserved.
ITU
Summary
The undoubted highlight this
week is the Court of Justice's
judgments in the 'card-handling'
/ 'payment processing' VAT
cases involving Bookit Ltd and
the National Exhibition Centre
(NEC).
In both of these cases the
taxpayers argued that fees
charged to customers who paid
for third party services by debit
or credit card was consideration
for an exempt supply of financial
services. Unfortunately the Court
of Justice disagreed. The actions
of the taxpayers did not bring
about a transfer of money but,
simply, exchanged information
which enabled such a transfer to
take place. This was not
sufficient for the transaction to
be regarded as a financial service.
As a result, the card handling /
payment processing fees were
not exempt from VAT but were
subject to VAT at the standard
rate.
01 June 2016
Court of Justice of the European Union
Case law in this area has been developing for many years. Essentially, the taxpayers in
this case argued that the service being provided by them to customers in return for a
fee was a financial service for VAT purposes. HMRC, on the other hand, took the
opposite view arguing that neither taxpayer's supplies could be exempt from VAT.
Both Bookit Ltd and NEC sold tickets to customers on behalf of third party suppliers
(Odeon Cinemas in the case of Bookit and third party promoters of events in NEC's
case). Where customers paid for the tickets using either a credit or debit card Bookit /
NEC charged a small 'handling' or 'payment processing' fee. The taxpayers argued that
their actions resulted in money being transferred between the supplier and the
customer through the payment clearing system and that this transfer of money had the
effect of changing the financial and legal relationship between the supplier and the
customer. Following an earlier judgment of the Court (SDC case C-2/95), the
taxpayers considered that their actions were sufficient for the transactions to be
regarded as a financial service and exempt from VAT.
The Court disagreed. Whilst the card handling service clearly leads to the execution of
a payment transfer, the transmission of information which brings that transfer about
cannot be regarded as an essential function of the payment or transfer function for the
purposes of the VAT Directive's exemptions. Neither Bookit nor NEC directly
debited or credited the relevant accounts. As such, the services of card handling plays
no specific part in achieving the necessary changes in the legal and financial situation
between the customer and the supplier. In essence, Bookit and NEC's actions are to be
regarded as an exchange of information with a view to receiving payment. This is not
enough for the service to qualify for exemption from VAT and, as a result, the income
received is subject to VAT at the standard rate.
Comment – the judgment will come as a blow to both Bookit and NEC and to
all other businesses involved with card handling and payment processing
services. HMRC's current policy in the UK is that the card handler must obtain
the authorisation codes for the exemption to apply. Here, the codes are
obtained by the merchant acquirer bank and not by Bookit / NEC. This was
sufficient for the Court to find against the taxpayers.
Issue17/2016
Bookit / NEC lose 'card-handling'
VAT case
Indirect Tax Update

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grant-thornton.co.uk
GRT100456
Balhousie Holdings Ltd
First-tier Tax Tribunal
The taxpayer in this case constructed a property that was intended to be used for a relevant
residential purpose (a home for the elderly) and obtained zero-rating on the construction costs. In
order to raise the necessary capital, it subsequently entered into a sale and leaseback arrangement
whereby it simultaneously sold the freehold and took a long leasehold interest. HMRC took the view
that the disposal of the freehold triggered a 'self-supply' of the property under the 'change of use'
provisions. It demanded that the taxpayer should pay output VAT in excess of £800k (a figure
equivalent to the VAT that would have been paid had the construction costs not been zero-rated). It
also issued a penalty assessment.
Advised by Grant Thornton, the taxpayer argued that it had not disposed of its interest in the
property. The sale and leaseback contract was such that the freehold sale would not have happened
without the obligation to take the lease. As such, the company retained a legal interest in the property
at all times albeit the tenure of the interest was different.
The Tribunal agreed. The transactions [the sale and the lease] are to be regarded as a composite
transaction (ie one would not have happened without the other). As a consequence, the use of the
property by the taxpayer after the transaction was the same as the use before the transaction.
HMRC's contention that there had been a disposal could not be sustained.
Comment
UK VAT law provides
for a self supply where
a residential property
has benefited from
zero-rating if the
person that claimed
zero-rating disposes of
his entire interest in the
property within 10
years. Here the
taxpayer argued that
the sale and leaseback
was not such a disposal
and that, as a result, the
self supply provisions
were not applicable.
The Tribunal agreed.
Invamed Group Ltd & Ors
Comment
It seems clear from the
Court's judgment that
the test to be applied
by the Tribunal is
whether the scooters
are designed for use by
disabled persons (as
defined).
The duty at stake in this
case is just shy of £6.5
million. The taxpayers
will, undoubtedly, be
hoping that the
Tribunal finds that the
scooters are designed
for use by disabled
persons and that the
classification codes
used were correct.
Court of Justice
This is a long-running case relating to the classification of mobility scooters for customs duty
purposes. The taxpayer had imported mobility scooters under tariff heading 8713 (Carriages for
disabled persons) which attracts a 0% duty rate. HMRC on the other hand considered that the
scooters should be classified under the more general heading 8703 (Motor cars and other motor
vehicles principally designed for the transport of persons) which attracts a duty rate of 10%.
Unable to determine the correct classification for itself, the UK's First-tier Tax Tribunal referred the
matter to the Court of Justice for guidance. The court has ruled that it is for the Tribunal to decide
the classification but, in order to assist it in that decision the Tribunal should remember that the
decisive criterion for the classification of goods for customs purposes is in general to be found in
their objective characteristics and properties as defined in the wording of the relevant Tariff heading.
Here, the question that the Tribunal needs to resolve is whether the mobility scooter is designed for
use by a 'disabled person'. The fact that the scooter is capable of being used by non-disabled persons
or the fact that the disability may only be temporary is irrelevant to that judgment. The Court also
gave useful guidance on the meaning of 'disabled person'. In the context of mobility scooters a
disabled person is someone who is affected by a non-marginal limit on their ability to walk, the
duration of that limitation and the existence of other limitations relating to the capacities of those
persons being irrelevant.
Contact
Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683
Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556