Asos Plc
| Jurisdiction | UK Non-devolved |
| Judgment Date | 27 June 2018 |
| Neutral Citation | [2018] UKFTT 353 (TC) |
| Date | 27 June 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0353 (TC)
Judge Rupert Jones
Andrew Hitchmough QC and Quinlan Windle, counsel instructed by PWC LLP appeared for the appellant
Andrew MacNab, counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Cancellation of supply of goods – Single supply of delivered goods, rather than multiple supply – Return of goods and refund – Retained delivery charge – Consideration for supply – Liability to VAT – Directive 2006/112 (the Principal VAT Directive), art. 80 – Company's appeal dismissed.
The First-tier Tribunal (FTT) dismissed the appeal against HMRC's decision that delivery charges remained subject to VAT, even though the goods had been returned to the supplier by the customer. The sums paid by the customer and not refunded remain consideration for a standard-rated supply to the customer.
ASOS claimed repayment of over-declared output tax on delivery charges that it, as an online retailer, had not refunded to the customer after the customer had returned the goods.
The FTT considered whether delivery charges retained by ASOS (the Retained Amounts) are subject to VAT where, following the sale and special delivery of (standard-rated) goods, the customer had returned those goods under ASOS's Extended Returns Policy and ASOS had refunded the purchase price, but not the special delivery charge.
ASOS claimed that the delivery charge is not subject to VAT, so that it is entitled to repayment from HMRC of VAT accounted for on those charges.
HMRC argued that the delivery charge remains subject to VAT. The delivery charge was consideration for a standard-rated supply (however that supply is characterised). It remains consideration for a standard-rated supply, despite the return of the goods and the refund of the purchase price of those goods, so nothing is repayable by HMRC to ASOS.
It was agreed that the transaction between ASOS and customer was a single, standard-rated supply of delivered goods (para. 72 of the decision).
HMRC submitted that the delivery element had not been reversed or cancelled, either because it cannot be (having been performed) or because the parties have not purported to do so by the refund of the delivery charge. Thus, ASOS's argument, that there can no longer be any (taxable) supply to the customer, because:
- the original supply was properly characterised as a supply of goods; and
- the goods have been returned and their price refunded,
ignores the fact that the goods were only one element of the bundle comprising the single composite supply. Only that element was reversed (para. 75 of the decision).
The FTT held that the customer had paid ASOS for the supply of something. The sum paid by the customer and not refunded by ASOS remains consideration for a taxable supply by ASOS to the customer. That follows from basic principles of VAT (para. 86 of the decision).
Also, the FTT held that it is incorrect, as a matter of fact and law, to characterise the events as involving a rescission or cancellation or reversal of the contract (or of the supply) in its entirety, i.e. in the sense that the contract is deemed never to have existed or taken place. ASOS kept the delivery charge paid by the customer, which is not the same as cancelling the contract (para. 89 of the decision).
Furthermore, the FTT held that the non-refunded delivery charge was not a penalty, nor a deposit paid to encourage future performance, nor a compensation for breach of contract. Thus, it was not outside the scope of VAT and the company's appeal was dismissed (para. 93 of the decision).
ASOS claimed repayment of over-declared output tax on delivery charges that it had not refunded after the customer had returned the goods. However, when the goods were sold by special delivery, but later returned (and the price refunded), the delivery charge was retained, so an element of the single, composite supply (the delivery) had been performed and remained performed. This was because (1) it could not be unperformed and (2) ASOS did not refund the delivery charge. The delivery charge was, and remains, part of the consideration for a standard-rated supply, regardless of the return of the goods and refund of the price.
[1] ASOS (“the Appellant”), appeals under section 83(1)(b) and (t) of the Value Added Tax Act 1994 (“VATA”) against HMRC's decision notified by letter dated 15 July 2014 and confirmed by review letter dated 19 January 2015. HMRC's decision was not to pay the Appellant the sum of £740,287 claimed by way of a voluntary disclosure made in a letter dated 27 June 2014 in respect of the VAT return periods ending beginning on 1 April 2010 and ending on 31 March 2014.
[2] The voluntary disclosure claimed repayment under section 80 of VATA of what the Appellant asserted was over-declared output tax. The claim was said to represent VAT over-declared on delivery charges that the Appellant, an online retailer, had “retained” (i.e. not refunded to the customer) following the return of “full” orders (i.e. the customer had returned all the goods purchased).
[3] The issue is whether delivery charges retained by the Appellant (“the Retained Amounts”) are subject to VAT in circumstances where, following the sale and special delivery of (standard rated) goods, the customer returned those goods under the terms of the Appellant's Extended Returns Policy and the Appellant refunded the purchase price but not the special delivery charge.
[4] The Appellant contends that the delivery charge is not subject to VAT and that, in effect, it is entitled to repayment from HMRC of VAT accounted for and paid to HMRC on those charges.
[5] The Appellant contended in its skeleton argument that there were three questions that, when answered in the affirmative, result in the delivery charge being outside the scope of VAT:
- Is ASOS making a single supply of delivered goods or two supplies: one of goods and the other of delivery?
- Is it possible, in principle for a supply of goods to be cancelled after the supply has been made, in particular, in circumstances where the supply involves ancillary service elements?
- If ASOS is making a single supply of delivered goods and it is possible to cancel such a supply, is this what has happened when customers returned goods to ASOS in accordance with the Returns Policy?
[6] The Appellant argues that the effect of cancellation is that the taxable consequences of the original supply are “discharged” (Brunel Motor Co Ltd v R & C Commrs [2009] BVC 293 at [34]) or “reversed” (R & C Commrs v Brunel Motor Co Ltd (in administrative receivership) [2013] BVC 1,623 at [54]), meaning that for VAT purposes the Appellant has no longer made a supply. The economic and commercial reality is that the Retained Amount restores the Appellant to its pre-contractual bargaining position (analogous to the contract allowing for the retention of the deposit in Société thermale d'Eugénie-les-Bains v Ministère de l'Économie, des Finances et de l'Industrie (Case C-277/05) [2010] BVC 367 (“Société thermale”). The Appellant submits that the Retained Amount cannot be consideration for VAT purposes because there is no long a supply in respect of which it can be consideration.
[7] HMRC contends that the delivery charge is and remains subject to VAT. The delivery charge is consideration for a standard rated supply (however that supply is characterised for VAT purposes); it remains consideration for a standard rated supply notwithstanding the return of the goods and the refund of the purchase price of those goods; and nothing is repayable by HMRC to ASOS.
[8] HMRC refer to the Retained Amount (i.e. not refunded) by the Appellant as the “delivery charge” because that is the term used in the documentary evidence. HMRC also use the term as a shorthand description of the amount / element of the total consideration representing the delivery charge which was paid by the customer but which was not refunded by the Appellant to the customer when goods were returned.
[9] The facts in the case were not in dispute and were agreed between the parties. The relevant factual background was set out in the witness statement and exhibits of Andy Hewitt, Head of Tax, at the Appellant. No oral evidence was heard.
[10] The Tribunal finds the following facts on the balance of probabilities as are set out in the parties' skeleton arguments.
[11] The Appellant carries on business as an online-only fashion retailer. The current process by which customers order goods from it is said to be broadly the same as that in place during the relevant period (2010 to 2014).
[12] A customer visits the Appellant's website, where they can search for and select products they wish to purchase. Once a customer has selected the product or products they wish to buy, they are given a number of delivery options. These are set out on a separate webpage, together with links to details of the Appellant's returns policy. A charge is levied for some of the delivery options, with the amount depending on the value of the goods ordered and the speed of delivery.
[13] The customer then enters their details, including payment information, and clicks to place their order. When customers place an order, they are required to confirm their agreement to ASOS's standard terms and conditions of sale. Customers with an ASOS account also confirm their agreement to the terms and conditions when they sign up. There have been several versions of the terms and conditions during period under appeal. They have, however, operated in materially the same way. The standard terms and conditions dated 5 March 2014 were included in the hearing bundle before the Tribunal.
[14] Once the contract is concluded, the goods are despatched from the Appellant's warehouse and are delivered according to the customer's selected delivery option.
[15] The Appellant offers a number of...
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