1st Contact Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 January 2012 |
| Neutral Citation | [2012] UKFTT 84 (TC) |
| Date | 25 January 2012 |
| Court | First-tier Tribunal (Tax Chamber) |
[2012] UKFTT 84 (TC)
Dr Christopher Staker (Tribunal Judge) (Chairman); Mr John Robinson (Tribunal Member)
Mr Barrie Akin, counsel, and Miss Hui Ling McCarthy, counsel, for the Appellant
Mr Rivett, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents
VAT - recovery of input tax on exempt supplies pursuant to VATA 1994, Value Added Tax Act 1994 section 26 subsec-or-para 2s. 26(2)(c) - Exempt supplies under VATA 1994, Sch. 9, Grp. 5, item 1 ("The issue, transfer or receipt of or any dealing with, money, any security for money or any note or order for the payment of money") - Supply of foreign exchange services (FOREX) to persons, principally from Australia, New Zealand and South Africa, who are in the United Kingdom on a "working holiday" or "overseas experience" - whether services "supplied to a person who belongs outside the member States" (Value Added Tax (Input Tax) (Specified Supplies) Order 1999 (SI 1999/3121), art. 3(a)) - no in the circumstances of the case - Appeal dismissed
1.This is an appeal against assessments raised by the Respondents ("HMRC") for VAT periods 09/05, 12/05, 03/06, 06/06, 09/06, 12/06, 03/07, 06/07 and 09/07. The original amounts in the assessment for the first four of these periods have already been revised by HMRC. At the hearing of this appeal it was common ground that the appeal now concerns a single issue, which was formulated in the Appellant's skeleton argument as follows:
Did certain of the Appellant's customers who received supplies of foreign exchange and money remittance services belong outside the United Kingdom for the purposes of Value Added Tax Act 1994 section 9 subsec-or-para 3s.9(3) of the Value Added Tax Act 1994 ("VATA 1994") and eu-directive 2006/112 article 56Article 56 of Council Directive 2006/112/EC (the "Principal VAT Directive") (previously eu-directive 77/388 subsec-or-para 2 article 9article 9(2)(e) of Council Directive 77/388/EEC (the "Sixth Directive")) with the consequence that input tax attributable to such supplies is available for credit under Value Added Tax Act 1994 section 26s.26 VATA 1994?
2.The Appellant's case in essence is as follows. Its customers are young people, principally from Australia, New Zealand and South Africa, coming to the United Kingdom temporarily for a "working holiday" or "overseas experience". They come with the intention of travelling around this country and other parts of Europe, while taking on incidental, temporary work to pay for their short-term living expenses and travel plans. In the period to which this appeal relates, most came under the "working holidaymaker" provisions of the Immigration Rules, which allowed young persons from specified countries to come to the United Kingdom on a "working holiday" for up to two years, during 12 months of which they were permitted to undertake work "incidental to" the holiday. Other customers had other types of immigration status, but typically acted in the same way as those on working holidaymaker visas. Most of the Appellant's customers in fact were in the United Kingdom for 18 to 19 months, on and off between travel elsewhere.
3.This appeal relates specifically to foreign exchange ("FOREX") services provided by the Appellant to these customers, enabling them to exchange sterling for their home currency and to repatriate the funds to their home countries. It is common ground that these services were exempt supplies for purposes of the Value Added Tax Act 1994 ("VATA"), being services falling within the exemption under Value Added Tax Act 1994 schedule 9item 1 of Group 5 of Schedule 9 VATA issue, transfer or receipt of, or any dealing with, money …"). It is furthermore common ground that input tax in respect of these services would be recoverable if they were "supplied to a person who belongs outside the member States" within the meaning of article 3(a) of the Value Added Tax (Input Tax) (Specified Supplies) Order 1999 (SI 1999/3121) (the "1999 Order"), but that they would not otherwise be recoverable. HMRC contends, and the Appellant disputes, that the Appellant's customers who were in the United Kingdom at the time of supply of the services "belonged in" the United Kingdom for purposes of article 3(a) of the 1999 Order.
4.Value Added Tax Act 1994 section 31Section 31 VATA provides that "A supply of goods or services is an exempt supply if it is of a description for the time being specified in Schedule 9 …"
5.Value Added Tax Act 1994 schedule 9Schedule 9 VATA, at Group 5, item 1 specifies "The issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money".
6.By virtue of Value Added Tax Act 1994 section 25sections 25 and 26 VATA, a supplier is generally not entitled to recover input tax in respect of exempt supplies.
7.However, Value Added Tax Act 1994 section 26 subsec-or-para 2s.26(2)(c) VATA provides for input tax recovery in respect of "such other supplies outside the United Kingdom and such exempt supplies as the Treasury may by order specify for the purposes of this subsection".
8.Articles 2 and 3(a) of the 1999 Order provide that supplies specified for purposes of Value Added Tax Act 1994 section 26 subsec-or-para 2s.26(2)(c) VATA include services "which are supplied to a person who belongs outside the member States", provided that "the supply is exempt, or would have been exempt if made in the United Kingdom, by virtue of… items 1 … of Value Added Tax Act 1994 schedule 9 group 5Group 5, of Schedule 9 to the Value Added Tax Act 1994".
9.Value Added Tax Act 1994 section 9 subsec-or-para 2Section 9(2) VATA, as in force at the material time, relevantly provides: "… subsections (3) and (4) below shall apply …for determining, in relation to any supply of services, whether the recipient belongs in one country or another".
10.Value Added Tax Act 1994 section 9 subsec-or-para 3Section 9(3) VATA, as in force at the material time, provides: "If the supply of services is made to an individual and received by him otherwise than for the purposes of any business carried on by him, he shall be treated as belonging in whatever country he has his usual place of residence".
11.eu-directive 2006/112 subsec-or-para 1 article 56Article 56(1) of Council Directive 2006/112/EC (the "2006 Directive") (which applies to types of services specified in that provision, including "financial … transactions") provides: "The place of supply of… services to customers established outside the Community, or to taxable persons established in the Community but not in the same country as the supplier, shall be the place where the customer has established his business or has a fixed establishment for which the service is supplied, or, in the absence of such a place, the place where he has his permanent address or usually resides".
12.Two witnesses gave evidence at the hearing on behalf of the Appellant, Mr Ashely Deakin and Mr Jonathan Nish. One witness was called by HMRC, Ms Kirsten Marie Kendall.
13.Mr Deakin adopted his two witness statements dated 18 May 2010 and 8 July 2010, which state amongst other matters as follows. He is the co-founder and finance director of the group of companies to which the Appellant belongs. The group's services include money remittance, visas, vaccinations, shipping, tax refunds, financial service advice, assistance with opening bank accounts, accounting and payroll services. The group's customers are predominantly young people, typically aged 21-30, from Australia, New Zealand and South Africa who come to the United Kingdom on a "working holiday" or "overseas experience" ("OE"), which they see as a once in a lifetime opportunity to come to the United Kingdom to earn a bit of money in order to fund travelling around Europe. They are itinerant, with flexible work/travel arrangements and no fixed plans. They are usually interested in temporary work, predominantly 3-6 month contracts.
14.In the period to which this appeal relates, most customers came to the United Kingdom on working holidaymaker visas (10,554 out of 16,339 customers in the period 1 January 2005 to 30 September 2007). Smaller numbers had other forms of immigration status, including UK ancestry visas, work permits, and indefinite leave to remain, and some had British or other European passports.
15.The working holidaymaker visa entitled the holder to come to the United Kingdom for an extended holiday up to a maximum of two years, but customers rarely spent a full two years in the United Kingdom. Most arrived with a small amount of money without concrete plans, and if they were unable on arrival to find accommodation or a job, they would travel around until their money ran out and then return home.
16.The Immigration Rules in force in 2005 and 2006 contained the following requirements for working holidaymaker visas. A working holidaymaker had to be between the ages of 17 and 30, and normally unmarried (the Appellant only ever experienced two instances of married couples). A working holidaymaker could not have dependent children aged 5 years or over (and none of the Appellant's customers had children), and were not entitled to bring other family members to the United Kingdom on their visa. Work could only be "incidental" to their holiday. Working holidaymakers were prohibited from engaging in business, and were required to intend to leave the United Kingdom at the end of their working holiday. Customers usually came for a working holiday either (1) when they had just left school on a gap year before university, (2) immediately after graduating from university and before starting work in their home countries, or (3) as a sabbatical in their mid to late 20s.
17.The branding and the services that the Appellant offered appealed to the young, transitory market of overseas...
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