Commissioners of Customs and Excise v Lloyds TSB Group Ltd and Another
| Jurisdiction | England & Wales |
| Judgment Date | 25 February 1998 |
| Date | 25 February 1998 |
| Court | QBD (Crown Office List) |
Queen's Bench Division (Crown Office List).
Keene J.
Kenneth Parker QC (instructed by the Solicitor for Customs and Excise) for the Crown.
David Milne QC and Rupert Baldry (instructed by Stephenson Harwood) for the taxpayers.
The following cases were referred to in the judgment:
British Airways plc v C & E Commrs VAT(1990) 5 BVC 97
C & E Commrs v Civil Service Motoring AssociationVAT[1997] BVC 203
Card Protection Plan Ltd v C & E Commrs VAT[1994] BVC 20
Faaborg-Gelting Linien A/S v Finanzamt Flensburg VAT(Case C-231/94) [1996] BVC 436
Muys' en De Winter's Bouw- en Aannemingsbedrijf BV v Staatssecretaris van Financiën (Case C-281/91) [1993] ECR I-5405
Sparekassernes Datacenter (SDC) v Skatteministeriet VAT(Case C-2/95) [1997] BVC 509
Von Colson and Kammann v Land Nordrhein-Westfahlen (Case 14/83) [1984] ECR 1891
Value added tax - Exemption - Finance - Negotiation of or making arrangements for granting credit - Taxpayer provided support functions for company providing finance for hire purchase agreements - Meaning of "negotiation of credit" - Whether single supply was exempt negotiation of credit or standard-rated accounting and administrative services - Value Added Tax Act 1994 schedule 9 group 5Value Added Tax Act 1994, Sch. 9, Grp. 5, item 5; Sixth VAT directive (Directive 77/388) of 17 May 1977 (OJ 1977 L145/1), eu-directive 77/388 article 13(B)(1)art. 13(B)(d)(1).
This was an appeal by Customs against a decision of the VAT and duties tribunal ((LON/95/2233) No. 14,806; [1997] BVC 2296) that a single composite supply, which included a range of services both exempt and taxable, was preponderantly a supply of "arrangements for the granting of credit" within the Value Added Tax Act 1994, Value Added Tax Act 1994 schedule 9 group 5Sch. 9, Grp. 5, item 5.
The Lloyds TSB Group Ltd ("LB") arranged to provide Volkswagen Financial Services (UK) Ltd ("VFS") with services in relation to hire purchase facilities provided by VFS itself. LB dealt with hire purchase and leasing applications and enquiries from dealers and distributors; vetted applications and obtained credit references and decided to accept or reject applications; maintained records and provided administrative services after credit was arranged.
Vehicles sold under hire purchase arrangements were sold by dealers to VFS which provided the finance. The various elements in the service provided by LB could be divided into two categories: dealing with new business and "post acceptance functions". The greater part of those activities related to the arrangement of new contracts.
LB and VFS appealed against Customs' ruling in 1995 that the supplies made by LB to VFS did not fall within the exemption for "making arrangements for the granting of credit" in the Value Added Tax Act 1994, Value Added Tax Act 1994 schedule 9 group 5Sch. 9, Grp. 5, item 5 ("item 5"). It was not disputed that the supply of services was a single composite supply, and on that basis the tribunal concluded that the supply was within the exemption and the non-exempt administrative services were only incidental to the exempt supplies.
Customs contended that item 5 had to be construed consistently witheu-directive 77/388 article 13(B)(1)art. 13(B)(d)(1)of the sixth VAT directive which exempted "the granting and the negotiation of credit and the management of credit by the person granting it", and the services provided by LB were not predominantly "negotiations" but management of credit.
LB contended that the single service was predominantly exempt, relying in particular on the greater percentage of staff time and other costs found by the tribunal to be attributable to arranging new business than to post acceptance functions.
Held, dismissing Customs' appeal:
The predominant nature of the single supply was "the making of arrangements" for the granting of credit within Value Added Tax Act 1994 schedule 9 group 5item 5 and the "negotiation" of credit within eu-directive 77/388 article 13(B)(1)art. 13(B)(d)(1). Although there was some management of credit, the main character of the package of services was to be found in the fundamental functions of arranging deals, checking creditworthiness and settling the precise terms of such deals. Merely adding up the defined elements in the package and seeing how many fell within the exemption and how many did not would not take account of the relative importance of the individual elements in the total package. Nor should one look solely at the cost of the individual ingredients or the staff time devoted to them, although that should be taken into account. The package of supplies considered as a whole and taking account of all the relevant circumstances, the predominant character of LB's business was negotiation of credit within the exemption.
Keene J: This is an appeal by Customs against a decision of a VAT tribunal sitting in London ((LON/95/2233) No. 14,806; [1997] BVC 2296), that decision being released on 20 March 1997. By its decision the tribunal allowed an appeal by the present respondents against the decision of Customs.
The issue in this appeal is whether the services provided by Lloyds Bowmaker Ltd ("LB"), a member of the first respondent's VAT group, to the second respondent ("VFS") are exempt services because they fall within Value Added Tax Act 1994 schedule 9 group 5item 5 of Grp. 5 of Sch. 9 to the Value Added Tax Act 1994. Schedule 9 deals with exempt supplies; Grp. 5 deals with finance; and item 5 covers, inter alia: "The making of arrangements for" the granting of any credit or the provision of the facility of instalment finance.
Customs' position is that LB's services are properly to be characterised as the management of credit and thus fall outside the scope of item 5. If so they fall to be treated as standard rated services for VAT purposes. The VAT tribunal rejected this contention.
Value Added Tax Act 1994 schedule 9 group 5Item 5 of Grp. 5 of Sch. 9 derives from eu-directive 77/388 article 13(B)(1)art. 13(B)(d)(1) of the sixth directive, that is to say EC Council Directive 77/388, art. 13 as a whole dealing with exemptions within the territory of the country. eu-directive 77/388 article 13(B)(1)Article 13(B)(d)(1) provides exemption for:
the granting and the negotiation of credit and the management of credit by...
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