VAT and card handling fees

The Upper Tribunal has confirmed the FTT decision that a fee charged by a property intermediary ostensibly for payment by corporate credit card was properly seen as consideration for a supply of reservation services: SilverDoor v HMRC [2024] UKUT 147. As such, the fee was subject to VAT at the standard rate.

The Tribunal considered that the FTT had been correct to apply the CJEU's approach in Everything Everywhere and other cases to treat the charge for payment in a particular manner as simply additional consideration for the main services being supplied, rather than as consideration for a separate payment services supply.

In this case, that meant that the fee was additional consideration for services provided by the property agent to clients seeking properties. However, it is particularly interesting that the Upper Tribunal endorsed the suggestion that, even in the absence of supplies directly to such clients, the payment charge may have been treated as ancillary to the supplies of property by the property owners to those clients, even though, as the Tribunal itself recognised, this approach would cut across the Court of Appeal decision in Telewest that supplies by separate entities cannot be consolidated into a single supply for VAT purposes.

Background

SilverDoor operated as a property agent, advertising and promoting properties and accommodation on behalf of property owners.

SilverDoor worked with property owners to offer short-term accommodation to businesses and their employees. It took bookings from customers, arranged for payments and charged the property owners a commission. Where customers paid using a corporate credit card, it required them to pay an additional fee of 2.95% of the accommodation charge. SilverDoor also had terms and conditions which applied to customers making reservations of property, including, in some cases, global services agreements.

Silverdoor did not account for VAT on the additional 2.95% fee and when this was challenged by HMRC it contended that the additional payment was an exempt payment for the facility of paying by credit card. In contrast, HMRC argued that the payment was simply additional consideration for reservation services it provided to its customers. SilverDoor argued the additional payment from customers could not be for reservation services as they provided no reservation services to those customers, they only provided services to the property owners.

The FTT held that the 2.95% fee was consideration for SilverDoor's supplies to customers and the fee did not fall within the finance exemptions and SilverDoor appealed that decision.

Decision of the Upper Tribunal

The Upper Tribunal has now endorsed the decision of the FTT.

On the correct characterisation of the supply, the Tribunal agreed that SilverDoor provided services to clients as well as to property owners. In practice, SilverDoor did provide a reservation service to the customers of its property owner clients. Silverdoor set out terms and conditions for such services and actively assisted such customers in choice of properties. The fact that it did not normally charge a fee for such services meant that it did not normally make a taxable supply of those services, but those services still existed. Accordingly, where it did charge a fee, there was a taxable supply.

Decisions of the CJEU, such as Everything Everywhere (Case C-276/09) have made it clear that an additional charge made by a supplier for accepting payment in a particular manner will be treated simply as additional consideration for the main supply, rather than for a separate exempt financial service. Essentially, there is a single supply for VAT purposes and the consideration for payment in a particular format is ancillary to the main supply and therefore takes its VAT treatment from that main supply. In this case, the fee was therefore correctly analysed as consideration for the reservation services provided by SilverDoor.

Having decided that the payment was consideration for reservation services, it was not strictly necessary for the Tribunal to consider arguments that the 2.95% fee fell within the VAT finance exemptions, but it went on to consider those arguments in any event.

SilverDoor had originally argued that the fee it charged was exempt, either under Item 1 of Schedule 9 Group 5 as a transfer or payment or alternatively as an intermediary service under Item 5. Since it is now clear that where the payment handling charges are made by a different entity, such as in Bookit (C-607/14) and National Exhibition Centre (C-130/15), card handling charges will generally fall outside the scope of the finance exemption unless they fulfil the specific and essential functions leading to a change in the legal and financial relationship between the parties, SilverDoor had dropped the Item 1 argument by the time the case reached the Upper Tribunal. However, it continued to argue that its services fell within the exemption for intermediation services.

The Upper Tribunal has also rejected this argument. The Tribunal noted that to succeed on this argument, SilverDoor must show that there is a financial service being supplied, that it is not the supplier or recipient of that service and that it has negotiated the contract for the provision of that service. SilverDoor argued that it brought together the merchant acquirer (a provider of financial services) and the client (the party seeking a financial service - the client wants the merchant acquirer to pay their accommodation charge) together and a contract is concluded between them when the client gives the merchant acquirer their card details via SilverDoor's website, so that the merchant acquirer will pay the Client's accommodation charge to SilverDoor acting as disclosed agent for the property owner.

The Tribunal rejected that analysis of the situation. There was no evidence of any contract between a client and a merchant acquirer and, in fact, the client was wholly unaware of the existence of the merchant acquirer. Indeed, the Tribunal suggested that the evidence generally pointed to the fact that SilverDoor was party to contracts with merchant acquirers, suggesting that merchant acquirers move funds to SilverDoor pursuant to their contract with SilverDoor.

In any event, the Tribunal agreed with the FTT that, on the facts of this case, there was no necessary act of negotiation by SilverDoor. "The FTT held that SilverDoor had not brought the merchant acquirers and Clients together. The merchant acquirers were parties to the credit card arrangement put in place long before a particular Client engaged with SilverDoor. Pursuant to those pre-existing obligations, they had agreed to provide SilverDoor with funds where certain conditions were satisfied. SilverDoor gave Clients an electronic link that enabled them to use the facility SilverDoor had arranged for itself to pay for accommodation. As the FTT observed, SilverDoor was not pointing out suitable opportunities to Clients or doing anything else that would be expected of a person providing negotiation services. So, if (which we do not consider to be the case) there was a contract for the provision of a financial service by a merchant acquirer to a Client, it was not negotiated by SilverDoor."

Unsurprisingly, therefore, the Upper Tribunal has confirmed the decision of the FTT that the charges levied by SilverDoor amounted to standard rated consideration for taxable supplies made by it.

Comment

It has been clear since cases such as Everything Everywhere that an additional charge made by a supplier for accepting payment in a particular manner will be treated simply as additional consideration for the main supply, rather than for a separate exempt financial service. And more recent CJEU decisions in Bookit Ltd v HMRC (Case C-607/14) and National Exhibition Centre Ltd v HMRC (Case C-130/15) have reinforced that approach, as well as limiting the scope of the exemption for payments and transfers.

What is particularly interesting in this case is the acceptance by counsel (David Southern KC) for SilverDoor that these decisions have overridden the decision in Telewest Communications plc v HMRC  [2005] EWCA Civ 102 that supplies by separate suppliers cannot be amalgamated into a single supply. It was noted that in both Bookit and NEC, the main supplies were made by entities separate to the agents selling the tickets on their behalf (and charging fees for payment in a particular manner). This was not an issue that the Tribunal needed to decide in this case (as it held that SilverDoor was itself making supplies to the clients directly), but it did consider that it seemed "an inevitable consequence" of the CJEU's reasoning.

"Mr Southern suggested that the CJEU had killed off the idea that two different, but related suppliers could not make a single overall supply. This was quite a surprising concession for him to make, but we agree with him that it would seem to be an inevitable consequence of the CJEU's comments (to the effect that the fee for being allowed to pay in a particular way, which was retained by the agent, could be analysed as ancillary to the principal supply made by the event organiser/cinema owner) that merely disaggregating activities between different suppliers will not of itself necessarily prevent those activities being analysed as one for VAT purposes."