Everest Ltd v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 01 December 2010 |
| Neutral Citation | [2010] UKFTT 621 (TC) |
| Date | 01 December 2010 |
| Court | First-tier Tribunal (Tax Chamber) |
[2011] TC 00863
[2010] UKFTT 621 (TC)
Judge Roger Berner (Chairman), MRS L M Salisbury (Member)
Roderick Cordara QC and David Scorey, instructed by Prosperity Law LLP, for the Appellant
Sarabjit Singh, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
The following cases were referred to in the decision:
BLP Group plc v C & E CommrsECASVAT (Case C-4/94) [1995] BVC 159
Boots Co plc v C & E CommrsECAS (Case 126/88) (1990) 5 BVC 21
Chaussures Bally SA v BelgiumECAS (Case C-18/92) [1993] ECR I-2871
C & E Commrs v Mirror Group plcECASVAT (Case C-409/98) [2002] BVC 16
C & E Commrs v Primback LtdECASVAT (Case C-34/99) [2001] BVC 315
C & E Commrs v Diners Club Ltd; C & E Commrs v Cardholder Services LtdVAT (1989) 4 BVC 74
C & E Commrs v Hartwell plcVAT [2003] BVC 262
C & E Commrs v Littlewoods Organisation plc; Lex Services plc v C & E Commrs; C & E Commrs v Bugeja; Kuwait Petroleum (GB) Ltd v C & E CommrsVAT [2002] BVC 71
C & E Commrs v Pippa-Dee Parties LtdVAT (1981) 1 BVC 422
C & E Commrs v Robert Gordon's CollegeVAT [1996] BVC 27
C & E Commrs v Westmorland Motorway Services LtdVAT [1998] BVC 154
Elida Gibbs Ltd v C & E CommrsECASVAT (Case C-317/94) [1997] BVC 80
Empire Stores Ltd v C & E CommrsECASVAT (Case C-33/93) [1994] BVC 253
JAG Communications (Plymouth) LtdVAT No. 20,002; [2007] BVC 4,065
Kingfisher plc v C & E CommrsVAT [2001] BVC 49
Lex Services plc v C & E CommrsVAT [2004] BVC 53
Naturally Yours Cosmetics Ltd v C & E CommrsECAS (Case No. 230/87) (1988) 3 BVC 428
Peugeot Motor Co plcVAT No. 19,260; [2006] BVC 2,234
R v International Stock Exchange ex parte Else (1982) LtdELR [1993] QB 534
Rosgill Group Ltd v C & E CommrsVAT [1997] BVC 388
Staatsecretaris van Financiën v Coöperatieve Aardappelenbewaarplaats GAECAS (Case 154/80) [1981] ECR 445
Tesco plc v C & E CommrsVAT [2004] BVC 3
Total UK Ltd v R & C CommrsVAT [2007] BVC 762
Supply - Value - Cash back subject to conditions relating to taking out and maintaining a specified loan - Whether cash back a discount or rebate of price for home improvement supplies - Whether taxable amount for those supplies reduced - EC Directive 77/388, the sixth VAT directive - Procedure - Costs - "Current proceedings" - Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009, Sch. 3, para. 7(3) - Whether rule 29, Value Added Tax Tribunals Rules 1986 (SI 1986/590) should be applied rather than rule 10, Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273).
The primary issue was the proper VAT analysis of payments made by way of a cash-back promotion to customers who took out loans for the purpose of paying for supplies of double glazing and other home improvement products. The appellant contended that this was a contingent discount on the price of its goods, such that the taxable consideration of those goods was reduced. The commissioners argued that the cash-back was not designed to reduce the taxable amount for the supply to the customer. Rather, it was to induce the customer to purchase the appellant's supply using credit from a particular source and to keep that loan account open for a specified period, and that it was payment for fulfilling those conditions.
The appellant supplied double glazing, conservatories and other home improvement products direct to the public. Customers could choose to fund the purchase by paying a deposit and taking out a loan with Clydesdale Financial Services Ltd (Clydesdale). The appellant considered an order to be of higher value if funded by credit, partly because it received commission from Clydesdale. The appellant's promotional literature referred to various discounts and promotions offered, one of which was a cash-back of ten per cent to customers who opened and maintained a loan account. The appellant's practice for these transactions was to adjust its VAT account to reduce the VAT liability, since it treated the amount paid to the customer as a reduction in the value of the consideration for its supply. The commissioners ruled that the cash-back offer was an inducement to the customer to enter into a loan agreement with a third party and that the appellant was not entitled to reduce the value of its supply by the amount of cash paid. The cash-back discount was regarded by the appellant simply as one of a range of discounts offered to potential customers, although, unlike other discounts which related to the price, it was calculated by reference to the value of the loan. The appellant acknowledged that it received commission from the finance company, but said that the increase in sales margins, and hence turnover and profit, brought about by the cash-back was such as to justify the cost of offering this form of discount. The appellant added that the scheme underpinned some £60m of its turnover and continued to be used as a key tool for sales growth.
Notwithstanding the appellant's description of the cash-back as a discount, the tribunal identified the relevant question as being whether, for VAT purposes, the cash-back was a reduction in the price for the home improvement supplies and a reduction in the consideration for those supplies or an inducement to the customer to enter into and maintain the loan, and a payment for doing so.
The commissioners submitted that, analysed objectively and having regard to the documentation, the manner in which the cash-back scheme was presented to the customer and the surrounding circumstances, the only conclusion that could be drawn was that the cash-back payment could not be seen as a retrospective rebate of the purchase price paid by the customer. Their argument focused on the connection between the cash-back and the loan arrangement between the finance company and, on the one hand, the customer and, on the other hand, the appellant. The commissioners placed heavy reliance on the link which they said could be found between the cash-back payment and the loan arrangement. However, the tribunal did not consider that there was any such relevant link. The commissioners argued that the effect of the cash-back payment was to reduce the cost to the customer of obtaining credit but, in the opinion of the tribunal, there was nothing in the documentation or surrounding circumstances which led to the conclusion that the cash-back reduced the consideration for the supply made by the finance company to the customer. The commissioners submitted that there was a chain of transactions involving the supply of home improvements and a separate chain of transactions involving the provision of credit by the finance company and that the cash-back payments belonged to the latter chain and not to the former. The tribunal disagreed, finding that there was no relevant link between the credit chain and the cash-back. In the judgment of the tribunal, the cash-back could not be regarded as anything other than part of the same chain, and the same economic transaction, as the supply of the home improvements. The proper analysis of the cash-back was that it was part of the appellant's pricing mechanism. It was in the nature of a discount and was a retrospective reduction in the price for the home improvement goods and services that the customer acquired.
Having established the nature of the payment, the tribunal considered it necessary to determine the nature of the obligation on the appellant in making that payment. The mere fact that a payment was made by way of a rebate of a price already paid did not conclusively determine whether the payment was a reduction in the price for VAT purposes and, thus, a reduction in the taxable amount. It was in this context that the tribunal had to look at the relationship between the payment and what the customer did to qualify for it.
The commissioners submitted that the cash-back related to services that were distinct from the appellant's supply to its customer. They contended that the purpose of the cash-back offer was to induce prospective customers to purchase goods and services using credit, to open a loan account with a specified finance company, and to maintain that loan account for long enough to enable the appellant to retain commission payments received from the finance company. The commissioners maintained that the cash-back should be viewed as a reward to the customer for taking out the loan and for maintaining it for the specified period. In the tribunal's view, a distinction had to be drawn between the mere satisfaction of a contingency and the actions of a customer that amounted to a service by a customer to the supplier. Each obligation on the part of a supplier to make a payment may be satisfied by a price rebate, or a retrospective discount, but in the case where the discount or rebate was linked to a service, that would not constitute a reduction in the taxable amount. In this case, the tribunal was satisfied that the cash-back payment was a price reduction made solely on account of the customer satisfying a contingency, and not for the provision by the customer of anything in the nature of the making of a supply by the customer, namely entering into and maintaining the loan with the finance company. Accordingly, the cash-back was not consideration for a service provided by the customer to the appellant and there was no direct link between the cash-back and any such service. Nor was there any relevant link between the cash-back and the separate supplies made by the appellant to the finance company or by the finance company to the customer.
Held, allowing the company's appeal:
1. The cash-back payment was in the nature of a discount and was a retrospective reduction in the price for the home improvement goods and services that the customer acquired. It, therefore, reduced the value of the supply on which VAT was chargeable.
2. The payment was not consideration for a service provided by the customer to the appellant and...
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