Baxi Group Ltd (Appellant/Respondent) v The Commissioners for HM Revenue and Customs (Respondents/Appellants)
| Jurisdiction | England & Wales |
| Judge | Sir John Chadwick,Lord Justice Tuckey,Lord Justice Maurice Kay |
| Judgment Date | 20 December 2007 |
| Neutral Citation | [2007] EWCA Civ 1378 |
| Docket Number | Case No: C3/2007/0119 |
| Court | Court of Appeal (Civil Division) |
| Date | 20 December 2007 |
[2007] EWCA Civ 1378
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE LINDSAY)
CH/2006/APP/0205
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Tuckey
Lord Justice Maurice Kay and
Sir John Chadwick
Case No: C3/2007/0119
Mr Nicholas Paines QC and Mr Rupert Baldry (instructed by Solicitors Office, HM Revenue & Customs, Ralli Quays, 3 Stanley Street, Salford, M60 9LB) for the Appellants
Mr David Scorey (instructed by PricewaterhouseCoopers Legal LLP, 1 Embankment Place, London WC2N 6DX) for the Respondent
Hearing date: 2 October 2007
This is an appeal from an order made on 21 December 2006 by Mr Justice Lindsay on an appeal under section 11 of the Tribunals and Inquiries Act 1992 from the decision of the Value Added Tax and Duties Tribunal (Mr Colin Bishopp, chairman, and Mr Brian Strangward) released on 20 January 2006. The issue before the judge was whether the Tribunal had erred in law in dismissing an appeal by Baxi Group Limited from a decision of the Commissioners of Customs and Excise, confirmed in a letter dated 3 June 2004, to refuse a voluntary disclosure claim for repayment of value added tax (“VAT”) in respect of a loyalty reward scheme.
The basis of that claim was set out in a letter dated 8 May 2003 from PricewaterhouseCoopers LLP (on behalf of a Baxi Group company) to Customs & Excise Large Trader Unit:
“As you may be aware, Baxi Heating UK Limited ('Baxi') operates as a manufacturer and wholesaler of heating products in the UK domestic central heating market. In this sector, prices for similar products do not vary greatly from one manufacturer to another and it is therefore difficult for businesses in this sector to compete on the basis of price alone. For this reason, manufacturers need some other way of setting themselves apart from their competitors and making their products more attractive to their customers [the installers, plumbers and heating engineers that buy the products from the merchants “installers”]. The manner in which Baxi has done this is through the adoption of Bonus Direct and Baxi Business Partners customer loyalty programmes. These types of programmes are common in the industry and are a necessary part of doing business for Baxi.
The manner in which these loyalty programmes work is simple. Installers are awarded points each time they purchase a Baxi product and collect these points in a 'bank account'. Participating installers then receive either a Bonus Direct or a Baxi Business Partners catalogue, which illustrates a large range of goods or services against which points can be redeemed. The points are collected by the installers until they have a sufficient number of points to enable them to claim something of interest to them from the catalogue and the points are then redeemed. The installer's points balance in their 'bank account' decreases accordingly.
Although the loyalty programmes are aimed at Baxi customers and are designed to encourage the installers to buy further Baxi products, Baxi does not run the customer loyalty programmes itself. Instead an independent marketing and promotions company called @1 Group ('@1') runs the scheme on behalf of Baxi. Periodically, @1 makes a charge to Baxi in respect of its supply of services made in connection with the customer loyalty programmes that it operates on behalf of Baxi, on which VAT is charged.
Historically, Baxi has not reclaimed, as input tax, any of the VAT that has been charged to it by @1.”
The letter went on to explain that, following review, Baxi Heating UK Limited had been advised that it was entitled to reclaim the VAT that it had been charged, and paid, on the services provided by @1.
Baxi Heating UK Limited made voluntary disclosure of under-deduction of input tax in respect of the accounting periods 09/00 to 03/03. The amount claimed was £405,481. The claim was rejected by Customs and Excise on 3 February 2004; and that decision was confirmed, following reconsideration, on 3 June 2004. Baxi Group Limited (as the representative member of its VAT group) appealed to the VAT and Duties Tribunal. In this judgment (save where it is necessary to distinguish between the two companies) I shall refer to both Baxi Group Limited and Baxi Heating UK Limited as “Baxi”.
The Tribunal's findings of fact
The appeal was heard in October 2005. The Tribunal made the following findings of fact, [2006] UKVAT V19431:
“3…. Baxi Heating UK Limited is a manufacturer of boilers for domestic heating systems, using the brand names Baxi, Potterton and Valor. We were told that about 1.5 million such boilers are sold in the UK each year, of which 85 per cent are sold as replacements for existing boilers, while the remainder are installed in new buildings. Baxi has about a quarter of the market. Most householders arranging for the replacement of their domestic boilers, understandably, leave the choice of the make and model of the replacement to the installer and Baxi's advertising and promotional exercises are, correspondingly, directed mainly, though not entirely, at installers rather than the general public. Typically, an installer buys the boiler he is intending to install from a builders' or plumbers' merchant which stocks a number of different manufacturers' boilers. Promotional activities such as the one with which we are concerned in this appeal are designed to encourage the installer to buy Baxi's products in preference to those of other manufacturers….
4. The scheme used by Baxi, known as Bonus Direct, is a loyalty programme similar in principle to those aimed by high street retailers at their customers. Although the scheme itself remains in use, there has been a material change in the arrangements between Baxi and @1 since the period covered by the voluntary disclosure, and the brief description which follows relates only to that period….
5.An installer who had registered as a member of the scheme (it was open only to bona fide gas appliance installers) earned points each time he bought a Baxi boiler, or other qualifying item. The number of points varied, and was dependent on the type of appliance purchased. The installers paid the same price for an appliance, whether or not they were members of the scheme, and whether or not they took advantage of the points. Each appliance carried a sticker bearing a bar code which the installer was required to remove and send to @1, which undertook all the administration of the scheme, in order that the points for which the bar code was the evidence could be credited to his account. Points could be converted into 'gifts', that is goods which the installer might select from a catalogue. The gifts included a wide range of household goods, such as hair dryers, cooking appliances, cameras, wines, soft toys, clothing, sports and travel goods, some tools and even motor vehicles and holidays…. The number of points which an installer had to redeem in order to acquire any item varied in line with its ordinary retail value. Gifts could be obtained only in exchange for points and there was no facility for payment, in whole or in part, in cash. Similarly, points could not be exchanged for cash. We deduce that the more valuable gifts were included with the aim of tempting the installers to buy more Baxi appliances in order to increase their points to the necessary level.
6.While the principal purpose of the scheme was to encourage installer loyalty and thereby increase Baxi's sales, it had the additional benefit of providing useful information about Baxi's customer base, enabling it to identify both those installers who were regularly buying its products and those who had ceased to do so—and who might be targeted with special offers to encourage them to buy its products again—and also to identify those of its products which were popular and those which were less so. The number of installers who joined the scheme was considerable—numbered in thousands—and the volume of data obtained through the scheme was formidable.
7.It was largely because Baxi did not have the ability itself to manage such a large database that it arranged to have the scheme administered for it by @1, whose business includes the running of such schemes (as well as the provision of more general advertising and publicity programmes). The administrative tasks delegated to @1 included handling the installers' registration applications, recording the bar codes which they sent in, crediting their accounts, selecting the gifts which appeared in the catalogue, which it compiled, and undertaking the procurement of the gifts and their despatch to the installers when points were redeemed in exchange for them. It also ran a telephone helpline and a website which installers were encouraged to use in order to enquire about their points balances (although they were also sent regular statements) and to redeem their points.
8.Although there was no concealment of the fact that @1 was administering the scheme—its name was freely used within the promotional literature and installers were required to send items which must be posted, such as bar codes to be credited to their accounts to it—the capacity in which it did so, and its relationship to Baxi, would not have been apparent to the installers. The terms and conditions of the scheme, as they were provided to them, made it clear that their own relationship was with Baxi, rather than with @1. Although there was, it seems, some minor variation in the terms and...
To continue reading
Request your trial
-
Revenue and Customs Commissioners v Aimia Coalition Loyalty UK Ltd (formerly Loyalty Management UK Ltd)
...Court of Justice joined the reference with another, in the case of Baxi Group Ltd v Commissioners for Her Majesty's Revenue and Customs [2008] STC 491, which was concerned with a loyalty scheme of an entirely different character. It appears to have considered that both cases alike involved ......
-
Revenue and Customs Commissioners v Aimia Coalition Loyalty UK Ltd (formerly known as Loyalty Management UK Ltd)
... ... the decision of the House of Lords in C & E Commrs v Redrow Group plcVAT [1999] BVC 96 as authority for two propositions: first, that a ... Court of Justice joined the reference with another, in the case of Baxi Group Ltd v R & C CommrsVAT [2008] BVC 189 , which was concerned with a ... ...
-
Hawes & Curtis Ltd
...the agents and instructed them. 19.The notice of appeal also cited the judgment of the Court of Appeal in Baxi Group Ltd v R & C CommrsVAT[2008] BVC 189 and Loyalty Management UK Ltd v R & C CommrsVAT[2007] BVC 823, saying that "the approach of the Court of Appeal appears to have been to co......