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Door closes on letting agent’s VAT appeal

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A short-term letting agent has had its appeal concerning whether credit card charges in a transaction represent a separate supply for VAT dismissed.

9th Jul 2024
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In this case concerning VAT on credit card charges, the upper tribunal ultimately agreed with the first tier tribunal that charges made for the use of a credit card in a transaction did not represent a separate supply for VAT.

SilverDoor Limited acted as a disclosed agent for the providers of short-term rental properties (or landlords). This means SilverDoor’s customers (or clients) were aware that the company was merely an intermediary in the transaction.

SilverDoor collected payments from the clients and passed these on to the landlords, after deducting an amount of commission representing its services of advertising the property and arranging bookings. Under certain circumstances, primarily where the client paid by corporate credit card, SilverDoor also charged a fee to the client to cover their additional costs.

Initial appeal

While all parties were in agreement as to the VAT treatment of the main (reservation services) supply, HMRC disagreed with SilverDoor as to the treatment of the credit card charge, believing it to be taxable along with the main supply, rather than exempt as SilverDoor claimed.

This point had previously been considered by the first tier tribunal (FTT), which had found in favour of HMRC on the basis that the credit card fees were not a separate and distinct supply of “card payment facilities”.

Further appeal

SilverDoor was given permission to appeal to the upper tribunal (UT) on five grounds, subsequently reduced to four, which the UT boiled down to two issues, both of which would need to be concluded in SilverDoor’s favour in order for their appeal to be successful.

  1. Did the FTT err in law in determining that the client fees were not received for a separate service?
  2. If the fees were for a separate service, would VATA 94 Sch 9 Group 5 Item 5 mean that the supply was exempt?

Characterisation issue

SilverDoor’s main argument was that while it did provide a reservation service to all of its clients, it did not charge clients for these services and therefore, for VAT purposes, these services did not represent supplies. They should therefore be disregarded when considering the one supply actually made to the clients – the card fees. The only benefit clients received on paying the fee to SilverDoor was that they were able to pay by credit card, therefore this could not be said to be a supply of reservation services.

In considering this point, the UT drew clear parallels to the Court of Justice of the European Union (CJEU) judgments in Bookit and National Exhibition Centre (NEC). Both had similar facts to this case, with an agent taking a payment on behalf of a principal and (on occasion) charging a card handling fee. 

In Bookit the Court of Justice of the European Union (CJEU) had ruled that it was for the national courts to determine whether a service should be considered as ancillary to the principal supply, but its comments had suggested that it was not problematic that Bookit did not supply the tickets itself, nor that its only consideration charged was the handling fee.

On this basis, the UT concluded that nothing turned on SilverDoor’s stance that there were no supplies to clients other than the card fees.

SilverDoor argued that Bookit was not a comparable case, as Bookit was not paid for marketing services and was in a corporate group with its principal. The UT did not agree that either of these facts had any bearing on the points under discussion, especially as a similar conclusion had been reached in NEC, despite the lack of a corporate group structure.

Finally, the UT agreed with the FTT’s finding that the card fees could only arise where the principal supply took place, therefore the fees had no “independent existence”. This was in line with comments made in the CJEU cases above that services to allow or facilitate a payment are inherently part of that payment.

The FTT had therefore not erred in law in its decision. This effectively concluded the appeal, however for completeness the UT considered the second issue.

Exemption issue

SilverDoor’s position was that, where required, it brought together a party requiring financial services with a party providing such services.

HMRC countered that the client did not enter into a contract with the merchant acquirer, SilverDoor did. Regardless, SilverDoor merely provided a link that the client used to make the payment, which would not be sufficient to be considered an act of intermediation.

The UT agreed with the FTT, and therefore HMRC, which had found that due to the relevant webpages being branded to look like they were part of SilverDoor’s website, the client may not even have realised that it was dealing with a merchant acquirer. Any supplies would therefore be to SilverDoor itself, rather than a third part with SilverDoor as an intermediary.

No error in law had been made by the FTT, therefore the appeal was dismissed in full.

Replies (1)

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By Paul Crowley
10th Jul 2024 11:18

I am amazed that things like this are still cluttering up the tribunal system.
VAT has been with us such a long time. Someone must have tried it before.

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